The problem

• Insurance risks are not homogenous. In a portfolio of risks, e.g. flights insured, or crop parcels insured, or anything else, you typically have individual risks with individual risk parameters. Therefore the relation of premium to payout is typically not uniform. With FlightDelay, each policy has an individual payout based on the specific risk of that flight.

• If you put all these risks in a pool, the total risk will vary over time. This is all the more true if we are not talking about retail risks but about large individual risks.

• Exposure of investors to risks will therefore also vary over time.

• To provide capacity to an insurance product, investors need to lock in their capital for the period of an insurance contract. However, the periods of different insurance contracts can vary or overlap. We need a transparent way to withdraw invested assets, and at the same time, have a guaranteed capacity available to cover potential losses.

• You need a sophisticated system to distribute profits and liabilities in a fair way. (Unfair systems create opportunities for exploits, so actually we are building fair systems not because we are altruistic, but because we don’t want to create honeypots).

Insurance Risks are non fungible - turn them in NFTs

All in all, insurance risks have individual traits which can ideally represented by NFTs. Depending on the type of the risk, you could create an individual NFT for each risk or, for efficiency, you bundle homogenous risks. While these NFTs could very accurately represent the parameters of the individual risks, they are not an ideal investment target, because they would be most likely not easily tradeable. To trade such a risk, you would need to find a partner who is interested in exactly this risk.

How would an “ideal” asset look like from the perspective of an investor? Let’s call them “Risk Pool Tokens”. A Risk Pool Token represents insurance risks - to be exact, a risk pool token represents a certain amount of capital which provides capacitiy for an insurance product, and it represents the cash flow connected with this capacities - the inflow of premiums and the outflow of payouts for losses, and the value of this token is the current market value of the capital plus the discounted value of the (expected) cashflow.

The ideal Risk Pool Token would be fungible, with sufficient liquidity available. Investors are typically interested in investment opportunities which protect their liquidity. It’s a huge difference between investing in real estate and investing in shares of a company. The first ist illiquide, the latter is liquide.

The challenge - and the solution: Fractionalizing insurance risks

Now here comes the challenge: Given all this, how to create a risk pool which will give investors fungible Risk Pool Tokens, if the underlying risks are actually non-fungible?

Our solution is to introduce an intermediary layer which “fractionalizes” the non-fungible risks (which are, of course, represented by NFTs) into fungible Risk Pool Tokens (which are of course represented by ERC-20 tokens and can be traded on any DEX).

While we are still finalizing the conceptual framework, we have already started the implementation in Solidity and we are pretty confident that a first working prototype will be available soon. The first prototype will run on a testnet but we will deploy a live system backing the FlightDelay Product soon afterwards.

This step-by-step rollout minimizes the risk for both investors and our project. In the next essay, I’ll go into more detail on how the fractionalizing actually works. Stay tuned!

Getting started

As usual for a web3 applicaton, you don’t need to sign up. Just connect with Metamask, sign a message and you’re done. The signature serves as a proof that you actually own the address you’re using - you don’t need an on-chain transaction.

In the next step, you can setup your profile. There’s not much to do, just set your name, bio, and if you like, upload a nice background picture.

Connecting with ENS

The nice stuff starts when you connect your ENS name with mirror. If your wallet is linked to an ENS domain, you can use it as your mirror.xyz subdomain, like in https://mirror.xyz/christoph.mussenbrock.eth. To use this feature, you need to set up your primary ENS record for this domain, so that mirror.xyz can find your domain via your address (here you can read how do set it up)

You can also connect your twitter account with your profile.

Writing your first post

Creating your first post is as easy as it is on medium, typeshare or any other social blogging platform. However, I’m pretty excited on how convenient the editor is. You can select different “blocks” like headlines, images, bulleted lists, blockquotes, code snippets etc. but there’s some really cool stuff: You can embed widgets for crowdfunding, editons, auctions and even NFT previews in your blog!

https://foundation.app/@danielcasson2/msty/1

After you’re done with editing, push the “Publish” button. And again: Not only can you just publish, but you can mint your essay right away as an NFT!

It looks like this is all just the beginning. In any case, I think mirror.xyz is the medium of choice for everybody writing regularly on web3.

• It’s free

• It’s seems like it will be fully integrated with web3

• It has a nice UI and user experience.

In a while I will report back on my experiences with it, but for now I am very impressed.