Detailed Instructions

First, identify the risk model used by the insurance provider. Determine if coverage is for smart contract failure, sequencer censorship, data unavailability, or bridge exploits. Review the policy's technical documentation for explicit definitions of a "covered event."

• Sub-step 1: Check the policy's list of covered protocols. Is it limited to a single rollup (e.g., Arbitrum One) or does it cover a broader set (e.g., all Optimism-based chains)?
• Sub-step 2: Examine the exclusion clauses. Common exclusions are losses from user error, frontend hacks, market volatility, or governance attacks.
• Sub-step 3: Verify the trigger conditions. For a data unavailability claim, what is the required proof? Is it a multi-sig attestation or a verifiable fraud proof from a DA?

solidityCopy
// Example: A simplified condition for a bridge hack claim
require(exploitTimestamp > policyInception, "Exploit predates policy");
require(verifiedBySecurityCouncil, "Event not verified by council");
require(lossAmount >= minimumClaimThreshold, "Loss below threshold");

Tip: A model focusing solely on smart contract risk may not protect against the dominant L2 risks of sequencer failure or state validation faults.

Detailed Instructions

Scrutinize the capital structure. Determine if coverage is provided by an on-chain mutual pool (e.g., Nexus Mutual), a decentralized underwriter network, or an off-chain entity. The sustainability of payouts depends on this structure.

• Sub-step 1: For on-chain pools, query the smart contract for the total capacity and utilization ratio. A pool at 80% capacity has limited room for new coverage.
• Sub-step 2: Analyze the claims assessment process. Is it a decentralized voting mechanism using the provider's token (e.g., NXM)? If so, review the historical claim acceptance rate and average resolution time.
• Sub-step 3: Verify the payout currency and speed. Will compensation be in the native asset (e.g., ETH) or a stablecoin? Is it an automatic smart contract transfer or a manual process post-approval?

Tip: Use a blockchain explorer to check the reserve address for a mutual pool. A stagnant or declining ETH balance may indicate poor capital rotation or high claims.

Detailed Instructions

Quantify the policy's key parameters. The sum assured is the maximum payout. The coverage period defines the active timeline. The premium is the cost, often expressed as an annual percentage of the sum assured.

• Sub-step 1: Determine if the sum assured is dynamic. For a DeFi position, does it adjust with your TVL, or is it a fixed amount set at purchase?
• Sub-step 2: Calculate the annual premium rate. For example, a 2.5% premium on 100 ETH of coverage costs 2.5 ETH per year. Compare this rate across providers for similar risk profiles.
• Sub-step 3: Check for deductibles or co-insurance clauses. A 10% deductible means you absorb the first 10% of any loss. A 90% co-insurance clause means the policy only covers 90% of the verified loss amount.

javascriptCopy
// Example: Calculating effective coverage after a deductible
const sumAssured = ethers.utils.parseEther("100");
const deductiblePercentage = 10; // 10%
const lossAmount = ethers.utils.parseEther("50");

const deductible = sumAssured.mul(deductiblePercentage).div(100);
const payout = lossAmount.sub(deductible); // Payout would be 40 ETH
console.log(`Net Payout: ${ethers.utils.formatEther(payout)} ETH`);

Tip: A very low premium may indicate inadequate capital reserves or an overly narrow definition of covered events, reducing practical utility.

Detailed Instructions

Assess the decentralization and upgradeability of the insurance protocol. A mutable policy controlled by a small multi-sig introduces counterparty risk. Also, evaluate its technical integration with the L2 it aims to protect.

• Sub-step 1: Review the governance mechanism. Is there a timelock on parameter changes? Can the community veto a malicious proposal? Check recent governance proposals for changes to coverage terms or capital management.
• Sub-step 2: Examine oracle dependencies. Does the claims process rely on a specific oracle (e.g., Chainlink) to verify an outage? If so, the oracle's reliability becomes a single point of failure.
• Sub-step 3: Analyze integration depth. For bridge coverage, does the policy monitor the canonical bridge contract directly via an on-chain keeper? Or does it require manual incident reporting?

Tip: A well-integrated policy might listen for specific event logs emitted by the L2's sequencer or state commitment contract to automatically trigger a claims assessment period.