AIP-27: Alpaca Insurance Plan Update
Background:
With the upcoming change to the Government Vault (AIP-24), there could be an impact on behavior of stakers with the new locking / unlocking mechanism. We want to make the community aware of these potential dynamics and decide whether to make any adjustment to the insurance plan.
Rationale:
The Alpaca Insurance plan funds the coverage through the portion of the protocol revenue that would go to the Governance Vault stakers. As it would currently work, if there is a large amount on the insurance plan to be paid, the first order effect would likely be for some users to unlock and sell ALPACA due to the anticipated lower yields.
Please note that this is different from the old format because with the new Governance Vault staking format, users only require 21 days to unlock.
The above effect will continue until the new equilibrium is reached, which would likely be a lower staked APR% and selling pressure on ALPACA from people who exited their positions.
Execution:
We list below potential approaches we can take as a basis to kick-start the community discussion
Keep the plan as is
Leave the plan as is and let the market force plays out if insurance plan is activated.
Establish an active insurance fund
Instead of paying the cover through future revenue, establish an active reserve to pay out in the event where insurance is activated.
Note that for this option to work, we would need to build up the reserve and might require some adjustment in how the current protocol revenue is distributed - e.g. redirect a portion of the burn to build up reserve.
Reduce a cap on the max amount and/or duration we would payout
The current Insurance Plan would pay out up to 1 year.
This option would reduce the duration of the payout and/or put a cap on the max amount to be paid out for a given incident.
Increase the penalty / time for withdrawal if the insurance plan kicks in.
Might not fully solve the problem as people can still front run prior to the finalization of the Governance vote to activate insurance plan.
Abolish the Plan
Eliminate the insurance plan entirely, and let users purchase their own cover as offered by 3rd party protocols
Voting:
This AIP will be a single choice voting
Option1: Keep the plan as is
Option2: Establish an active insurance fund
Option3: Reduce a cap on the max amount and/or duration we would payout
Option4: Increase the penalty / time for withdrawal if the insurance plan kicks in.
Option5: Abolish the Plan
Note:
There will be no run-off voting for this AIP, any option receiving the highest % of votes will be considered a winning choice (i.e., can be less than 50% of the total votes)
If option 2, 3, or 4 becomes a winner, there will need to be subsequent discussion and voting to specify the relevant parameters for the winning option.
Resolution:
The community voted to abolish the Alpaca Insurance plan.
References:
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