Historically market making was the domain of large and wealthy firms, but in decentralized finance anyone can become liquidity providers (LPs) by supplying their crypto to top DeFi apps like Aave, Compound, and Yearn.
The idea for LPs? To earn from trading fees, liquidity mining campaigns, airdrops, and more.
That said, one of the downsides of early DeFi is the risk that LPs face. Just this week we saw upstart liquidity platform MonoX Finance exploited for $31M, for example.
These sorts of exploits scare off more than a few people and institutions who would otherwise be interested in diving into DeFi, to be sure!
The good news? The DeFi ecosystem is quickly maturing and increasingly offering users better security assurances. The Wild West is getting tamed, as it were, and a textbook example of that de-risking is the arrival of new decentralized coverage protocol Solace.
Solace explained
Solace is a coverage protocol. What this means is the project lets LPs purchase coverage policies to insure their positions in the event of smart contract exploits.
So for instance, let’s say you’re LPing in a Yearn Vault and you purchase a policy via Solace to cover your position. Later an obscure exploit leads to that Vault being drained, though don’t have to worry: you’re covered through Solace!
The project accomplishes this coverage system thanks to its unique underwriting mechanism, namely its synergistic Underwriting Pool + $SOLACE governance token combo.
In short, the Solace protocol owns its Underwriting Pool, which is responsible for covering claims across all policies. Depositors fund this pool in exchange for discounted and vested $SOLACE tokens.
Users must then stake their $SOLACE to access governance rights, protocol revenues, and further $SOLACE distribution rewards. This system decouples risk for underwriters, as they can earn while not having to worry about losing funds during insured events.
How to buy coverage with Solace
Interested in insuring your LP position through Solace? Well you’ve come to the right place! Below is a quick guide on how to take out a Solace coverage policy:
- To proceed, you must have an open LP position within one of the protocols that Solace supports. These currently include Aave, Compound, Curve, Liquity, Sushiswap, Uniswap V2, Uniswap V3, and Yearn.
- When you’re ready head over to Solace’s Buy Cover dashboard to get a quote. Start by connecting your wallet.
- Next, scroll down in the provided interface until you find the protocol associated with the position you’re looking to insure. Press “Select” and then choose your desired position.
- Now click on the “Proceed to the next page” button, which will take you to an interface where you’ll input your coverage amount and coverage period.
- Once you have your parameters set up how you want them, press “Buy” and complete the purchase transaction in your wallet. After that you’ll have taken out a coverage policy through Solace!
Learn more about Solace
Solace offers LPs easy UX for getting insured. This is good news for DeFi, as the ecosystem absolutely needs to become safer and simpler to use if it’s to keep reaching deeper into the mainstream. Learn more about Solace and how to get involved by checking out the project’s recent Medium posts and joining its Discord community.
Disclosure: This post is part of our paid promotional DeFi Pulse Drop series; We’ve partnered with Solace to help educate and inform the community about their decentralized coverage services. As always, we’re committed to providing the entire community with quality, objective information, and any opinions we express are our own.
