Smart Contract-based Architecture of CDI System

Tokenomics and Economic Incentives

Lucia Protocol's CDI system is orchestrated around two distinct tokens: LCI NFT and stLCI. The LCI NFT serves as an insurance token, capturing the various functionalities typical of an insurance company. The pricing for this token comprises two key components: the risk premium, accounting for the calculated risk of the insured event, and an administrative fee that maintains operational costs and contributes to the governance pool's stability.

Simultaneously, stLCI functions as a governance token, conferring voting rights to its holders and thereby enabling them to influence key protocol decisions. stLCI holders also benefit from multiple revenue streams such as merchant processing fees, outstanding balance rates, repay balance rewards, and more. Acquiring LCI NFT becomes possible when users provide liquidity to 'Silos,' and stLCI tokens are earned through staking in 'Plots.'

Dual-Pool Structure: insPlot and stLCI Pool

The architecture necessitates two distinct pools, namely insPlot and stLCI, each serving a specific purpose. While insPlot is responsible for issuing insurance tokens and maintaining liquidity for claim settlements, the stLCI pool reallocates any surpluses and provides emergency capital.

Governance and Emergency Board

A third component of the architecture is an Emergency Board comprising experts from either the insurance industry or smart contract auditing sector. The board members are elected by stLCI token holders, thereby aligning governance with those who have a financial stake in the system's long-term decisions. Incentivizing accurate and honest decision-making, board members also hold stLCI tokens.

Transparency and Accessibility

To promote full transparency and empower both customers and investors in decision-making, all pertinent data including transaction volumes, outstanding claims, and capitalization ratios will be made publicly accessible. This not only enables a comprehensive evaluation of the project's performance but also facilitates efficient claims management and voting procedures.