Economics model

The CoverFi economics model is designed around visible fees, capped payout exposure, and reserve capacity accounting.

Core formula

For a protected amount A, entry price E, expiry settlement price P, risk premium R, and maximum payout cap C:

premium_fee = quote_position(...).total_due
raw_loss = A * max(0, (E - P) / E)
max_payout = A * C
final_payout = min(raw_loss, max_payout)

Example:

Input	Value
Protected amount	`1,000 USDC`
Premium rate	`1.00%` for 7 days
Entry price captured at creation	`1.00`
Expiry settlement price	`0.94`
Max payout cap	`10%`

premium_fee = 1,000 * 0.01 = 10 USDC
raw_loss = 1,000 * ((1.00 - 0.94) / 1.00) = 60 USDC
max_payout = 1,000 * 0.10 = 100 USDC
final_payout = min(60, 100) = 60 USDC

Reserve capacity and position-specific payouts

Every active position locks the maximum payout amount from available reserve capacity. This prevents the app from accepting more exposure than the reserve can support.

provider_nav = total_assets
  - locked_liabilities
  - reserved_claims
  - unearned_premiums
  - safety_balance
  - automation_balance

When a position settles with no payout, unused locked capacity is released. When a position settles with a payout, the full calculated payout is reserved for that position and the owner can claim it through the engine. Current V2 routing:

Policy	Value
Underwriting	`7800` bps
Protocol	`1000-1500` bps, default `1200` bps
Safety	`700` bps
Automation	Remainder plus fixed automation fee

The protocol portion is transferred automatically to the configured treasury address during position creation. Approved partner rewards, when present, are paid from the protocol portion before the remaining protocol amount reaches treasury. Reserve-provider withdrawals use shares, NAV, a cooldown queue, and available-liquidity checks. Locked liabilities, reserved claims, unearned premiums, safety funds, and automation funds are excluded.

Example claim timeline

Premium policy

Premiums are non-refundable after a signed position is accepted. They compensate reserve liquidity providers and increase protocol reserves depending on deployment configuration. Current product premium schedule:

Duration	Premium
1 day	`0.30%`
7 days	`1.00%`
14 days	`1.50%`
30 days	`2.50%`

Premium pricing should account for:

Asset volatility and historical depeg frequency.
Duration.
Entry price captured from the oracle at position creation.
Current reserve utilization.
Maximum payout cap.
Oracle confidence and feed freshness.

Risk controls

The model should not go to production without:

Per-asset exposure limits.
Maximum position size per wallet.
Reserve utilization caps.
Oracle freshness checks.
Settlement, payout-claim, and principal-withdrawal monitoring.
Emergency pause procedures.
Published fee and payout examples.

What this is not

CoverFi protection is not insurance, does not guarantee payout, and is not a promise that a user will be made whole. It is a smart-contract-based protection mechanism constrained by contract rules, reserve funding, oracle data, and network execution.

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Trust & operations

Product

Smart Contracts Ecosystem

Economics model

Core formula

Reserve capacity and position-specific payouts

Example claim timeline

Premium policy

Risk controls

What this is not

​Core formula

​Reserve capacity and position-specific payouts

​Example claim timeline

​Premium policy

​Risk controls

​What this is not

Core formula

Reserve capacity and position-specific payouts

Example claim timeline

Premium policy

Risk controls

What this is not