AIP: Using Community Based Insurance to Protect BAYC/MAYC Holders

Withdrawn AIPs
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Proposal Name: Community Based Insurance for BAYC and MAYC Holders

Proposal Category: Ecosystem Fund Allocation

Abstract

This proposal concerns insurance and security solutions for ApeCoin holders and related NFT Holders (BAYC, MAYC and potential future projects). Holders of high value desirable NFTs are often the target of wallet drains and hacks and security researchers have shown that roughly 1.5% of Bored Ape holders have been victims of scams (See, Reference 1). We propose to develop a community based insurance solution for holders based on research (including actuarial modelling) done by our company Plural Finance (plural.fi).

Team

The team behind this proposal is from Plural Finance, which is a UK based technology company focussed on insurance in Web3.

CEO. Dr. Viroshan Naicker

Viroshan has been consulting Web3 startups and DAOs, designing token economies and incentive mechanisms for the past seven years. At one point, he wanted to become an academic. He has peer-reviewed publications in networks, finance, and quantum mechanics and holds Ph.D. in Graph Theory, the mathematics of networks.

CTO. Gavin Marshall

Gavin is a vastly experienced coding autodidact. He has held various senior positions in the African tech sector, including VP of Innovation at Mxit: This early mobile chat app had a sixty-million-strong user base before it was acquired. He has lectured and spoken about Bitcoin and writing smart contracts since 2015.

Product Lead. Mathew Haswell

Mathew has been building products in the Web2 space for over ten years. He has held various C-suite product roles at established companies and has twice been a startup founder at Teachfolk and Yreeka! He is an expert in product management and behavioral design.

Community Lead. Ben Blaine

Ben has successfully built and exited various multi-sided marketplace-style startups, including SnapScan, a payments processing app now owned by Standard Bank, and OfferZen, a developer consulting platform. He is an expert on how to help tech startups get customer traction and is usually busy with multiple startups at once. He works with Plural on community growth and strategy, particularly to help us solve the cold-start problem of building network effects from scratch.

Marketing Lead. Laia Fernandez

Laia has over a decade of experience creating successful and creative marketing strategies. She has been the marketing lead in several NFT and Web3 projects. Her background is law and business; she has worked with large corporations in EMEA. She is passionate about new technologies, impact projects, and women’s rights.

Actuarial Consultant. Simon Warsop

Simon is the principal consultant at Bright Fathom and a Director of Insurance at Adiona. He has previously held the positions of Chief Underwriting Officer, Board Chair, and non-executive director at Aviva. He works with various Insurtech startups in the UK.

Motivation

The NFT space has a notorious reputation for scams and hacks and many major projects that have been instrumental in bringing value and attention to the space, have also been targeted by hackers and scammers.

One way to deal with this risk is to be vigilant, and make sure that at a holder level, holders are educated and careful. However, there is only so much care that one can take, and hackers are a persistent and pervasive threat in this very global, open space. This isn’t a great user experience and users are constantly looking over their shoulders.

We feel that the best place to start changing the narrative is at the top, so we are approaching the ApeCoin DAO for a grant to run a pilot project. At the end of the project, the BAYC and MAYC community will have a way to insure themselves against hacks and be protected from wallet drains. All payments for insurance/services could be done in ApeCoin.

Key Terms

NFT Insurance. In the event that security processes fail and a digital asset is lost, NFT insurance makes a policyholder good by fulfilling the terms of a policy agreement. Eg. Replacing the lost NFT with an equivalent asset.

Community Based Insurance. Communities create the system of insurance and governance through a mutual. Underwriters provide underlying assets, and or collateral. And, policyholders reduce their risks through the community for a fee. The community also plays a role in claims validation and blacklisting stolen/hacked assets.

Rationale

ApeDAO is at the cutting edge of the NFT space and continues to be at the forefront of innovation. There is nothing that aligns better with the mission of boldness, transparency and collective responsibility than an onchain, community driven, insurance system that helps holders remain holders should they become victims of a wallet drain or scam.

Our team at Plural Finance (Twitter: @pluralfi) is focused on NFT insurance and Web3 risk management and has already modelled out the actuarial risk and collateral requirements for insuring BAYC/MAYC holders.

Benefits to the Ape Coin Community

In terms of benefits, having a community governed/driven insurance system, will give holders more options in terms of risk management, additional peace of mind and will be a talking point with regard to NFTs and risk. It’s also quite pioneering and responsible and steps up the narrative around NFTs and Ape Coin into a more mature one: We recognise that we are the target of hacks and scams, and we’re mitigating risks by investing in good systems.

If the worst should happen, the true benefit will come when a hack is prevented, or a holder is reimbursed for a loss using these tools.

Specifications

An EVM compatible smart contract system including an underwriting treasury, policy deployer and a front end system that can support it.

A EVM smart contract system for community governance system for claims validation e.g. staking + voting.

A billing system that allows holders to pay in ApeCoin for coverage from the community; and use ApeCoin for underwriting, if desired.

A custom BAYC front-end that allows users to interact

Education/instruction on how this will work for holders.

Integration into potential third party solutions for wallet drain prevention, for example, front-running solutions (See staginglabs.io).

Steps to Implement

Step 1. Adapt Plural’s core technology for policy creation and underwriting; adapt the front-end for BAYC/MAYC specifically.

Step 2. Design, build and deploy a governance system for APE community insurance.

Step 3. Complete contract audits.

Step 4. Launch and educate holders on how the system works, and engage with them directly to try it out and get coverage plus security solutions.

Timeline

Step 1. November 2023

Step 2. December 2023

Step 3. January 2024.

Step 4. February 2024 (Depending on audit times,)

Estimated Overall Cost

Step 1. $5000 (Developer and Design Costs: Front End)
Step 2. $5000 (Developer Costs: Smart Contracts)
Step 3. $20,000 (External Contract Auditors)
Step 4. $15,000 Educational and Promotional Material

We expect to be able to pay back some of the grant from any fees generated if the system is well received, and successful. Our developer team is happy to subsidise some of the development costs, and we’re offering our risk models/actuarial support for free.

Additional Notes

A main concern with this type of insurance system centers around fraud. Particularly, users purposefully draining themselves and then making claims from any underwriting fund intended for relief from actual hacks/scams. How does one tell the difference between a real hack or scam versus a fake one? There are a number of ways that we (and others) have been exploring around this topic. Here is a rough outline of scam and fraud prevention that may be integrated into our systems.

A. Using security tooling: There are currently several front running solutions available that help prevent drains. Plural is partenered with StagingLabs and their product Saferoot has been integrated into Metamask. Saferoot stops a significant portion of wallet drains >99.5%; and insurance would add another layer of protection on top of Saferoot.

B. Blacklists: A blacklist of stolen goods will help, but not prevent the resale of high value assets like APEs. Using technology, particularly AI, such a blacklist could be maintained via several systems (oracles), be fairly quick and flag any malicious behaviour via contract drains. Technology providers like Forta could help set this up and stop “legitimised” trading of stolen assets on major markets.

C. Community validation and verification systems. Ultimately the value of an NFT is social, and community members tend to know each other and are able to vouch for each other. How can this social credibility be used in insurance scoring and managing fraud risk? This is part of our ongoing research at Plural, where our focus is on designing credible decentralized insurance systems that can scale.

References

  1. $13.5 Million Worth of Bored Ape Yacht Club NFTs Stolen, Report Finds – ARTnews.com.
  2. Plural Finance Whitepaper (plural.fi)
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I’m struggling to see how this system will not be abused to loot the treasury. There is no way to properly verify “wallet hacks”. The fact that it’s completely underwritten by our own treasury (which is large) means it’ll start a stampede to be one of the first to do it and I’m almost certain we would have to pause the program.

I understand theres a governance system but how can that be used to prevent fake claims? In the real world you have inspectors coming in for large claims, but anyone can claim a wallet drain. Then it’s a matter ot gathering public support and getting reimbursed. Do you have any other mechanisms to prevent abuse?

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This is indeed a great idea to create an insurance claim policy for our NFTs. But I second what @leyota mentioned. Would be curious to know the process of investigation or due diligence done to assess the claim.

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Thanks for the feedback @justzb and @leyota.

We thought about fraud for a long time when doing our product design work and have three core fraud prevention tools in mind.

  1. Pricing Models: We have a number of factors built into how we price the insurance policy that can be obtained from on-chain data e.g. wallet history and publicly available data e.g. community behaviour/twitter (or X if you prefer) behaviour of the applicant (although twitter is not 100% public anymore). If we think a candidate is too risky, it may be a question of only offering them a policy under a specific set of circumstances (e.g. a cryptographically secure KYC). This isn’t ideal in terms of “Web3 Ethics”, but fraud is an issue and we need ways to address it.

  2. Hack prevention and security tool integration. Our security partner has a tool that can front run most wallet drains/malicious transactions. Our policy and risk structure is considered with the tool integrated and without. However, with the tool (>99.5% - based on test data) of current wallet drains can be prevented. This means that a bad actor would need to try to drain themselves multiple times and hide that fact too. If a user doesn’t want to use the tool, we’d have to go back to pricing and risk assessment.

  3. Social engineering. Since the value of owning a BAYC or MAYC is purely social; finding ways to drive the social value to zero as quickly as possible will be an important piece here. So, think of things like community blacklisting services and DMCA complaints to marketplaces through a legitimate, registered insurance company. These tools are quite powerful, and done in coordination with the community may get marketplaces to collaborate with us with regard to stolen goods or washed goods. Especially, if a claim has been paid out on those goods. Once a claim has been paid, this is a powerful legal position - since the stolen property technically belongs to the insurer/underwriter.

With regard to some of the other points: This doesn’t have to be a free for all where people try to break the system. We can do a controlled roll-out and vet policy holders so that learning can happen. Further, we can raise independent underwriting (our systems are designed for this) so it doesn’t have to be the “community treasury” just risk takers who want to make yields on their capital.

Happy to talk further! And, hope this helps.

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Thanks for the reply. On another note , how do we address the value insured of the NFT as NFT value fluctuates and traditional insurance is based on a product diminishing value

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There are two ways to do this - the first way is to hold the underlying NFT e.g. members from the community contribute NFTs as underwriting collateral in order to obtain yields from premium payers.

The second way is via a pricing API and algorithm: we’re currently working with an industry leading pricing provider that has around a 1-5% error when it comes to pricing; down to specific traits. For assets that are going up in value; we have an increase premium/reduce coverage option on the user side. In principle, we are also able to scale up underwriting by increasing yields to underwriters through our protocol for assets that are increasing in value.

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Hi @northquotient ,

Your topic will be moving to the AIP Draft phase in less than 24 hours. Are you content with the feedback received or do you wish to extend community discussion for another 7 days?

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Hi @northquotient ,

Thank you for your ideas [and the ApeCoin DAO community for the insightful discussions]. A moderator will reach out to the author to finalize the AIP Draft using the appropriate template. In accordance with DAO-approved guidelines, if the author doesn’t respond within 30 days, the proposal will be automatically transferred to the Withdrawn category, and the author can re-submit the idea. Once the AIP is Drafted and meets all DAO-approved guidelines, it will be published on Snapshot for the official live voting phase at: Snapshot.

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Hi ApeCoin DAO Community,

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Hi ApeCoin DAO Community,

The AIP Draft submitted is currently incomplete and feedback has been provided to the author.

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Hi ApeCoin DAO Community,

Edits have been made to this Topic, by the author or by the author’s request.

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Hi ApeCoin DAO Community,

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Hi ApeCoin DAO Community,

This Topic has been rejected based on the DAO-approved guidelines due to no response in the last 30 days. The Topic may be submitted again by any user and upon approval, will be open for 7 days for community discussions.

This Topic will move and remain in the Withdrawn AIPs category.

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