Backstop Pool
The protocol-wide safety net that absorbs catastrophic losses
TL;DR: The Backstop Pool is protocol-wide fallback liquidity. It is used only after underwriter-backed liquidity is exhausted, and after private reinsurance if the policy actually has reinsurance enabled.
Why a Backstop?
Individual risk pools can be overwhelmed by catastrophic events. If a major protocol is exploited and claims exceed the pool's capital, policyholders need a fallback. The Backstop Pool provides that safety net - a shared reserve that backstops every pool in the protocol.
Liquidity Waterfall
When a claim is filed, PayoutManager follows a strict priority order:
| Layer | Source | Funded By |
|---|---|---|
| 1 | Underwriter adapter liquidity | Underwriter capital deployed to yield adapters |
| 2 | Private reinsurance hook | External reinsurer, only for reinsured policies |
| 3 | Underwriter idle liquidity | Unused underwriter capital sitting in the pool |
| 4 | Backstop Pool | Percentage of protocol premiums |
| 5 | Treasury | Protocol reserves, if configured |
| 6 | Claim debt | Future claimant collection, not immediate liquidity |
The Backstop does not mean claims are unconditionally guaranteed. If all sources are exhausted, the claimant can receive a partial payout now and claim the remainder later as debt.
How the Backstop Pool Works
Funding
The Backstop is funded by a fixed 20% share of gross premium.
In the live premium flow:
- an optional 5% referral reward is reserved if a valid referral code is used
- 10% goes to the protocol
- 20% goes to the Backstop Pool
- the underwriter receives the remainder: 65% with a referral, 70% without one
This means Backstop growth is proportional to policy volume at a fixed premium share.
Managed by SharedAssetController
The Backstop Pool is managed by the SharedAssetController, which:
- Aggregates contributions from all pools
- Deploys idle backstop capital to yield strategies (Aave, Compound)
- Processes payout requests from the PayoutManager
- Optionally extends capacity through a backstop hook
Usage
When PayoutManager determines that underwriter-backed liquidity is insufficient:
- It attempts any private reinsurance draw for the policy's declared reinsurance portion
- It draws any remaining underwriter idle liquidity
- It requests the remaining deficit from the Backstop Pool
- If the Backstop is exhausted, a
BackstopDepletedevent is emitted and Treasury is drawn next if configured - If all layers are exhausted, the claimant receives a partial payout and the unpaid amount becomes claim debt
Substituting For Failed Reinsurance
On a reinsured policy, the Backstop can temporarily substitute for an underpaying hook. When that happens, the claimant may still get paid, but the hook now owes the Backstop and/or Treasury through the reinsurance settlement ledger.
Backstop Pool Economics
The Backstop Pool benefits from diversification - it pools premium contributions from the live coverage categories (stablecoin and vault). A major event in one category is backstopped by premiums from the other.