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$11B was lost on-chain since 2017, yet coverage remains:
Expensive
Capital inefficient
Hard to scale
Today I'm sharing SAFU's design to fix that👇
First, some context:
Insurance is a multi-trillion dollar industry, yet when it comes to DeFi and blockchain, the sector remains vastly underdeveloped. Despite $11 billion in losses on-chain since 2017, we still face major inefficiencies in pricing and scalability.
https://x.com/hosseeb/status/1899983944176853475
In parallel:
• Restaking has exploded in 2023 (FOMO is down now), promising higher yields for (re)stakers—but always at the cost of added risk. Despite reaching $30 billion across EigenLayer, Symbiotic, Kernel, Karak, Nektar and more…..but there is no live AVS (Active Validated Services or thei equivalent) that delivers meaningful returns relative to TVL. It's just points farming so far.
• Yield-Bearing Tokens (YBTs) have proven themselves as the ultimate outcome of DeFi money legos and yield composability. Their success is undeniable: Stablecoins, LSTs, and LRTs all rely on them. Pendle grew by capitalizing on YBTs, and Balancer with their V3 is fully betting on them as the future of on-chain finance.
Meanwhile I was lucky enough to have tha chance of being fully immersed in DeFi for years and managing the Kleros Treasury; As part of the job, I often looked for ways to hedge smart contract risk, but pricing, coverage size, and time frames were major limitations.
At one moment in time my brain connected some dots backwards, and I start thinking: “What IF I Could get coverage by simply holding another ERC20 without needing to estimate maturity or how much $ I need in advance?”
Born at Crecimiento, evolved at Builder Monatery , and shaped at MegaZu , the SAFU idea emerged: The goal?
To be able to deliver fairly priced, scalable insurance markets that redefine risk management in DeFi….. So what changes from existing models?
Throughout financial history (both DeFi and TradFi), capital commitments upfront have been required for coverage, creating barriers and inefficiencies. SAFU changes that by offering:
• No Capital Upfront: For the first time in financial history, you don't need to pay $ upfront to buy insurance.
• Capital Efficiency: Take advantage of DeFi money legos while getting market risk-adjusted yields.
• Reduced Opportunity Cost: You hold a liquid receipt token of your insured asset.
• Enhanced Scalability: Expands potential to meet growing demands by connecting restakers and those seeking coverage through real-time adjustments.
• Transparent and Fair Pricing: Ensures fairness through market-driven mechanism (vYDF), similar to interest curves on lending markets.
How? Well, let’s think of an example.
For instance, you could hold sUSDe with a yield of 10% and sacrifice 20% of that yield in exchange for having a "fallback" if Ethena's solvency is somehow affected. (safuUSDe = insured USDe)
• Restakers who opt into Ethena AVS will act as the safeguard in case of a depeg, receiving the extra yield generated by the underlying (Ethena) while keeping their upside in ETH or BTC.
• Coverage holders hold safuUSDe, a safer version of Ethena's sUSDe with fallback protection on non-correlated assets. Instead of yielding 10%, it yields 8%.
Note: Today Ethena doesn't yield 10%, this is just an example.
Restaking Should Drive Real Returns
SAFU AVS would compete in yield against other existing AVSs, which are impressive tech improvements but currently drive 0 REAL APR. Remember, restaking was created for more yield (with more risk—yes, SAFU = more risk).
An image is worth more than 1000 words (no idea what’s the proper translation of this)
The only 2 projects I believe can change the status quo soon are:
• CAP from my friend Ben ; You lend $ to sophisticated actors like Wintermute, who return a good chunk to you, the stablecoin holder
• 3jane by @_yakovsky : Uncollateralized lending powered by Coinbase verifications (likely more APR on USDC)
SAFU, this cost is the amount of yield sacrificed. Enter the Yield Distribution Framework (vYDF): A dynamic adjustment mechanism that continuously optimizes yield sacrifice based on insurance demand and asset-specific risks, ensuring protection remains both fairly priced and capital-efficient.
In simple terms: The yield sacrificed depends on the number of people buying and selling insurance, with an optimal cover level (similar to Target rate in Morpho or AAVE)
Risk curators in SAFU set an optimal insurance level for each asset based on its risk profile and historical performance:
• Liquid Stake Tokens: ~10% optimal insurance level due to lower slashing risks
• Liquid Restake Tokens: ~20% due to increased AVS risk
• Stablecoins like Ethena: ~50% coverage to ensure robustness
Note: The system generally aims for 90-100% coverage level for maximum protection.
I had the pleasure of collaborating with PolFinance, who helped develop the economic design of vYDF and highlighted the role of Risk Curators in SAFU. Huge thanks to Dipa and Agus.
For the detailed economic model, check out our document here: https://drive.google.com/file/d/1Y6fXEr15stY9Kc3C7a7bkAIj8mI6A964/view?usp=sharing
Who establishes when an event should be covered?
SAFU's oracle and slashing mechanism (penalty system) ensure fair, decentralized insurance payouts when predefined conditions like depegs or insolvency are met.
For each coverage created, a respective policy defines the exact conditions that trigger a payout, whether it's a custodian failure (e.g., USDe from Ethena) or an on-chain depeg (e.g., Aave or Morpho LPs).
To ensure fairness, Reality+ Kleros acts as an optimistic decentralized oracle, where jurors review claims based on these policies before approving any slashing events.
This includes necessary protection mechanisms and cooldown periods (examples are in the docs).
This represents a powerful use case for subjective oracles in the future of restaking—opening doors to new applications in the restaking landscape.
Changing the game: Evolving the Operator Role in Restaking
SAFU operators would need to be financially sophisticated players capable of determining when a SAFU market delivers positive risk-adjusted returns (estimated APR minus annualized risk).
This requires a paradigm shift at the restaking level, where operators aren't just technical players but include firms like Wintermute, Llamarisk, Gauntlet, Steakhouwse, Pol, Apostro, DAMM, Delphi, Theia, etc.
An important consideration: SAFU risk curators and operators should be different entities to maintain proper checks and balances in the system|
The key question around SAFU's Product-Market Fit is whether market-driven risk pricing will be truly effective:
In theory, the market should reach an equilibrium where restakers earn positive risk-adjusted yield, balancing current APRs and the probability of insured events, while safuAssets simply act as more solid on-chain versions of any asset.
Think of it as market equilibrium in lending rates, but instead of targeting ideal utilization rates, we aim for optimal coverage levels.
Cork offers a good example of market-driven pricing mechanisms for insurance, but it's limited strictly to depeg events, while SAFU's goal is to cover any sort of loss or hack.
https://x.com/JuanSamitier/status/1897281805860143604
What's certain is that DeFi is actively seeking solutions for coverage when things go wrong:
• AAVE w/ Umbrella☂️
• Morpho in future versions of 1.1 Vaults
• Sky for covering Ethena exposure
• Compound
• @InceptionLRT
Today, NexusMutual is the only player with real traction and a great team ( OpenCover is not an underwriter).
They're incorporating existing insurance models and applying them to DeFi. While they previously launched something somewhat similar (Yield Token Cover), there are substantial differences.
I believe most existing mechanisms are traditional models simply adapted for DeFi.
OLD ≠ BAD! These models have proven to work, but broader adoption may require changes. Or perhaps crypto simply needs to reach another level of adoption for insurance to scale properly 🤔
I disagree with their dispute resolution process, which I believe creates weaknesses in their system (though I'm admittedly biased as a Kleros contributor 😅).
I'm sharing SAFU with the world because I believe in its potential, even though I won't be able to lead its development... at least for now.
• Time is limited: I'm deeply passionate about Treasury Management and currently building something huge with a team of elite Argentine DeFi-native engineers and quants - more on that SOON™️.
• Timing and Team: The ideal moment for SAFU might be approaching, but timing is everything in DeFi. The brilliant minds I was collaborating with are, like me, pursuing their own groundbreaking projects. If circumstances were different, we might have pursued this full-time.
• External funding: I chose not to raise capital for SAFU, which limited our ability to ship a Mainnet MVP quickly. Personally funding a project in a space with evolving product-market fit didn't make strategic sense, and I wasn't ready to leverage my social capital for fundraising with these uncertainties (have more conviction on my other project)
• Regulatory uncertainty: The on-chain insurance landscape is extremely uncertain, as projects like Unslahed Finance have discovered...
By sharing SAFU in public, I'm hoping someone with the right resources and positioning can take these ideas further.
Or who knows... perhaps in the future I can build SAFU from within another organization. 🤫
For SAFU: Join our Telegram Group to discuss the concept, share ideas, and connect with others interested in on-chain insurance innovation. I'll keep researching and talking with dev friends who might launch a more mature POC later.
I'm also open to contributing to any solid team looking to bring this idea to life.
Docs:https://safu-protocol.gitbook.io/safu https://safu-protocol.gitbook.io/safu (detailed technical design)
SAFU Telegram Group:https://t.me/+eTOERhHvqwNiNWIx… https://t.me/+eTOERhHvqwNiNWIx…
As for Treasury Management: Stay tuned for my next big project launching soon
Thanks to Jean for the X post and to all those that helped me with SAFU design along this journey!
$11B was lost on-chain since 2017, yet coverage remains:
Expensive
Capital inefficient
Hard to scale
Today I'm sharing SAFU's design to fix that👇
First, some context:
Insurance is a multi-trillion dollar industry, yet when it comes to DeFi and blockchain, the sector remains vastly underdeveloped. Despite $11 billion in losses on-chain since 2017, we still face major inefficiencies in pricing and scalability.
https://x.com/hosseeb/status/1899983944176853475
In parallel:
• Restaking has exploded in 2023 (FOMO is down now), promising higher yields for (re)stakers—but always at the cost of added risk. Despite reaching $30 billion across EigenLayer, Symbiotic, Kernel, Karak, Nektar and more…..but there is no live AVS (Active Validated Services or thei equivalent) that delivers meaningful returns relative to TVL. It's just points farming so far.
• Yield-Bearing Tokens (YBTs) have proven themselves as the ultimate outcome of DeFi money legos and yield composability. Their success is undeniable: Stablecoins, LSTs, and LRTs all rely on them. Pendle grew by capitalizing on YBTs, and Balancer with their V3 is fully betting on them as the future of on-chain finance.
Meanwhile I was lucky enough to have tha chance of being fully immersed in DeFi for years and managing the Kleros Treasury; As part of the job, I often looked for ways to hedge smart contract risk, but pricing, coverage size, and time frames were major limitations.
At one moment in time my brain connected some dots backwards, and I start thinking: “What IF I Could get coverage by simply holding another ERC20 without needing to estimate maturity or how much $ I need in advance?”
Born at Crecimiento, evolved at Builder Monatery , and shaped at MegaZu , the SAFU idea emerged: The goal?
To be able to deliver fairly priced, scalable insurance markets that redefine risk management in DeFi….. So what changes from existing models?
Throughout financial history (both DeFi and TradFi), capital commitments upfront have been required for coverage, creating barriers and inefficiencies. SAFU changes that by offering:
• No Capital Upfront: For the first time in financial history, you don't need to pay $ upfront to buy insurance.
• Capital Efficiency: Take advantage of DeFi money legos while getting market risk-adjusted yields.
• Reduced Opportunity Cost: You hold a liquid receipt token of your insured asset.
• Enhanced Scalability: Expands potential to meet growing demands by connecting restakers and those seeking coverage through real-time adjustments.
• Transparent and Fair Pricing: Ensures fairness through market-driven mechanism (vYDF), similar to interest curves on lending markets.
How? Well, let’s think of an example.
For instance, you could hold sUSDe with a yield of 10% and sacrifice 20% of that yield in exchange for having a "fallback" if Ethena's solvency is somehow affected. (safuUSDe = insured USDe)
• Restakers who opt into Ethena AVS will act as the safeguard in case of a depeg, receiving the extra yield generated by the underlying (Ethena) while keeping their upside in ETH or BTC.
• Coverage holders hold safuUSDe, a safer version of Ethena's sUSDe with fallback protection on non-correlated assets. Instead of yielding 10%, it yields 8%.
Note: Today Ethena doesn't yield 10%, this is just an example.
Restaking Should Drive Real Returns
SAFU AVS would compete in yield against other existing AVSs, which are impressive tech improvements but currently drive 0 REAL APR. Remember, restaking was created for more yield (with more risk—yes, SAFU = more risk).
An image is worth more than 1000 words (no idea what’s the proper translation of this)
The only 2 projects I believe can change the status quo soon are:
• CAP from my friend Ben ; You lend $ to sophisticated actors like Wintermute, who return a good chunk to you, the stablecoin holder
• 3jane by @_yakovsky : Uncollateralized lending powered by Coinbase verifications (likely more APR on USDC)
SAFU, this cost is the amount of yield sacrificed. Enter the Yield Distribution Framework (vYDF): A dynamic adjustment mechanism that continuously optimizes yield sacrifice based on insurance demand and asset-specific risks, ensuring protection remains both fairly priced and capital-efficient.
In simple terms: The yield sacrificed depends on the number of people buying and selling insurance, with an optimal cover level (similar to Target rate in Morpho or AAVE)
Risk curators in SAFU set an optimal insurance level for each asset based on its risk profile and historical performance:
• Liquid Stake Tokens: ~10% optimal insurance level due to lower slashing risks
• Liquid Restake Tokens: ~20% due to increased AVS risk
• Stablecoins like Ethena: ~50% coverage to ensure robustness
Note: The system generally aims for 90-100% coverage level for maximum protection.
I had the pleasure of collaborating with PolFinance, who helped develop the economic design of vYDF and highlighted the role of Risk Curators in SAFU. Huge thanks to Dipa and Agus.
For the detailed economic model, check out our document here: https://drive.google.com/file/d/1Y6fXEr15stY9Kc3C7a7bkAIj8mI6A964/view?usp=sharing
Who establishes when an event should be covered?
SAFU's oracle and slashing mechanism (penalty system) ensure fair, decentralized insurance payouts when predefined conditions like depegs or insolvency are met.
For each coverage created, a respective policy defines the exact conditions that trigger a payout, whether it's a custodian failure (e.g., USDe from Ethena) or an on-chain depeg (e.g., Aave or Morpho LPs).
To ensure fairness, Reality+ Kleros acts as an optimistic decentralized oracle, where jurors review claims based on these policies before approving any slashing events.
This includes necessary protection mechanisms and cooldown periods (examples are in the docs).
This represents a powerful use case for subjective oracles in the future of restaking—opening doors to new applications in the restaking landscape.
Changing the game: Evolving the Operator Role in Restaking
SAFU operators would need to be financially sophisticated players capable of determining when a SAFU market delivers positive risk-adjusted returns (estimated APR minus annualized risk).
This requires a paradigm shift at the restaking level, where operators aren't just technical players but include firms like Wintermute, Llamarisk, Gauntlet, Steakhouwse, Pol, Apostro, DAMM, Delphi, Theia, etc.
An important consideration: SAFU risk curators and operators should be different entities to maintain proper checks and balances in the system|
The key question around SAFU's Product-Market Fit is whether market-driven risk pricing will be truly effective:
In theory, the market should reach an equilibrium where restakers earn positive risk-adjusted yield, balancing current APRs and the probability of insured events, while safuAssets simply act as more solid on-chain versions of any asset.
Think of it as market equilibrium in lending rates, but instead of targeting ideal utilization rates, we aim for optimal coverage levels.
Cork offers a good example of market-driven pricing mechanisms for insurance, but it's limited strictly to depeg events, while SAFU's goal is to cover any sort of loss or hack.
https://x.com/JuanSamitier/status/1897281805860143604
What's certain is that DeFi is actively seeking solutions for coverage when things go wrong:
• AAVE w/ Umbrella☂️
• Morpho in future versions of 1.1 Vaults
• Sky for covering Ethena exposure
• Compound
• @InceptionLRT
Today, NexusMutual is the only player with real traction and a great team ( OpenCover is not an underwriter).
They're incorporating existing insurance models and applying them to DeFi. While they previously launched something somewhat similar (Yield Token Cover), there are substantial differences.
I believe most existing mechanisms are traditional models simply adapted for DeFi.
OLD ≠ BAD! These models have proven to work, but broader adoption may require changes. Or perhaps crypto simply needs to reach another level of adoption for insurance to scale properly 🤔
I disagree with their dispute resolution process, which I believe creates weaknesses in their system (though I'm admittedly biased as a Kleros contributor 😅).
I'm sharing SAFU with the world because I believe in its potential, even though I won't be able to lead its development... at least for now.
• Time is limited: I'm deeply passionate about Treasury Management and currently building something huge with a team of elite Argentine DeFi-native engineers and quants - more on that SOON™️.
• Timing and Team: The ideal moment for SAFU might be approaching, but timing is everything in DeFi. The brilliant minds I was collaborating with are, like me, pursuing their own groundbreaking projects. If circumstances were different, we might have pursued this full-time.
• External funding: I chose not to raise capital for SAFU, which limited our ability to ship a Mainnet MVP quickly. Personally funding a project in a space with evolving product-market fit didn't make strategic sense, and I wasn't ready to leverage my social capital for fundraising with these uncertainties (have more conviction on my other project)
• Regulatory uncertainty: The on-chain insurance landscape is extremely uncertain, as projects like Unslahed Finance have discovered...
By sharing SAFU in public, I'm hoping someone with the right resources and positioning can take these ideas further.
Or who knows... perhaps in the future I can build SAFU from within another organization. 🤫
For SAFU: Join our Telegram Group to discuss the concept, share ideas, and connect with others interested in on-chain insurance innovation. I'll keep researching and talking with dev friends who might launch a more mature POC later.
I'm also open to contributing to any solid team looking to bring this idea to life.
Docs:https://safu-protocol.gitbook.io/safu https://safu-protocol.gitbook.io/safu (detailed technical design)
SAFU Telegram Group:https://t.me/+eTOERhHvqwNiNWIx… https://t.me/+eTOERhHvqwNiNWIx…
As for Treasury Management: Stay tuned for my next big project launching soon
Thanks to Jean for the X post and to all those that helped me with SAFU design along this journey!
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