Helmet Brings Decentralized Insurance to Binance Smart Chain
Where are the risks, insurance can come in handy, even in the DeFi markets.
The growth of the decentralized finance (DeFi) market has been remarkable in the past twelve months, highlighting the demand for new types of digital financial products and services.
Since its inception, Binance Smart Chain (BSC), a new parallel blockchain to Binance Chain, has been an enormous success. Many Defi protocols have hopped on the BSC train owing to cheaper and faster transactions. And Harvest and Value, two Ethereum-native protocols — are reportedly making the shift to BSC very soon.
But DeFi is — by all means — not without risk. That is why we will explain why you need an insurance protocol to protect yourself against market fluctuations and unforeseen circumstances.
Why You Need Insurance
In many debates hovering around the whole idea of decentralized finance, volatility has been used by the “against” side. Of course, there’s no denying that cryptoassets are incredibly volatile, and while this can be an advantage, it remains a puzzle that requires solutions in the DeFi markets.
Similarly, the core of decentralized finance is firmly hinged on smart contracts, computer algorithms designed to execute protocols when certain conditions are met. However, smart contracts are vulnerable to manipulation, as we have seen from the past years.
Therefore, hedging a part of your DeFi exposure with decentralized insurance may be the right move for well-heeled DeFi investors.
And that’s where Helmet comes into play.
What is Helmet Insure?
Helmet is a decentralized cryptoasset insurance trading platform operating on Binance Smart Chain that leverages options trading logic for its decentralized insurance offering.
What Are Options?
An option is a derivatives contract that gives the holder the right but not the obligation to buy or sell an asset at a specific price within a timeframe.
Essentially, an option is technically an insurance cover for an asset.
There are two types: a “call” option and a “put” option. A call option gives the holder the right to buy a stock at an agreed price before a specific date. Conversely, a put option gives the holder the right to sell a stock at an agreed price before a particular date.
Options contracts contain the option type, the agreed price (strike price), and the expiration date.
Suppose you bought a call option at a strike price of $100 with a 30-day limit; owning the option will allow you to buy the stock at $100 regardless of whatever the price is within the next 30 days.
That means if the stock rises to $110, you have the right to buy at $100. Similarly, owning a put option at a $100 strike price and expiration date will allow you to sell the stock at $100 anytime within 30 days. That means if the stock later falls to $90, you have the right to sell at $100. The price you pay for an option is called a premium.
Helmet — Redefining Options
Helmet is an insurance protocol that has been carefully designed to insure DeFi users.
How Does it Work?
Consider two pools: the holder pool and the supplier pool.
The Holder Pool
In this pool, a policyholder buys insurance for his asset to shield against fluctuations in prices. Assets that Helmet can insure include but are not limited to Helmet (the native cryptocurrency), CertiK (CTK), Binance Coin (BNB), Ether (ETH), and Pancakeswap token (CAKE). Over time, Helmet would be capable of insuring more crypto assets.
There are two set policies in this pool: Cover miss out and Cover 50% off.
Cover miss out
This is a fancy way of buying a policy in the hope the underlying asset doubles in price. For instance, you’re hoping X coin rises from $0.5 to >$1, so you pay a small fee (depending on the which asset and expiration date) to secure the right to buy if it costs higher than double.
- If the policy price goes higher than double, you activate the policy and buy the asset at the agreed price.
Profit = (current price — policy price) — premium.
- If the policy price doesn’t rise, you lose the premium only.
Cover 50% off
Unlike cover miss out, here, you are halving your risk by 50% with a low premium. This means you’re insuring your asset in case the price falls below half the policy price.
If the policy price falls below half, you activate the policy to sell the asset at half the price.
If it doesn’t, you lose the premium (which gets paid to the supplier).
The Supplier Pool
Helmet Insure uses a risk transfer model. For every policyholder in the holder pool, there are suppliers in the supply pool. Although much remains to be settled about policy supply, for now, you can still make a profit, as previously explained.
Holding a Policy
Buy some BNB in Trust Wallet
Convert the BNB to Helmet on Pancakeswap
Go to Helmet.insure
Buy a policy — cover miss out/ 50% off
Buy some BNB. Go to pancakeswap.finance from your Trust Wallet DApp.
Search for HELMET. Click on HELMET, type in the amount you want, and swap the tokens.
Now that you have some HELMET, go to your Trust Wallet dashboard and add Helmet.insure governance token to see your HELMET tokens.
Put in how many pieces of a contract you want to buy. (Four in this case.)
Go to helmet.insure on your Trust Wallet DApp Browser, select the token you want to insure. (CTK in this case.)
Check the details: insurance price, expiry date, policy price, etc.
Review the contract and then complete the transaction.
In this example, we purchased four policy contracts of CTK token (with a current rate price of 0.04 BNB). This means that within 20 days and 7 hours, we have the right to buy 4 CTK tokens when it increases.
Suppose it increases to 0.09 BNB, we can activate the policy to buy 4 CTK for 0.16 BNB (0.04 x 4) and sell immediately for 0.36 BNB (0.09 x 4).
The profit would be (0.36 BNB — 0.16 BNB) - 0.1048 HELMET.
Helmet.Insure is a protocol for advanced DeFi userswho have a basic understanding of how financial options work and enough exposure in DeFi assets for it to make sense to hedge some of it. Newcomers to DeFi are probably better off sticking to investing or yield farming.