Home CryptoCurrency News Developer of the Ethereum Foundation proposes smart contract insurance fund

Developer of the Ethereum Foundation proposes smart contract insurance fund

A developer of the Ethereum Foundation has published a proposal for an insurance fund that would reduce the risk of losing assets in blockchain forks.

Alex Van de Sande, team lead for the Mist browser and developer of the aforementioned foundation, posted in a blog his desire of creating a recovery contract that would potentially minimize the incentive an individual or group would have to begin a hard fork that may return some or all of the value lost to an unexpected bug, like the one that rendered more than $ 320 million in Ether (Ethereum’s native token) – stored in Parity’s multi-signature wallet – permanently unusable, back in November 2017.

According to Van de Sande, the system would allow developers to insure their smart contracts by locking up ETH for a set amount of years, in what is called a recovery contract. They would receive an equal amount of recovery-ether tokens in exchange, which can be hold or sell for speculation.

If the Ether that has been insured gets frozen due to some bug, hack or vulnerability exploit that renders them completely unusable – that is, don’t remain liquid – the recovery contract is activated and holders of said recovery tokens will be able to redeem them for an equivalent percentage of the insurance’s funds at a 90 percent rate, with the remaining 10 percent reserved for backing the general insurance fund of all tokens.

ethereum foundation

Should the contrary takes place, however – the lock-up period passes and nothing that could trigger the recovery contract happens – then all of the recovery tokens are destroyed and the issuer have their locked ether back (keeping the profits they would have made with the sale).

All decisions concerning the recovery contract (like which scenarios the fund should insure) would be made by all the holders of recovery-ether tokens via “some sort of delegate vote.”

Regarding this, Van de Sande explains:

“This aligns the interests of all the potential victims of loss with the profit of the fund as a whole: if the fund stops accepting new applicants or refusing to help an insured party when it needs, then it will affect negatively the future profit of the funds and therefore affect the chances of all parties to be fully restored.”

Among the benefits of this fund, the developer says that people would be able to recover money lost to an error that wasn’t their own, as well as minimizing the odds of having someone pushing for a controversial hard fork, protect future contracts from similar events, and “profit while doing good.”

Although there are some obstacles to this proposal, the most polemical of all involves launching it with more than 513,000 ETH in liabilities. Van de Sande explains that this is better than doing a regular ICO due to the type of people affected by the Parity bug – and even beyond that particular issue – which are several Ethereum’s well-respected developers, and that will go from being just victims, to stakeholders, providing the pool with traction when it launches.

Carlos Teodoro
Cryptocurrency enthusiast and everything they represent, Carlos is responsible for writing articles, creating images and belongs to the Crypto Economy team since 2017. He is also in charge of the commercial department, social networks and the revision of translations. Carlos continues to train every day to become an expert in the blockchain.
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