Insurance Pool
The Insurance Pool is a separate reserve that protects Trust Vault stakers from borrower defaults.
How It Works
Every Transaction
│
▼
┌─────────────────┐
│ 10% Fee │──────► Insurance Pool
└─────────────────┘
│
▼
┌─────────────────┐
│ 90% to Vault │──────► Staker Yield
└─────────────────┘
10% of all interest payments are automatically routed to the Insurance Pool.
Default Coverage
When a borrower defaults (>7 days late):
| Coverage | Amount |
|---|
| Insurance Pool pays | 80% of principal |
| Staker loss | 20% of principal |
| Borrower penalty | -30% Trust Score |
Example
// Borrower defaults on $100 loan
const defaultedAmount = 100;
const insuranceCoverage = defaultedAmount * 0.80; // $80
const stakerLoss = defaultedAmount * 0.20; // $20
// Insurance Pool pays $80 to cover the default
// Stakers collectively absorb $20 loss
Pool Mechanics
Funding
The Insurance Pool grows through:
- Transaction fees - 10% of all interest
- Default penalties - Late fees from delinquent borrowers
- Protocol revenue - Portion of service fees
Payouts
Payouts occur automatically when:
- Loan is marked as defaulted (>7 days overdue)
- Oracle confirms default status
- Smart contract triggers Insurance Pool payout
Surplus Distribution
When the Insurance Pool exceeds target reserves:
Calculate Surplus
Surplus = Pool Balance - (Total Outstanding Loans × 0.15)
Distribute to Contributors
Surplus is distributed proportionally to historical contributors
Governance Vote
Large distributions require governance approval
Pool Statistics
| Metric | Value |
|---|
| Current Balance | $XXX,XXX |
| Coverage Ratio | XX% |
| Historical Defaults | X |
| Total Payouts | $X,XXX |
| Target Reserve | 15% of loans |
Risk Factors
The Insurance Pool cannot cover all defaults in extreme scenarios.
| Scenario | Coverage |
|---|
| Normal operations | 100% of 80% coverage |
| High default rate (>10%) | Partial coverage possible |
| Pool exhaustion | Stakers bear full loss |
Mitigations
- Conservative lending - Trust Score limits exposure
- Diversification - Many small loans vs few large ones
- Reserve targets - Pool maintains 15%+ of outstanding loans
- Governance controls - Can pause lending if needed
Smart Contract
The Insurance Pool is managed by a dedicated smart contract:
// InsurancePool.sol (simplified)
contract InsurancePool {
uint256 public poolBalance;
uint256 public targetReserveRatio = 15; // 15%
function coverDefault(address borrower, uint256 amount) external onlyVault {
uint256 coverage = (amount * 80) / 100;
require(poolBalance >= coverage, "Insufficient pool balance");
poolBalance -= coverage;
emit DefaultCovered(borrower, amount, coverage);
}
}
View Contract
Full Insurance Pool contract documentation
