Parametric Smart Contracts and Democratized Insurance

Pana DAO
6 min readJun 15, 2022

Never settle for anything less than what you deserve — Acharya Chanakya

Many insurance companies have tried to offer parametric insurance but failed and typically for one simple reason — in traditional finance, you cannot make the economics work. This is true for several reasons, but the primary two inhibitors have been:

  1. There are too many intermediaries that consume a percentage of the value stream
  2. All covered must be paid — without a way to filter or deny beneficiaries, the liabilities are too high

By converting the parametric process into a purely digital one without intermediaries and with an algorithmic buy-back, the primary issues associated with parametric insurance are unraveled. This opens the door to many different parametric conditions that were previously unthinkable now that we can scale the model.

What is an Example of a Parametric Smart Contract?

According to the United Nations, between 1998 and 2017 there were $79.5B worth of losses associated with flooding in India, much of which affected lower to middle income residents. Imagine a person who lives below the lower middle income line (as prescribed by the World Bank in 2017) of $3.20/day, facing the brunt of such damage. The result is ruinous, often for the remainder of their life — here, the lack of insurance has been unable to cover these vulnerable people.

Flooding is a common event controlled by nature and is often seasonal. In Mumbai during the traditional monsoon season between June and September, flooding can be severe leading to these types of losses in areas throughout the city.

A very simple, frequently triggered parametric smart contract would be one that is triggered with these parameters:

  • Rainfall exceeds 500 mm over a 30-day rolling window
  • Region — Mumbai City District
  • The contract can only be triggered once every 30 days

The only outside dependency in the contract is identifying multiple, reliable oracles that can provide accurate, near real-time rainfall data scoped to the Mumbai City District.

Even though this parametric smart contract is simple, it has some important characteristics:

  • It covers a wide range of people with highly diverse incomes, for example even 1 INR per month can be the premium contribution
  • It happens every year, typically multiple times in a year
  • It is easy to understand, measure and apply
  • Timing is controlled by nature

How Does This Benefit Crypto Natives?

The Pana economy is built to provide off-chain insurance, which includes scenarios like what you see above — this is our mission, to serve the underserved. To be clear, the core economic engine that drives Pana is built to benefit crypto natives equally as much as those outside crypto who need parametric insurance. The design has similarities to how Lloyd’s of London and their syndicate model is built to support investors who participate in risk pools while simultaneously providing service to those who purchase an insurance policy backed by the underlying syndicates. For the syndicates, it’s about asset growth, for the covered it’s about risk transfer and for us, it is about our mission to serve the underserved.

With that in mind, the Pana economy has been constructed to provide something that has never been achieved before: democratized insurance. Democracy means the underlying assets are wholly owned and controlled by the people. Let us show you how this looks in a simple Venn Diagram:

Here is a description for each circle in the Venn Diagram:

Ownership: Because it’s a standard NFT, the holder owns their NFT — it cannot be taken away from them

  • Even more importantly, the holder owns their share of the disaggregated treasury backing the Assurance NFT collection
  • The holder also owns the Karsha they are accumulating in the smart contract wallet associated with their NFT

Freedom: The holder can buy/sell their NFTs or burn their NFT to retrieve all the Karsha held in the linked smart contract wallet (retrieving their Karsha is a one-way transaction)

Time Lock: The parametric event is guaranteed to occur (Pana always selects recurring event types), but the holder must wait for the event to occur

  • This effectively creates a time lock if the holder wants to take advantage of the NFT buy-back event triggered by the parametric smart contract


  • When a NFT is burned to retrieve the underlying Karsha, there are fewer NFT holders in that NFT collection
  • When a NFT is sold back to the DAO by the holder in exchange for the parametric value, the NFT is burned and there are fewer NFT holders in that NFT collection
  • If a holder does not continue to invest in their NFT within every 30 days (similar to a traditional principal payment), the parametric smart contract is permanently disabled on their NFT (thus eliminating their claim on the underlying treasury)

Liquidity: The holder can buy/sell their NFT at their discretion in NFT marketplaces

“A Basic Tenet of a Healthy Democracy is Transparency” — Peter Fenn

Since all of this is on-chain, each NFT holder can see important metrics associated with their Assurance NFT:

If the parametric event were triggered, how much would Pana DAO buy-back their NFT for?

  • When the event is triggered, the holder has the option to accept the buy-back or continue to hold their NFT
  • The buy-back algorithm is always adjusting the buy-back amount with the target to buy-back the NFT above the original cost of capital paid into the NFT plus a premium

How many holders are there who have a claim on the underlying NFT collection treasury?

  • The disaggregated NFT treasury is what is used to buy-back a holder’s NFT when the parametric smart contract is triggered
  • This metric plays a key role in calculating the parametric buy-back value

What is the value of the NFT treasury and what assets make-up the treasury?

  • This also plays a key role in the parametric buy-back value

What are the parameters of the parametric smart contract?

What is the yield rate of the rebasing Karsha in their smart contract wallet?

How much Karsha do they have in their linked smart contract wallet and what is it worth?

How much time do they have before they must make another investment to keep the parametric smart contract active?

  • Each principle payment is returned to the holder’s smart contract wallet in the form of rebasing Karsha (via a naked bonding mechanism).

Pana DAO will actively create new Assurance NFT collections with different parameters and separate treasuries for each collection. Over time, a considerable premium may be associated with an older Assurance NFT depending on a confluence of parameters including scarcity. For example, it may be very profitable to be the final holder of an Assurance NFT that has a very large underlying treasury.

NFT Proliferation is Guaranteed, But Scarcity is Built-In

It’s possible to imagine millions of parametric scenarios and parameters — a Cartesian explosion of possibilities. This enables Pana to get very creative and provide unique combinations of Assurance NFT collections that can address the needs of residents in regions around the world. Yet, because of the crypto economic construction, when the parametric event is triggered, it will naturally shed holders on-chain and off-chain (a Pana DAO buy-back is a one-way transaction resulting in burning the holder’s NFT). When combined with holders missing investments that keep their parametric smart contract active or those cashing out their Karsha prior to a parametric trigger occurring (also a one-way transaction), scarcity is built-in.

Importantly, Pana DAO will create new Assurance NFT collections to serve those who may have dropped out of a similar NFT collection. The intent is not to disadvantage anyone while also encouraging strong incentives for syndicate participation. This guarantees a robust economy that can finally support the type of democratized insurance the world needs.

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



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