Default Protection Insurance

Lucia Protocol's Credit Default Insurance (CDI) serves as a financial safety net against unexpected credit events by employing principles of risk pooling, risk transfer, and indemnification. The insurance relies on an upfront premium, calculated based on proprietary credit risk metrics, to create a reserve fund, known as the "insPlot." This fund is also strategically invested to generate additional revenue and expand the reserve for new policies.

Through diversification and advanced risk management techniques, including the Law of Large Numbers, Lucia Protocol aims to balance its risk exposure while optimizing the premium rates. These premiums are set to be both competitive and sufficient to cover operational costs and claim payouts. In a default event, the CDI activates to compensate the creditors, thereby maintaining the overall system's stability and solvency.