Over the last number of years, billions of dollars worth of cryptocurrencies have been lost, stolen, or otherwise rendered inaccessible. While the malicious activity of hackers poses as one obvious cause of asset loss, a large percentage of the losses were also attributed to code malfunctions or human errors. Code malfunctions may include assets that were inadvertently frozen within inaccessible contracts or irretrievable within ungovernable DAOs. Human error may include something as simple as forgetting one’s password or something as unfortunate as a ledger damaged in a house fire.
A CertiKShield Pool is a flexible, decentralized pool of CTK that uses CertiK Chain’s on-chain governance system to reimburse lost, stolen, or inaccessible crypto assets of any blockchain network. CertiKShield Pools are intended to serve as discretionary community funds used to protect its members, who may be holding $ETH, $BNB, $USDT, or any other crypto asset. In an event of irretrievable loss, Pool Members may submit detailed Claim Proposals, opening a voting period for the CTK network to determine whether reimbursement is appropriate. This decentralized, on-chain voting process allows CertiK Chain users to actively participate in determining reasonable coverage scenarios, creating a dynamic and fully flexible coverage model.
CertiK Chain network offers the software infrastructure, staking incentives, security diligence, and extensive partnerships to launch this alternative to insurance into the market. Facilities like Audit Certificates and Security Oracle Scores are provided to potential participants of CertiKShield to measure against risk-reward scenarios.
As a decentralized on-chain pool of risk-sharing, CertiKShield could be viewed as an innovative alternative to insurance for reimbursement of crypto assets. Here is a list of key terms to better understand the CertiKShield system:
As a membership-based discretionary mutual, anyone who participates in the CertiKShield system is a member. There are two types of Members, highlighted below:
Imagine there’s a leading blockchain project called BlockProj who just launched its Mainnet with the native token, BPJ. After a thorough security audit, BlockProj passes the bar to become a CertiKShield member, providing BPJ holders, including themselves, access to reimbursements in case of unexpected loss or theft. Assume that the price of BPJ and CTK are both equivalent to $1 each.
The BlockProj team is seeking a Shield of $10,000, meaning they are eligible to reimburse up to $10,000 for each 21-day period. Assume this Shield requires a Sponsor Fee of $100 per period. BlockProj elects to pay the Pool Sponsor Fee in a distribution of 50% CTK and 50% BPJ (50CTK and 50BPJ). To create the collateral for the Pool, CertiK Foundation will stake 10,000CTK (equivalent value of $10,000 given 1CTK=$1) and a Shield valued at 10,000CTK is generated for BlockProj.
CertiKShield memberships are open for anybody to join as Collateral Providers. Collateral Providers provide their own crypto as collateral to be used to pay out any approved reimbursements, and in exchange, they collect a portion of the Service Fees each period. Collateral Providers must stake one of the accepted crypto assets, including CTK. Any staked CTK also earns staking rewards from the network.
Let’s say Collateral Providers add an additional 20,000CTK to the Pool, growing the total size to 30,000CTK. BlockProj’s 10,000CTK has already been reserved, meaning there’s a remaining 20,000CTK worth of Shields that is still available to be purchased. The ratio of earnings from Service Fees are shared proportionally by the Collateral Providers based on how much they have staked.
BlockProj’s community, who holds BPJ, also seeks to protect their own BPJ as well. These users become CertiKShield members and join as Shield Purchasers, reserving parts of the Pool for potential reimbursements.
Let’s assume a Shield Purchaser purchases a 21-day Shield worth of 5,000CTK with a fee of 50CTK. This 50CTK is sent to the Collateral Providers of the Pool proportionally to their contributions. The size of the remaining 20,000CTK of available Shields decreases by 5,000CTK, meaning 15,000CTK still remains.
Now let’s dive into the reimbursement process for those who hold active Shields. Imagine BlockProj’s network gets hacked one week after the Shields were purchased, resulting in a loss equivalent to 15,000CTK for BlockProj and a loss of 2,000CTK for a Shield Purchaser named Sally, who held BPJ. Both BlockProj and Sally submitted Claim Proposals that are approved via a consensus of at least 50% Yes votes and 33.3% non-abstaining votes.
Although BlockProj lost assets worth 15,000CTK, they may only get a reimbursement of 10,000CTK because that is the limit of the Shield they purchased. Since the total collateral for that Pool is 30,000CTK. The approved reimbursement is paid by the Collateral Providers, proportionally to each of their contributions into the Pool.
Because Sally lost 2,000CTK, which is below the 5,000CTK limit of her Shield, she will get the payment in full. Sally’s remaining reimbursement limit is downsized to 3,000CTK, subtracting this 2,000CTK reimbursement from her original 5,000CTK limit. Sally’s 2,000CTK reimbursement comes from the Collateral Providers, proportionally to each of their contributions into the Pool.
CertiKShield, as a fully decentralized reimbursement system, providing significant flexibility and risk-reward sharing for its members.
To highlight some key takeaways:
As the amount of cryptocurrency holders increases, the ability to protect those assets becomes increasingly important. Security audits are crucial for projects to identify and remediate vulnerabilities as preventative measures, and CertiKShield is a natural extension to provide a safety net in case cryptocurrencies are unexpectedly lost or stolen. The CertiKShield system was designed with the fundamentals of blockchain, offering decentralization, transparency, flexibility, and security to the blockchain community. By applying risk-reward structures to different members, CertiKShield shares risk among members, strengthening the trust and reliability of the entire blockchain ecosystem.