How pools work
A pool is where underwriters' capital waits to back protection. Each pool sells one contract on one currency pair, for example USD/NGN Up cover, which pays businesses if the naira weakens against the dollar.
Who is involved
| Role | |
|---|---|
| Pool creator | Opens the pool, sets the lengths, prices and limits it sells, and seeds it with capital. Earns a share of the pool's fees. See Pool management. |
| Underwriters | Deposit USDC, back the protection the pool sells, and receive its premiums. The creator is also an underwriter in their own pool. |
| Businesses | Buy protection from the pool. |
| The protocol | Prices each contract, reserves capital, distributes premiums, and settles every contract at expiry. |
Your money in a pool
Your balance in a pool is always split into:
| Balance | Meaning |
|---|---|
| Free | Available. It backs new sales and can be withdrawn. |
| Reserved | Locked behind contracts you back, until they expire. |
| Pending withdrawal | Free money you have asked to withdraw. It backs no new sales. |
And two running totals: Earned, the premiums you have received, and Paid, the payouts your reserves have covered.
The life of one contract, from your side
- A business buys a contract. Its reserve is taken from the free money of the underwriters currently backing the pool, in proportion to each one's free money.
- You receive your share of the premium at once, added to your free money.
- At expiry, if the contract pays out, your share of the payout is taken from your reserve. Whatever is left of your reserve returns to free money.
The key rule: each contract is backed only by the underwriters who had free money when it was sold. If you join later, you neither share the premiums of earlier contracts nor carry their risk.
Limits
- At most 50 underwriters per pool.
- Minimum deposit 10 USDC.
- A pool can only sell a contract if the free money of its backing underwriters covers the full reserve.