Fomo3D, a decentralized finance insurance protocol, allows you to buy insurance while earning money, ensuring a crash-proof system!

The concept of decentralized financial insurance seems to be continuously evolving. Following the introduction of Nexus Mutual, a Taiwan-based startup has launched a decentralized protocol called 3F Mutual, which combines elements of Fomo3D and insurance concepts.

【Reminder】Fomo3D, introduced in 2018, is a high-risk blockchain game resembling a financial pyramid scheme. Such games were referred to as Exit Scams, where early participants profit at the expense of later participants. More new participants are needed to sustain the game and allow players to benefit from early participation.

Systemic Risks of MakerDao

The stablecoin project MakerDao can be seen as a cornerstone of the entire decentralized finance (DeFi) ecosystem. Nearly all DeFi platforms support its stablecoin Dai as collateral or tradable assets. If Ether is the fuel of the Ethereum ecosystem, then Dai is the native currency of the Ethereum ecosystem. However, despite Maker being one of the oldest projects on Ethereum, it does not mean it is without risks.

For those familiar with the Maker protocol, when Dai falls below one U.S. dollar, MakerDAO takes an active strategy of "currency tightening," raising the borrowing and savings rates for DAI, reducing the circulation of Dai in the market, and further bringing the price back to one U.S. dollar. However, when DAI's price exceeds one U.S. dollar, MakerDAO's "currency expansion" measures are limited to reducing the collateral ratio, increasing the available collateral, or lowering the borrowing interest rate to increase the public's willingness to generate Dai. However, regardless of which inflation strategy is adopted, it indirectly increases the potential risks of the Maker protocol.

Starting in the second quarter of this year, the entire market has been revolving around DeFi, with increasing market demand for Dai. To increase the liquidity and volume of Dai, MakerDAO has continuously added new collateral, such as KNC, ZRX, MANA, BAT, and even centralized stablecoins like USDC and USDT, which raises concerns. This situation resembles the subprime mortgage crisis of 2008. Collateralizing with altcoins, which have volatile prices, and accepting centralized stablecoins like USDC and USDT, which have backdoors in their contracts allowing token issuers to freeze or even destroy circulating tokens, could lead to systemic risks for MakerDAO if a black swan event occurs or collateral is frozen, causing MakerDAO to urgently close contract functions, with no participant being spared.

In the past, the only way to hedge against such systemic risks was to short ETH, MKR, or altcoins in the market. Now, you can consider purchasing insurance for your loan in Maker to hedge against these unnecessary potential risks.

3F Mutual - Insurance Protocol Tailored for MakerDAO

3F Mutual (3FM) is an insurance protocol running on the Ethereum blockchain, similar in concept to a mutual aid society. By pooling funds contributed by all participants, it provides compensation to insured parties in the event of an emergency closure of MakerDAO contracts. The platform currently offers insurance products specifically targeting the potential systemic collapse of the DSS Dai Stablecoin System in MakerDAO.

The process of purchasing insurance is straightforward. Users only need to fill in the desired units and days of insurance on the website, and the system will calculate the required premium (currently only accepting ETH for pricing). Upon completing the transaction, the insurance is successfully purchased, and the premium is automatically deposited into the pool.

Insured is the Insurer

Here comes the question: where does the claim money come from? Previously, in the decentralized insurance protocol Nexus Mutual, its ecosystem was composed of three roles: the insured, the insurer, and the claims assessor, with the insured and the insurer being independent. This means that the claim money of the policyholder comes from the insurer.

However, in the 3F Mutual ecosystem, "insured is the insurer," meaning that when you purchase insurance, you are also insuring others. How does this operational mechanism work?

We can view 3F Mutual as an insurance version of Fomo3D, where users not only receive "insurance units" for claim application when they purchase insurance but also obtain "shares" for profit sharing. Specifically, when the policyholder pays the premium, 15% of the premium is distributed to early users, with the rest stored in the pool for future claims and converted into your "shares." These shares cannot be bought or sold or redeemed for premiums but allow you to share 15% of the premiums of later policyholders.

Since early entry benefits policyholders more, this approach can quickly accumulate the claim depth of 3F Mutual. Based on the current depth of the pool, if MakerDAO urgently closes, the policyholder will receive a huge claim amount 25 times the insured amount.

Become a Professional Insurance Agent

Another interesting design in 3F Mutual is the insurance agent system. Anyone can purchase an exclusive name for 0.01 ETH in 3F Mutual and register as an insurance agent.

After registration, the agent will receive several referral links (with the same utility). The main job of the insurance agent is to "attract customers." When someone purchases insurance using your referral link, the agent receives a portion of the premium as income, and the better the performance, the higher the agent's level and the higher the commission percentage that can be earned.

Comparison with Competitor Nexus Mutual

Since its launch, 3F Mutual has attracted significant funds, with approximately 1,300 ETH in the pool at the time of writing. A reminder here is that if you do not want to purchase insurance but simply want to become a shareholder to earn "shares" and referral rewards from 3F Mutual, you can set the insurance duration to 0 days, as the shares you can receive are directly related to the "insurance units." Therefore, increasing the duration will not increase shares but will increase premiums. Once again, it is emphasized that "shares" are acquired with premiums and cannot be bought, sold, or redeemed for premiums. Therefore, without new funds entering, shareholders are likely to incur losses.

Although the mechanism of 3F Mutual can quickly accumulate claim funds in the early stages, when it comes to the practicality of insurance, 3F Mutual may still lag behind Nexus Mutual. After all, Nexus Mutual covers more platforms and can pay claims as long as these platforms have code vulnerabilities. 3F Mutual only supports MakerDao and will only pay claims when MakerDAO urgently closes contracts, with stricter conditions. If 3F Mutual can further expand the application range of insurance and support a more diverse range of insurance products in the future, it may have better development prospects in the market.