PGP-31 | Update Insurance Fund Strategy

Summary: This proposal aims to update the Parallel Insurance Fund Strategy in line with ongoing protocol updates.

Rationale: Ratified in MIP-28┃Ratify the Parallel Insurance Fund, the Parallel Insurance Fund is a fund used to cover potential losses of the Parallel Protocol, in case of shortfall events. Below are the current approved events:

• Smart contract risk: Risk of a bug, design flaw or potential attack surfaces on the smart contract layer.
• Liquidation risk: Risk of failure of an asset that is being used as collateral on Parallel; risk of liquidators not capturing liquidation opportunities in a timely manner, or low market liquidity of the principal asset to be repaid.
• Oracle failure risk: Risk of the oracle system not properly updating the prices in case of extreme market downturn and network congestion; risk of the Oracle system not properly submitting prices, causing improper liquidations.

The fund is following a comprehensive and clear framework. Below are the current voted rules:

• The DAO must decide, via governance votes, which deployment (PAR and/or paUSD and/or USDp) is covered, which chain is covered, or not, by the insurance fund, and at which % or $ value of the insurance fund the deployment & chain are covered.
• Assets held in the insurance fund must be liquid under a 16 weeks period.
• At least 10k PAR for PAR deployments and 10k paUSD for paUSD deployments must stay in the vaultsCore to cover very short term potential bad debts.
• DAO Multisig signers will have the right to rebalance assets from the deployed insurance fund to vaultsCore contracts in order to always have enough assets to cover very short term bad debts.

Currently the fund is covering Parallel V2, including PAR & paUSD deployments on Ethereum & Polygon PoS. We propose to extend the coverage to Parallel V3 with USDp deployment on Ethereum, Base, Sonic & HyperEVM. We also propose to extend the coverage to the PRL token on Ethereum, Arbitrum, Optimism, Base, Sonic & Polygon PoS.

Below are the current holdings of the Parallel Insurance Fund (at time of writing):

• Ethereum:
  • PAR VaultsCore contract: 10,000.00 PAR
  • paUSD VaultsCore contract: 10,000.00 paUSD
  • USDC: 313,905.55
  • paUSD: 59.04
  • vlAURA: 1,113,709.10
  • Aura-ECLP-PAR-EURA: 50k PAR
  • Aura-ECLP-paUSD-GYD: 50k paUSD
• Polygon PoS:
  • PAR VaultsCore contract: 10,000.00 PAR
  • paUSD VaultsCore contract: 10,000.00 paUSD
  • PAR: 1,947.35
  • paUSD: 46.97
  • Aura-ECLP-PAR-EURe: 50k PAR
  • Aura-ECLP-paUSD-stataUSDCn: 50k paUSD

Below is the current Insurance Fund strategy:

• 214k USD (+ potential remaining PAR/paUSD accumulated in the meantime) → swapped for AURA, then locked in vlAURA for 16 weeks on Aura
• 50k PAR → PAR/EURA (Ethereum) → on Balancer (then staked on Aura)
• 50k USD ->paUSD/GYD (Ethereum) → on Balancer (then staked on Aura)
• 50k PAR → PAR/EURe (Polygon PoS) → on Balancer (then staked on Aura)
• 50k USD → paUSD/stataUSDCn (Polygon PoS) → on Balancer (then staked on Aura)
• 10k PAR → Ethereum PAR VaultsCore contract
• 10k PAR → Polygon PoS PAR VaultsCore contract
• 10k paUSD → Ethereum paUSD VaultsCore contract
• 10k paUSD → Polygon PoS paUSD VaultsCore contract

We propose to update the strategy in this way:

• General:
  • Accumulated PAR/paUSD/USDp/USDC: Swapped to USDp and deposited into liquidity pools (DEX/Lending protocols), decided by DAO Multisig Signers with advice from Cooper Labs & Mimo Labs
• Ethereum:
  • PAR VaultsCore contract: 10,000.00 PAR
  • paUSD VaultsCore contract: 1,000.00 paUSD
  • vlAURA: 1,113,709.10
  • Aura-ECLP-PAR-EURA: 25,000.00 PAR
  • Aura-ECLP-paUSD-GYD: 25,000.00 paUSD
• Polygon PoS:
  • PAR VaultsCore contract: 10,000.00 PAR
  • paUSD VaultsCore contract: 1,000.00 paUSD
  • Aura-ECLP-PAR-EURe: 25,000.00 PAR
  • Aura-ECLP-paUSD-stataUSDCn: 25,000.00 paUSD

Accumulated rewards from Aura & Balancer deposits would be swapped every 16 weeks for AURA tokens then locked as vlAURA for 16 weeks on Aura. vlAURA voting power will continue to be delegated to Mimo Labs, as voted previously. Accumulated rewards from other potential deposits in DEX/Lending protocols will be swapped for USDp.

Means:

• Human Resources: DAO multisigners will need to sign and execute transactions to execute the proposal.
• Treasury Resources: Described in the rationale.

Technical implementation:

• Update the Insurance Fund as described above in the proposal.

Voting options:

• For the Insurance Fund Strategy Update
• Against / Rework the Proposal
• Abstain

Author(s): Jean Brasse from Mimo Labs