What To Expect From FairSide Coverage — Membership & Staking

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Andrew Hogue

Andrew Hogue

Cofounder and CPO, FairSide


12th Jan, 2023

Over the past year, it’s become increasingly obvious that consumer protection is needed for holders. There is no 0% risk to storing crypto in personal wallets, on exchanges, or staked into DeFi protocols. The current options that do exist to “provide” coverage in the event of a “loss” come from flawed models that lack trust and adoption. Generally, the best a user can do is to minimize the risk that comes inherent with holding crypto is to self custodying funds while using centralized exchanges and DeFi platforms carefully — if not, at all. However, this is about to change.

With the launch of FairSide, holders will now have the ability to cover personal wallets, centralized exchanges, and DeFi protocols. User’s will be able to hold and interact with third party platforms with peace of mind. Unlike current options for cover, FairSide’s coverage and costs are not restrictive — they’re affordable and inclusive to any project our network supports. Stakers will benefit from real yield generated by the associated costs of the network that our members pay and FairSide pays out. We’ve even solved the problem of permanent loss — so staker’s are not liquidated when a project suffers a loss and claims are paid out.

We know, this is a lot of information to take in at once. So as a primer for FairSide — we have written up a basic guide on what to expect. This isn’t a comprehensive breakdown of how the sausage is made, but what to expect from the standpoint of a member or staker. Let us know what you think, please drop any questions or comments into our telegram or discord — we’d love to know how we can improve!


Membership: Cover Types

FairSide has 3 classes of cover types

Personal Wallet Theft: This is our most basic form of coverage. For holders who want to self custody their own funds in a personal wallet, whether it’s cold (ledger, trezor, etc) or hot storage (metamask, trust wallet, etc).

DeFi Risk: There are many ways to exploit the various DeFi applications that exist now. Whether interacting with a DEX or farming high yield across multiple protocols — these positions can be protected against through FairSide.

Third-Party Risk: Users of exchanges are subject to trusting third-parties and their adherence to security best practices. As we have seen recently, this is not always the case. Investors exchange accounts can be covered for these third-party risk

(new members are required to purchase personal wallet protection if they want to additionally select coverage for centralized exchanges and DeFi)

Membership: Cover Types — Loss Events

Each class covers the following loss types and events:

Personal Wallet Theft :

- Computer Crime
- Social Engineering
- Phishing Attacks
- Baiting
- Isolated Front-End Attack
- NFT Theft

DeFi Coverage:

- Smart Contract Failure
- Flash Loan Attack
- Global Front-End Attack
- Governance Attack
p Rug Pulls

Third-Party Risk:

- Exchange Hack
- Halted Withdrawal
- Insolvency
- Key Mismanagement

Membership: Cost

Cost Sharing Membership Min and Max: 1 ETH is the minimum and 100 ETH is the maximum amount of coverage available to each cover type.

Membership Fees (cost of coverage)

Users pay a fee to purchase membership to the network. Each class of coverage has a different cost associated with it. Members choose the classes of coverage that best fits their needs to build the membership fee.

For example:

1. Personal Wallet: 2%
2. Exchange: 2%
3. DeFi: 2.5%

Membership: Signup

To sign up:

1. Select a coverage type(s)
2. Register a primary wallet address, and add associated wallets to your membership to be covered.
3. Pay the associated fee in ETH or FSD

Membership: Duration

Duration: Membership benefits lasts for one calendar year. Membership can be renewed for the same annual rate before its duration expires.

Membership: Loss Events & Claims

Loss Events and Claims are handled differently depending on the class of coverage it applies to. FairSide uses Lead Assessors to analyze the validity of a loss event. This includes the presentation of their findings on each event for the FairSide DAO to vote on. If the DAO approves an event based on the findings of our Lead Assessors, it is then approved for claims to be submitted.

Lead Assessors: are third party security and cyber investigation firms who analyze loss events in order to determine the cause of loss and whether it qualifies as a claimable event. If an event is approved for cost sharing, the assessors also provide the proof of loss requirements for users to submit claims.

Governance (The FairSide DAO): Responsible for voting on loss events. In order to become part of governance, a user has to be a member and pass a Conviction Score threshold. This score is accumulated through staking the network and holding FairSide’s native token (FSD — is acquired through staking the network) over time.

When a loss event occurs: there are two general workflows that apply. One for personal wallet theft and another for global loss events such as DeFi exploit or Exchange hacks.

Personal Loss Events (PLE): Apply to isolated incidents among individual members that occur due to a targeted computer crime resulting in the theft of assets held in self custody.

Ex. a user experiences a theft of digital assets held in their metamask wallet.

To make a claim for a PLE: Users submit required information and proof of loss outlined by the assigned Lead Assessors.

Global Loss Events (GLE): Effects multiple unrelated users on the same platform

Ex. users experience a material loss due to exchange based insolvency or a smart contract exploit that affects the members funds deposited into the platform.

To make a claim for a GLE or PLE: Users submit required information and proof of loss outlined by the assigned Lead Assessors.

When the member’s loss is confirmed, the claimable amount is paid out via smart contract.

Staking & Rewards

Staking: Why Current Models Don’t Work but FairSide’s Does

Currently the models used by existing “Insurance” platforms share the same flaw — they create and sell coverage on a project by project basis. Users stake a singular pool that covers one project, coverage is then sold to users for that project only. If that project suffers a loss, the staked assets are fully liquidated to payout claims — leaving those who staked the pool and provided coverage with nothing.

This model doesn’t make sense for many reasons that we could elaborate on further, but why do that when asking two simple questions will make our point clearer:

1. Why as a user would you ever want to sign up for coverage of a single project, when you could sign up for coverage that applies to every project in a network for less cost?
2. Why as a staker would you ever want to stake a network that leads to permanent loss of your assets as claims are paid out?

There is no good answer to these questions, because the product limitations and stakeholder liquidations shouldn’t exist when an insurance alternative is designed correctly.

Thankfully, FairSide’s Network Staking model removes these flaws and offers network wide coverage for each membership and non-permanent loss for the stakers who provide the capital to our network. It’s as simple as using one pool to cover all projects — instead of using one pool per project. We call this, Network Staking, which decouples staked assets from specific project risk.

Staking: Capital Pool & Bonding Curve

FairSide’s capital pool that allows the network to operate is managed by an Augmented Bonding Curve. This curve allows us to operate a viable risk model that has access to available capital to settle approved payouts. The bonding curve is a critical piece of the architecture in a decentralized model like FairSides. Designed correctly, a bonding curve can balance the capital required with the potential cost sharing events by self-regulating solvency.

Staking: Deposit to Mint and Burn to Withdraw

To stake and unstake the capital pool, users do the following:

Deposit to Mint: Users stake our network by depositing ETH or any ERC-20 token supported within the 1inch Network into FairSide’s capital pool. In return, FSD tokens are minted.

Burn to Withdrawal: In order to sell FSD and withdraw ETH from the curve, FSD is burned and a tribute fee of 3.5% is paid. The predetermined sell price is provided at every point along the curve. The difference in spot price vs. sell price is the tribute fee the network is charging for the withdrawal.

Staking: Smart Staking Rewards

The contributor rewards are set at 20% of the membership fee during the hatch phase, but dynamically change between 20%-85% based on the funding levels of the Capital Pool. As the FSHARE% exceeds 125%, indicating the capital pool is over funded, the contributors’ staking rewards are increased up to 85%. In other DeFi insurance protocols, as additional staking occurs there is a negative effect on the returns by diluting the returns amongst a larger staking base. Smart Staking recognizes the over funding and diverts additional funds to the rewards pool increasing the distribution of stakeholder rewards. This encourages additional staking with no negative effect or dilution.

Staking: Conviction Score

A contributor’s conviction score is calculated by the amount of FSD held over a particular time period. The higher the conviction score, the greater the staking and network rewards they acquire. A conviction score is representative of a contributor’s time vested, input and commitment to the network. Once your score reaches the predetermined threshold, you are now part of the liquid governance and earn your portion of the 7.5% governance rewards. (we will release a more detailed breakdown on conviction score soon)

Want to Learn More? This article has run on long enough so if you want to learn more, check out our previous articles on medium, our gitbook, or ask questions in our Discord or Telegram.

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