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Insurance Pool

The Insurance Pool is a separate reserve that protects Trust Vault stakers from borrower defaults.

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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.

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Default Coverage

When a borrower defaults (>7 days late):
CoverageAmount
Insurance Pool pays80% of principal
Staker loss20% of principal
Borrower penalty-30% Trust Score

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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

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Pool Mechanics

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Funding

The Insurance Pool grows through:
  1. Transaction fees - 10% of all interest
  2. Default penalties - Late fees from delinquent borrowers
  3. Protocol revenue - Portion of service fees

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Payouts

Payouts occur automatically when:
  1. Loan is marked as defaulted (>7 days overdue)
  2. Oracle confirms default status
  3. Smart contract triggers Insurance Pool payout

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Surplus Distribution

When the Insurance Pool exceeds target reserves:
1

Calculate Surplus

Surplus = Pool Balance - (Total Outstanding Loans × 0.15)
2

Distribute to Contributors

Surplus is distributed proportionally to historical contributors
3

Governance Vote

Large distributions require governance approval

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Pool Statistics

MetricValue
Current Balance$XXX,XXX
Coverage RatioXX%
Historical DefaultsX
Total Payouts$X,XXX
Target Reserve15% of loans

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Risk Factors

The Insurance Pool cannot cover all defaults in extreme scenarios.
ScenarioCoverage
Normal operations100% of 80% coverage
High default rate (>10%)Partial coverage possible
Pool exhaustionStakers bear full loss

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Mitigations

  1. Conservative lending - Trust Score limits exposure
  2. Diversification - Many small loans vs few large ones
  3. Reserve targets - Pool maintains 15%+ of outstanding loans
  4. Governance controls - Can pause lending if needed

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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