Introduction

Ensuro is a blockchain protocol that provides capital coverage for insurance risks.

Insurance risks are composed of sets of policies purchased by customers (policyholders) to obtain a refund if they experience a loss. In the context of the Ensuro protocol, we define an insurance risk as a random variable between 0 and the maximum payout defined in the corresponding policy. From the point of view of the protocol, this payment is referred to as a loss.

The main objective of Ensuro is to guarantee that the protocol will be able to cover the losses for the risks taken. The amount of capital required to cover the potential losses up to the desired confidence interval (typically 99.5%) is calculated externally by our quantitative team. The outcome of this computation is the collateralization ratio parameter which, when multiplied by the maximum payout of each policy, results in the amount of capital to lock (solvency capital).

The solvency capital comes from two sources:

• Pure premiums: the part of the premium equal to the "risk" random variable estimated mean (i.e., to the expected losses), paid by the policyholder.

• SCR: the rest of the solvency capital (unexpected losses), required to cover the risks with a given confidence level, is locked from the eTokens (or liquidity pools).

ETokens

The eTokens are capital pools where investors (liquidity providers or LPs) can deposit capital using stablecoins (USDC). In doing so, they accept their capital to be used as solvency capital for the risks taken by the protocol. In exchange for this exposure, they receive a return in the form of a continuous interest rate paid from the premiums as Cost of Capital. This cost is proportional to the SCR's amount, the policy's duration, and the interest rate of the specific risk.

Each eToken will have a total amount of capital (total supply) provided by LPs plus the returns, and a fraction of that capital will be used as solvency capital (SCR) of active policies. The relation between scr and total supply is called utilization rate.

Liquidity providers can jump out from the liquidity pools (eTokens) at any point as far as the total supply after their withdrawal is greater than the scr (leaving utilization rate under 100%).

There are different eTokens, each one exposed to a different set of risks. The Junior eTokens are linked to a specific portfolio (PremiumsAccount) and are exposed to the first tranche of unexpected losses; Junior eTokens are the first hit when pure premiums are exhausted. The Senior eTokens are linked to different policy portfolios and are used only after both pure premiums and junior capital are exhausted.

Risk Modules

The risk taken, represented by the policies, is managed by risk modules that are smart contracts plugged into the protocol. Each risk module represents an Ensuro partner and a specific insurance product. They have two main responsibilities:

• policy injection and pricing: they receive the transactions to create new policies. They validate the price using a trusted party or by some specific calculation.

• policy resolution: validating the conditions in which the event triggering the policy is met and the amount of payout. This resolution can also be sourced from a trusted party or based on some input like an oracle.

Besides the logic related to policy pricing and resolution, each risk module stores several parameters of the specific insurance product: collateralization ratios, fees, return on solvency capital, exposure limits, and maximum policy duration, MoC.