I have a vested interest in raising this proposal. I am a long-term community contributor at Risk Harbor, and I am a $LUNA holder, $ANC holder and Anchor protocol user on the Terra blockchain.
1). Brief History
On 2021/05/21, Do Kwon posted Ozone specifications and $OZ (previously $O3) token distribution plans [Linked here].
- This was in response to demands for a Terra-native insurance protocol from the TeFi ecosystem.
Around Sept. 2021, following the successful migration of Columbus-4 to Columbus-5, Ozone again became one of the primary focuses of the TeFi ecosystem. [Linked here]
- There is currently more than 3.14B UST worth of assets in the community pool.
The Ozone protocol was handed to the Risk Harbor team to build from start to finish with no additional subsidies and to lead long-term development, and has since been rebranded to Risk Harbor Ozone.
- On 2021/11/04, the Risk Harbor Team announced that they will take charge of the Ozone protocol[Linked here].
2). Risk Harbor Ozone so far
On Ozone V1, the Terra community pool will be the sole underwriter of the Ozone.
At this time, there is $10M underwriting capacity in Ozone and it is 100% utilized.
- Policyholders ate up the entire capacity in less than 2 hours after the launch of Ozone.
- This implies significant demand that is unmet by underwriting capacity.
- Note there was 100% utilization and high demand to cover only smart contract risk on Anchor.
- Since launch, there have been countless conversations lining up large buyers, institutions, and other community members to purchase serious volume.
The premium is very competitive (compared to Nexus Mutual and other protocols), such that the demand for native protection on Ozone is much higher than other options.
No community funds were used to build Risk Harbor.
- All development from beginning to end, including audits, was conducted and financed by the Risk Harbor team.
Following the debut of Risk Harbor Ozone V1 on Mainnet, the listed items are already under development:
- Integration with Arrington Anchor Yield Fund
- Integration with Anchor for point-of-sale protection
- Integration with Mirror
- Integration with Orion
- Integration with Kash
- Integration with Alice
- Integration with Angel
- Dashboard, key metrics, and analytics for users to track their protection
- Open-source libraries to make Cosmos smart contract development easier
- Better documentation for Solidity developers to onboard onto the Terra ecosystem and create protocols to launch on top of Ozone
- Risk modeling services to Terra protocols surrounding smart contract, governance, and structural risks
- Run bug bounties for core Terra protocols which Ozone protects
Risk Harbor Ozone V2 is currently under development. Ozone V2 will include innovative features that include but are not limited to:
- Community-enabled underwriting
- Levered underwriting
- Automated Market Maker (AMM)
- Risk engine
- UST depeg protection across different blockchains
- Anchor protection across different blockchains
- Creation of other novel products on the Terra blockchain that are complementary to Ozone
Goals and Impacts
Allocate earmarked 1 Billion UST from the community pool fund to provide underwriting capacity for Ozone.
- Help meet the protection demand for, but is not limited to, the aforementioned features under development for Ozone V1 and Ozone V2.
- The community pool funds will serve as underwriting capital to increase capacity for policyholders. This will attract more risk-aware capital to Terra and depositors to Anchor who otherwise wouldn’t have deposited without natively integrated protection. In particular, institutional investors often face strict risk tolerances which cannot be met without the ability to purchase protection.
- Premiums after any losses will be held in the Risk Harbor Protocol Treasury. These funds will make Ozone more resilient to unexpected shocks by having additional capital to insulate policyholders in the case of a black swan event. In the long term, these funds will contribute to a more robust risk management protocol and benefit the entire Tefi ecosystem.
- Risk Harbor will allocate 10% of Risk Harbor Tokens, once released and bridgeable, to all Luna stakers, with 100% vesting at launch.**
Underwriting funds: A lump deposit
- The community pool supplies 1B UST (100% of the 1B already provisioned for Ozone) of underwriting capacity
- The funds will be deposited into the Ozone treasury via the following multi-sig address:
- There will be 6 multi-sig signers for the Ozone treasury:
- Chauncey from Angel
- Jeremy from Delphi
- Remi from LFG
- Jonathan from Levana
- Dh and CJ from TFL
- Nick from Chronos
Underwriting duration: Indefinite
- Risk Harbor Ozone community aims to be the ultimate long-term stakeholder in the Terra ecosystem, and we wish to serve the Terra community indefinitely.
- To facilitate this, we ask the community fund to support us and underwrite Ozone indefinitely, unless a counter-proposal is passed to remove the said underwriting funds.
- Community Discussion
- Upload Governance Proposal
- Voting Period
1). Does Risk Harbor Ozone use its own product?
- As one of the largest Terra and Anchor advocates in the DeFi ecosystem, Risk Harbor will invest 1M UST out of its own treasury into Anchor, and purchase Ozone protection for the deposit.
2). Will there be UST depeg protection?
- Ozone in its current form would not protect against UST depeg risk. This may change in the future. In the meantime, we are currently working on a more scalable and sustainable mechanism with LFG to further robusticize UST.
3). How is the premium set?
- In Ozone V1, the premium is statically set by the Risk Harbor Ozone team at a very competitive rate to bootstrap demand.
- In Ozone V2, the pricing is controlled by an Automated Market Maker (AMM) which dynamically prices protection.
4). What would happen in a hypothetical loss event on Anchor?
- The community pool fund is the underwriter (counterparty) of policyholders. As policyholders file a claim, their aUST will be swapped for UST or a diversified pool of assets.
- If the distressed aUST recovers its value after a temporary loss event, it can be redeemed through Anchor to cover the payout and replenish the community fund pool. Otherwise, if aUST is permanently debased, the community fund pool will cover the loss event on behalf of policyholders.
5). What is the projected timeline for delivery for Ozone v1 and Ozone v2?
- Ozone V1 launched already and has sold 10M of Anchor protocol protection. The other products mentioned in the “Background” section above are also in the pipeline.
- The Ozone V2 timeline is not yet fully finalized but is already in development and tentatively targeted for Q2.
6). When will more capacity be available given that the team acknowledges that there is an unmet demand? Is this dependent solely on the passing of this proposal?
- Many large institutional buyers and consumer applications have expressed interest in purchasing protection for Anchor deposits including the Arrington Anchor fund and other large-scale applications as noted below. The only way to meet this scale of demand for risk management is for community funds to serve as underwriting capital. If the proposal passes, community funds that have already been provisioned for Ozone will facilitate the inflow of substantial capital into the Terra ecosystem. The only way to accommodate this volume and help maintain large capital inflow into Terra is through the passage of this proposal.
7). What if the 1B capacity is not enough to match the demand for Terra products?
- We may make an additional proposal for additional underwriting capacity.
- We will allow community members to underwrite in the full open version of Ozone V2.
8). The value of aUST is constantly changing. Will Ozone account for this?
- Yes. In the full launch, Ozone will be constantly updating the aUST ratio.
9). Will the funds be used to fund any company operations?
- No. This capital is not an investment and as mentioned below, has already been provisioned to solely provide underwriting capacity for the broader Terra ecosystem.
10). Will Ozone use a 1:1 capital requirement? How does this scale?
- No. We will soon be launching an open V2 that uses leverage (e.g. 1B underwriting can protect x more B worth of assets) via our novel AMM that dynamically prices protection and applies leverage based on various parameters such as risk, capacity, and more.
11). Will Ozone only protect Anchor?
- No. We will protect Anchor, to begin with, but ultimately as we scale up, we will have vaults that provide protection for applications across the entire Terra ecosystem such as Astroport, Mirror, Mars, and more.
We truly believe that decentralized finance requires decentralized money. As the Terra ecosystem expands, risk management has emerged as a fundamental primitive to unlocking new waves of capital, where both retail and institutional users can participate in a secure, transparent, and capital-efficient manner. We’re also excited to onboard further developer activity: whether it’s tooling, documentation, product refinement, or creating a host of unique applications from scratch all built on top of the Ozone platform. The opportunities are endless, and we look forward to building the future of risk management with the broader Terra community and bringing decentralized money to the rest of the world.
About Risk Harbor Ozone
- Risk Harbor is a risk management marketplace for decentralized finance (DeFi) that utilizes a completely automated, transparent, and impartial invariant detection mechanism to secure liquidity providers and stakers against smart contract risks, hacks, and attacks.
- Risk Harbor Ozone is an algorithmic, claims-based asset protection platform covering various forms of risk in the broader Terra ecosystem. It is a Risk Harbor Core v1 implementation on the Terra blockchain.
- To reiterate, currently, the Anchor UST (aUST) pool offers protection only on the risks associated with Anchor protocol. There is no UST peg protection yet but that is the next high-priority product that is currently under development by the Risk Harbor team, amongst other products in the pipeline.