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Last updated: Nov 23, 2022
Tidal Finance provides insurance coverage for digital assets through custom-balanced liquidity pools. The insurance market allows users to create custom insurance pools for one or more assets, and choose what kind of risk pool they want to take part in depending on their preferences. Users of the platform can filter through combinations of protocols and assets and the terms for their coverage such as premiums, cover periods, and others. Tidal can also be used by liquidity providers attracted by enhanced capital efficiency achieved by leveraging reserves to cover multiple protocols at the same time.
The company claims its capital pooling is aimed at solving peer-to-peer matching platforms’ inability to gain traction in areas related to the insurance field. As all interactions with smart contracts carry risks, since they are an attractive target for malicious attacks, Tidal Finance tries to cover users’ risks of intentional, or not, attacks and bugs.
Tidal Finance is built around Mutual Coverage Pools, also referred to as Insurance Pools which represent a collection of protocols being backed by the Tidal’s reserves. Once a cover seller adds their assets to the pools, they choose the number of protocols to cover. The more they are the bigger the income, however, with it the risk of liquidation also increases.
Each pool is governed by a reserve smart contract where the funds provided by LPs are held, in exchange for the issuance of a corresponding insurance token that provides coverage for the chosen protocol and/or token being backed for a specified period of time.
There are also Basic Single Asset Pools which provide coverage only for a single asset type and exist to provide for the basic use case of Tidal, however, they don’t provide leverage or a high level of utilization for LP’s capital.
Multi-Asset Pools provide coverage for a combination of assets and smart contracts, which allows the funds to be used for various levels of leverage, yields, and risks for the LPs, which in general depend on the reserve ratio and the relation between covered assets.
The company keeps statistics on data collected from previous instances of the same pool, these statistics are displayed and monitored in order to help LPs and buyers in the selection of their desired service. They are also useful in the creation of new pools, through the Pool Template functionality provided by the platform.
The reserve ratio is kept between the minimum and maximum percentage levels, which are determined by the governance of the project. It depends on the correlation of contracts in the pool and the risk assessment of the assets. Unaudited protocols are flagged and require a higher level of capital reserve. Since the speed with which DeFi changes are unpredictable, the covered duration is limited to months instead of years. Tidal holds a Treasury wallet used as a form of a fail-safe reserve fund, which is being filled by issuance fees from pools, with the ones offering higher levels of leverage paying proportionally higher levels of issuance fees.
Through the Tidal Finance app, users can take part in four different roles.
The first is called Reserve Provider, as such customers are required to provide stablecoin collateral as insurance for which they earn premiums.
The second role is Cover Buyer, which pays premium fees in order to get their TVL covered by the company’s mechanism.
There is also a Guarantor Role, which includes token holders of the protocols participating in the mutual cover pool, who can stake their tokens as collateral and earn rewards for it.
Users staking TIDAL are the fourth group of participants on the platform, by staking their tokens they also provide collateral and earn premiums in return.
90% of the cover fees Tidal Finance takes are paid to the cover provider, 5% is paid to the guarantor pool, and 5% of it goes to the treasury. Wallets Tidal Finance supports currently include MetaMask, with plans to add more in the future.
TIDAL is an ERC-20 token that the company plans to migrate to a Polkadot-based platform such as Moonbeam in the future. Tidal, has released a distribution and vesting schedule, however, notes that details from it are subject to changes.
30% of the total amount of tokens which is 20B is reserved as an Ecosystem Fund, 30% are allocated towards Mining Rewards, 15% are left for the team and advisors, 20% are reserved for private sales, and the rest is saved for the presale, Balancer Sale, and Polkastarter public sale. The token is used for governance of the platform which takes place through the Tidal Finance app.
When Staking TIDAL users need to make sure it is held in MetaMask on the Polygon network to be able to participate in the staking pool. The tokens can be unstaked at any time, however, the process is subject to a two-week lock-up period, during which stakers still receive their rewards until the unstaking has occurred. During the lock-up period, users are also still subject to the risk of getting slashed under a valid claim.
Holders of TIDAL are also entitled to a portion of the fees generated by the protocol, however, in order to be eligible to claim them, users need to vote on a majority of the proposals submitted for decision. The percentage of fees, being distributed to TIDAL holders can be dynamically adjusted depending on the level of funding in the Treasury Wallet, and the total liability of all mutual cover pools. If the treasury fund is under-leveraged the rate distributed to token holders can be increased, and if it is over-leveraged it could be decreased. Once a claim resolution process has started, TIDAL token holders can vote on its acceptance.
The tidal Finance team is led by CEO and co-founder Chad Liu, who used to be Principal for AU21 Capital, where the main focus of his work was research on the latest trends of the crypto market and especially the DeFi field. His past experience also includes working as a Project Lead and researching data analytics service market trends for the upstream energy sector. Not much is known about the rest of the team, they claim, however, their core team consists of “serial entrepreneurs and blockchain veterans who have tremendous experience and proven track record in cyber security, code auditing, finance, cryptography, blockchain, and engineering”.
In July 2021, a critical vulnerability was submitted to the Tidal Finance team through the platform’s bug bounty program on Immunefi. The exploit was a logic error in the project’s algorithms that allowed a malicious party to claim more rewards from staking than they were entitled to. The bug was patched and a $25 000 USDT bounty was paid to the whitehat hacker.
Among the numerous partnering projects, Tidal Finance has established a long-term partnership with the security firm BlockSec, which recently launched its flash loan monitoring system. The most recent platform to join the Tidal ecosystem is pNetwork which purchased a $1M coverage. Each project to join the ecosystem has a different set of coverage requirements, and besides through the platform’s app, users can also find them on Tidal’s blog webpage.
The team doesn’t have a definitive roadmap set currently; however, they are working on adding additional utility to the TIDAL token. There are also plans on extending the services to other ecosystems, since as of now, although the company can cover projects from various ecosystems, the reserve pool and user transactions need to be made on Polygon. In the next phase of the platform, users should be able to interact with Tidal “as seamlessly as possible” from numerous other blockchains.
Tidal is also currently reviewing offers from several DEXes on Polygon to open a DEX pool on Polygon in order to increase the usability of the platform.
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