This paper describes a new mutual aid system design based on blockchain & smart contract, which based on DAO (Decentralized Autonomous Organization) and can be used for DeFi insurance, Smart Contract insurance and Smart Wallet insurance, etc.

Problem

The internet-based mutual aid systems, such as the “XiangHuBao” by Ant Financial, are more efficient systems than traditional mutual insurance. However, the operating and trust costs are still relatively high, the capital management has a centralized risk, and it is unable to provide more subdivided mutual aid needs.

On the other hand, the blockchain-based mutual aid system is limited by the transaction cost of the public chain. It cannot effectively reduce the operating cost and provide attractive incentives for members to acquire new users and to be involved in community governance.

Design

Glossary

DAO  – Distributed autonomous organization, DAO organization truly belongs to the network, everyone can have their own right to speak, and has a corresponding influence on the development of the organization.

Initiator – Responsible for creating mutual aid contract, setting initial parameters, and mutual-aid range

Member – Participate in mutual aid programs and system governance through payment passes to mutual aid contracts

Applicant  – Members who meet the conditions for mutual aid can initiate mutual aid applications with mutual aid contracts

Referrer – Invite new members to join the mutual contract through a customized invitation code, and could get dividend

Mutual aid pool – Part of the token paid by the member enters the mutual aid pool for mutual aid application

Dividend pool  – Part of the token paid by the member enters the dividend pool

MDS  – The token of the system represents the governance weight of all members. After staking, it can participate in the governance of mutual aid applications. The staked part can be sold based on the AMM protocol and transfer to others.

SMDS  –  Staked MDS, which could participate the system governance through voting. It is an important part of DAO.

Mutual Aid Balance   –  The balance of the member’s part of the mutual-aid pool, will be deducted with each successful mutual aid. when it equals to zero, the member will not be qualified to apply for any mutual aid. He needs deposit to keep valid for mutual aid program.

Voting time window  –  The length of time that for community to vote for mutual aid application, after which the community can no longer vote or change the vote for the application.

AMM  – The protocol for creating a token by setting a reserve. The created token is the MDS mentioned in the article. The reserve is the dividend pool mentioned in article. By using these reserves, MDS directly obtains value and solves the problem of insufficient circulation.
AMM mathematical formula:

MDS DAO Structure

Create Contract

The initiator is responsible for creating the mutual aid contract. During the creation process, the following parameters need to be set and complete smart contract deploying:

The proportion of funds entering the mutual aid pool
The proportion of funds entering the dividend pool
Referral ratio
Token for mutual aid
Minimum token of joining the mutual aid
Maximum token of mutual aid application
Voting time window
Mutual aid coverage

Ideally, a trusted mutual aid contract should transfer the authority to a MultiSig account, and subsequent escalation and adjustment of the contract requires the agreements of majority MultiSig committees.

Join Mutual Aid

Members participate in mutual aid programs and governance by paying tokens to mutual aid contracts.

The token will be distributed to three places according to the contract settings:
1. Mutual aid pool for future mutual aid applications
2. Dividend pool
3. Referrer (if any)

At the same time, users get MDS. The number of MDS is determined by the AMM algorithm.
The MDS can be transferred or sold to the system. The sale price is determined by the AMM algorithm and the counterparty is a dividend pool.
MDS can be staked or un-staked at any time, the staked MDS becomes SMDS, and SMDS can participate in mutual aid system governance.

Apply for Mutual Aid

Any member who meets the mutual-aid conditions could initiate a mutual-aid application to the mutual aid contract.

To apply for mutual aid, you need to provide:
1. Receive account
2. Applying amount
3. More information to help the community review this case.

Initiating an application needs to meet:
1. The individual’s mutual aid balance is greater than zero.
2. The applying amount for mutual aid tokens is less than the maximum set by the initiator.

Mutual Aid Review Process

After the mutual aid application is submitted, the voting time window will be opened.

Only the staked MDS, which we call SMDS is able to vote, the voting option is [Agree] or [Disagree].

Before the voting deadline, SMDS holders can vote or change voting options at any time.

The blockchain status will be recorded when the voting ends and the result of the final mutual aid application will be determined.

SMDS can vote for multiple mutual aid applications at the same time, and each voting is independent.

Execute Mutual Aid

After the mutual aid application is closed, anyone can execute the mutual aid application (normally will be the stakeholder, such as the applicant) and pay the resources needed to execute the contract.

The following rules must be met to send token from protection pool to applicant’s receive account:

Among the voted SMDSs, the number of SMDSs for [Agree] > the number of SMDSs for [Disagree]

The number of tokens that are expected to be paid to applicant is calculated by the following formula:

Estimated payment = number applied * (number of SMDSs agreed / total number of MDS in DAO)

The actual amount paid may be less than the amount expected to be paid because:

Per capita estimated payment = estimated payment / number of members

Deducting each participant’s account according to [per capita estimated payment], if the number of tokens in account is less than [per capita estimated payment], it will be deducted to zero.

Vision

With the improvement of data on the chain, Oracle could be used in mutual aid review protocol as a data dimension in the future, providing more accurate analysis and improving system efficiency.

The system is also suitable for all non-profit organizations as the token donation model and will be an important direction of the smart contract + DAO model.

Summary

This is the first global mutual insurance marketplace on the blockchain. It combines the traditional mutual insurance model with blockchain and smart contract which provide a low operation cost and guarantee of compensation for risks.

We believe that the blockchain will bring more inclusive protection product to the world.

Website: http://mutualdao.org

Github: https://github.com/MediShares/