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Solace Native

DeFi's Base Layer of Insurance

DApp-Level Insurance

Native is the first and only systemic solution that provides deposit insurance for DApps, Protocols and DAOs.

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Join the Crypto Native FDIC

Build trust with your users by protecting their funds and taking additional preventative safety measures to improve security.

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Cover Smart Contracts Risks

Protect against technical risks, exploits, and hacks that are most common cause of lost user funds.

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Utilize your Native Tokens

Diversify your treasury, access insurance, and pay premiums with your protocol's native tokens.

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How it works


What are the technical risks that you cover for?

Solace coverage products cover technical risk or smart contract exploits and hacks. These include all of the following.

1. Minting vulnerabilities
2. Flash loan attack
3. Trojan fake tokens
4. Proxy manipulation
5. Math error
6. Re-entry attack

What does the Solace Risk Management team control?

The Solace Risk Management team sets what DApps are approved for Insurance Gauges, determine the premium rate per DApp gauge, what tokens can be deposited into the underwriting pool, and the maximum exposure allowed for each token in the pool.
Premium rates can change as DApps either improve, or worsen, their security practices and prevention mechanisms.

How do DApps participate in the governance process?

DApps participate by:

1. depositing capital into an underwriter lock
2. choosing their lock length
3. voting during each epoch

Votes can be set once to be the same vote each epoch, and it must be set to be the default voting behavior.
DApps are also encouraged to invite other participants outside of their own DApp to join Native through depositing into other underwriter locks and voting for their DApp Insurance Gauge.

How does Native assess risk?

The Solace Risk Management team determines annual premium rate through the risk pipeline, which builds risk loads using protocol data, current exploit data, and expert judgment.

At a high level, this methodology does an analysis on these data-sets:



Historic Exploits

- Loss event size
- Loss event time
- Time since deployment
- Age of exploited contract


- Architecture
- Smart Contract Standards
- Audits
- Oracles
- Volume, User Activity, TVL

How does Native determine coverage value?

There are two things that come into play when Solace proposes a coverage limit:

1. List of token holders by contract(s)
2. Balances per holder

Once we have the overview of token holders and balances, we will submit our suggestion for a coverage limit that will cover as many of your users as possible.

💡 Our research shows that more than 80% of a DApps users can be covered completely with a coverage limit of 10,000 USD per user.

In the end, it is up to the individual DApp to assess how high the coverage limit they would like to target.

Where and how are the underwriting funds stored?

All deposited tokens are stored in the underwriting pool (UWP), minting $UWE tokens (Underwriting Equity) to depositors and locked into the underwriting locks.

What is the Underwriting Pool?
The underwriting pool (UWP) is a single capital pool, housing multiple tokens similar to a token set. Solace uses the UWP as the reserve capital to offer insurance. Adding liquidity to the pool gives you voting power to decide where the insurance capacity is allocated to.

What is the difference between UWE and UWP?
The underwriting pool represent assets. Those assets are not used directly to pay out claims nor get liquidated in that scenario, they are utilized as collateral to take out stablecoin loans and pay valid claims. Therefore, a concept of underwriting equity, assets less liabilities, is used in direct underwriting. While each claim reduces the value of equity in the immediate term, the float from premiums will cover the losses over a longer time frame (risk modeling targets net zero yield through premiums over 1 year, in the worst-case scenario). Hence, $UWE as an asset is more stable over longer lock-up periods, and can in-turn appreciate in market value similar to an index fund.

How are premiums charged?

All locks pay after each epoch. Solace withdraws UWE tokens from each lock based on the DApp’s premium rate multiplied by their coverage value during that epoch.

if a DApp gets $2M in coverage value and has a 2% annual premium, their annual premium would be $40,000. If epochs are monthly, it would be $40,000 / 12 = $3,333.33.

How do I join into Solace Native?

DApps join Native by reaching out to the Solace Risk Management team to request creating an Insurance gauge for their DApp. If Solace RM team agrees to take on the financial risk, a gauge is created that the DApp and other users can underwrite against.

Additional Information

Understanding Solace Insurance Capacity (SIC)

SIC is calculated with the following formula:

SIC = (Assets - Debt) * Leverage

where assets is the sum of all deposited tokens, debt is the value of any outstanding debt used to pay claims, and leverage is the ratio to which Solace can safely sell insurance value compared to capital reserves.

Understanding $UWE

The main purposes of the UWE token are to incentivize liquidity providers on the Solace platform and get as many users involved as possible in the governance of the protocol’s underwriting.Solace Native gives DApps the opportunity to deposit tokens into a whitelisted token set in exchange for UWE - an index of all tokens deposited into the underwriting pool. Underwriting Equity (UWE) equals the basic equation:


where L is the liabilities of borrowed assets against the UWP. $UWE tokens are minted and burned based on the deposit activity of voters.

What if a wallet wants additional coverage above the protocol protection?

We highly encourage large holders that want to protect a position larger than the protocol-native insurance to purchase a Solace Portfolio Insurance policy.

How do you balance exposure levels across DApps?

The essential idea of this underwriting formation is risk pooling. As the exposures are shared, the capital efficiency goes up, along with the ability to pay for the losses. Solace Native keeps the risk exposures balanced by offering similar levels of effective coverage limit to all DApps, so there’s not a single one that, in an exploit event, can tip over Solace’s underwriting capital and result in a default on outstanding debt. Over a third of the Native protocols have to get exploited at the same time to max out debt capacity of the underwriting capital. However, even in that scenario, Solace can access debt directly from SOLACE (our native token), to service the Solace Native and any debt.

When is Solace Native launching?

Native will be launching with the first cohort during August.

Is there a minimum commitment time?

Yes, each protocol commits to a minimum term of six (6) months.

How does a loss event get paid out?

When a shortfall event occurs, Solace does not sell deposited tokens in the underwriting pool. It is ideal to prevent negative sell pressure, especially in times of distress. Instead, Solace takes out a loan against the token set from the pool and provides the payout in stables. Upon receipt of the loaned stablecoins, the payout to the protocol is made immediately. Such payout can be transferred as soon as the shortfall event is analysed and post-mortem has been published.

After a loss event, how does the underwriting pool regain its funds?

Through our likelihood analysis, we can determine what premium rates are required to maintain ability to payout claims and service any outstanding debt over a mid- to long-term. All outstanding Solace loans due to exploits (and subsequent payouts) are paid by Solace through the float generated by the premiums.

How do I exit out of Native?

If Lock = 0 months: Regular Exit

Once an underwriter lock reaches the end of its lock period duration, the DApp (or user) controlling the lock has the option to exit out of the pool and redeem it’s share of the underwriting pool. The redemption rate follows a bonding curve, with a funding rate F (10%). Ultimate redemption value of an exit, compared to the initial deposit, depends on the time of the exit relative to other participant exits. Basically, each exit leaves 10% of their $UWE in the underwriting pool that gets proportionally redistributed among the remaining underwriters. This incentivizes underwriters to commit for longer terms that result in greater stability of underwriting capital and ability to meet any claims obligations, reducing the financial risk of the system.

- (100% - F%) of the $UWE can be withdrawn
- The first group has the largest haircut, while the last group will not have a haircut at all. In fact, they will make money.

💡 Imagine there are 4 DApps in the Native pool, each with $1M dollars in their locks. All locks have reached maturity and can exit.

DApp #1 exits first: $4M * 25% * [100% - 10%] = $900,000
DApp #2 exits after: $3.1M * 33% * [100% - 10%] = $930,000
DApp #3 exits next: $2.17M * 50% * [100% - 10%] = $976,500
DApp #3 exits last: $1,193,500 * 100% * [100 - 10%] =

If Lock = >1 months: Force Quit

Two ways to Force Quit

1. Paying at market rate $SOLACE / $UWE

2. Taking a penalty, available value coefficient:
   1. Q = UWPshare / {(M+1) * UWPshare} * (1 - F)
   2. 4y lock -> Q = 0.23508348746;
   3. 6mo lock -> Q = 0.45;
   4. zero lock -> Q = 0.9 (regular exit)
   5. Note: same F% funding rate is applied.