A Bear Market Resistant Protocol — The Programmable Syndicate

Pana DAO
4 min readJul 6, 2022

The difficulty lies not so much in developing new ideas as in escaping from old ones — John Maynard Keynes

We are creating a protocol that is intended to be used in bear and bull markets. This is crucial if it is intended to become a form of insurance or be used in other B2B programmable syndicate business models. By launching during this time of high volatility, the crypto landscape provides us an opportunity to demonstrate the value of the Pana protocol.

Like the historical period when Lloyd’s of London was formed, there were wars, economic and natural perils that had to be navigated to provide reliable policies to Lloyd’s customers. One of the most difficult events was the 1906 San Francisco earthquake that destroyed over 80 percent of San Francisco.

Hurricane Betsy in 1965 was similarly transformative due to its scale. In both cases, the resulting payment of claims was parametric in nature — the majority of Lloyd’s policy holders were paid in full.

After the hurricane in 1965, Lloyd’s analyzed how to better scale their probable maximum loss (PML) model for these types of catastrophic events. At the core of their transformation was the need to broaden the number of syndicate participants — to quote Wikipedia, the solution was to widen the “membership to non-market participants, including non-British subjects and then women, and the reduction of the onerous capitalisation requirements (thus creating a minor investor known as a “mini-Name”)”. By leveraging crypto, we are democratizing insurance and opening the door to anyone to participate in a syndicate. This is achieved via the Pana protocol and Assurance NFTs.

How Is It Possible to Be Bear Market Resistant?

In summary, here is the tldr on how Assurance NFTs are bear market resistant:

  • All principal payments to Assurance NFTs are made in stablecoins — this way we avoid treasury volatility for NFT holders
  • All stablecoins enter an NFT treasury via a naked bond, which generates Karsha that creates sustainable yield for all Karsha holders
  • Treasury assets remain stablecoins and are placed in high yield, liquid vaults that generate interest with low downside risk
  • Once an Assurance NFT collection is locked, holders with rights to the treasury assets can only decrease (i.e. due to missing principal payments, cashing out their Karsha, etc.)
  • Any NFT trades in NFT marketplaces add assets to the treasury

And here is the most important part:

  • When the parametric event occurs, the Assurance NFT holder has the option to trade their Assurance NFT back to Pana DAO at the same value they paid in principal plus a premium
  • The premium comes from interest earned on treasury assets, assets earned from NFT trades, a natural reduction in NFT holders and other variables that increase the NFT holder’s ownership of the treasury

In other words, in the worst-case scenario Assurance NFT holders can reclaim their capital by opting for the parametric buy-back. In the best-case scenario, Assurance NFT holders can cash out the Karsha held in their Assurance NFT for a significant premium above what they paid in principal.

There are various reasons the price of Karsha may rise. But when considering the worst-case scenario, the use of the treasury to preserve value should give Assurance NFT holders comfort. The downside risk is reduced as long as the holder is willing to wait for the parametric smart contract to be triggered. Assurance NFTs are constructed with parametric parameters that are deliberately composed to ensure the contract will get triggered at a cadence that is realistic and frequent enough it benefits crypto market participants as well as off-chain participants (when the off-chain phase of the project is realized).

How Is This Different Than Traditional Finance?

The two most important reasons a bear market creates less downside for Assurance NFT holders is because:

  • There are no intermediaries — when paying principal into an Assurance NFT the holder is acting as a syndicate participant and storing 100% of their capital in stablecoins in the treasury (the Karsha they receive in return provides a mirrored version of their capital in a volatile, yield generating token creating potential upside)
  • The contract is dynamic — the parametric smart contract can calculate the buy back payment based on all available metrics — ensuring an equitable return — the calculation is always adjusting and does not need to factor in intermediaries

In the traditional financial world, the downside risk is difficult to mitigate because contracts are not dynamic and significant intermediaries take a cut of the capital. The Pana protocol reflects the power of using a trustless, fully computed, decentralized financial model.

We are excited to bring Assurance NFTs to the market and together with DAO input, create parametric parameters that appeal to a range of risk appetites with the focus on a variety of potential upsides that benefit everyone.

A Humble Mission to Serve the Underserved. A Bold Goal to Provide Insurance to Everyone.

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Pana DAO

Pana DAO is the first crypto protocol built to facilitate parametric insurance using a model similar to the time tested Lloyd’s of London syndicate model