Glossary

Comprehensive glossary of LayerCover terms and concepts

A comprehensive reference for all terms and concepts used throughout LayerCover documentation and the protocol.

General Terms

Term	Definition
Coverage	The amount of protection a policy provides, denominated in the underlying asset (e.g., USDC). This represents the maximum payout amount if a valid claim is filed.
Policy	An insurance contract represented as an ERC-721 NFT. Each policy includes a coverage amount, premium paid, pool assignment, and fixed duration. Policyholders can transfer, trade, or claim against their policies.
Premium	The fixed upfront cost of insurance coverage, paid by the policyholder at purchase. Premiums are distributed to underwriters, the Backstop Pool, and the protocol treasury.
Claim	A request for payout when a covered event occurs. For launch pools, policyholders submit distressed assets (e.g., depegged stablecoins or affected vault shares) along with their policy NFT.
Salvage	Distressed assets received from claimants during the claims process. Salvage is distributed pro-rata to underwriters who were backing the policy at T0 (the claim block).

Capital & Underwriting

Term	Definition
Underwriter	A capital provider who deposits funds into a Syndicate to back insurance policies and earns premiums and yield in exchange for taking on insurance risk.
Capital Pool	The main ERC-4626 vault where syndicate capital is aggregated. CapitalPool manages allocation, yield generation through external protocols, and claim payouts.
Shares	ERC-20 tokens representing ownership in a Syndicate vault or the CapitalPool. Share value rises as premiums and yield accrue and falls when claims generate losses.
Principal	The original amount of capital an underwriter deposited, tracked separately from gains and losses to reveal true P&L.
Allocation	Committing capital from a Syndicate to back a specific insurance pool, defining exposure to that pool's risks and claims.
Pledge	The amount of capital a syndicate has allocated to a specific pool, defining exposure to that pool's risks and claims.
Risk Points	The underwriting budget used by syndicates to size exposure. The live system gives each syndicate 20 total points, and each pool consumes 1-7 points per unit of pledged capital depending on its risk rating.
Concentration Ladder	The leverage rule that reduces effective max leverage as the largest single-pool pledge grows relative to syndicate principal. In the current model this replaces the old fixed per-pool concentration cap.
Coverage Floor	Minimum capital requirement per pool that keeps policies fully backed during deallocations, preventing undercollateralization.
Capital Adequacy Ratio	Minimum ratio of principal to total pledged exposure (default: 50%). Syndicates below this threshold cannot write new business until recapitalized. Mirrors Lloyd's Solvency Capital Requirement.

Pools & Risk

Term	Definition
Pool	A grouping of insurance policies covering a specific protocol or risk type (e.g., "Aave USDC"). Each pool has unique parameters that define coverage terms.
Premium Rate	The annual cost of coverage expressed as APR. In LayerCover's fixed-rate model, rates are set by syndicate managers when they create quotes (intents) in the orderbook.
Risk Rating	Letter grade (e.g., AAA, AA, A, BBB, BB, B, C) classifying pool risk. Higher-risk pools consume more of a syndicate's 20-point budget per unit of pledged capital.
Mutex Group	A set of pools that cover correlated risks. A syndicate cannot allocate to more than one pool in the same mutex group at the same time.

Syndicates

Term	Definition
Syndicate	A professionally managed underwriting vault (ERC-4626) where depositors let a manager allocate capital on their behalf. Comparable to a managed fund at Lloyd's of London.
Syndicate Manager	The address authorized to manage allocations, strategy, and risk for a syndicate. Earns incentives via performance fees.
Performance Fee	Configurable fee on harvested yield in a syndicate, capped at 20% and routed to the fee recipient.

Reinsurance

Term	Definition
Backstop Pool	The protocol-wide catastrophic reserve funded by a percentage of all premiums. Provides liquidity when syndicate capital and 3rd party reinsurance are insufficient to cover claims.
SharedAssetController	Smart contract that manages the Backstop Pool, receiving backstop premium contributions, deploying capital to yield strategies, and providing emergency liquidity.
Backstop Pool Share	The catastrophe-premium share routed to the Backstop Pool after protocol fees are deducted. Configurable via `catPremiumBps`.
Reinsurance Hook	Optional smart contract integration (`IReinsuranceHook`) allowing syndicates to connect to external 3rd party reinsurers for additional underwriting capacity and policy-specific risk sharing.
Third-Party Reinsurer	External entity approved by a syndicate manager to provide additional reinsurance capacity via the hook-based integration system. Premium and loss sharing follow the hook's settlement logic and the policy's `reinsuredPortion`.
ReinsuranceSettlementModule	On-chain receivables ledger that tracks substitution debt when private reinsurance hooks cannot fully pay their claim portion. Records backstop/treasury substitutions and manages repayment.
Hook Debt	Receivable accrued when the Backstop Pool or Treasury substitutes for an undercapitalized reinsurance hook. Tracked per-hook with backstop vs treasury breakdown. Hooks can repay at any time.
Monitoring Epoch	Time-bucketed accounting period (default: 1 day) used by the ReinsuranceSettlementModule to track accruals and repayments for audit and reconciliation.
Liquidity Waterfall	The ordered sequence of funding sources used to fulfil claims: (1) underwriter adapter liquidity, (2) private reinsurance hook when bound, (3) underwriter idle liquidity, (4) Backstop Pool, (5) Protocol Treasury, then any unpaid remainder becomes claim debt.

Claims & Payouts

Term	Definition
Claim Processing	Automated sequence for paying claims: <ol><li>Validate policy ownership and token submission</li><li>Snapshot underwriter pledges at T0</li><li>Execute payout waterfall</li><li>Distribute salvage to T0 underwriters</li></ol>
Payout Waterfall	Ordered funding sources for claims: <ol><li>Yield adapters (proportional draw)</li><li>Reinsurance liquidity swap (adapter debt → backstop)</li><li>Private reinsurance hook (`payClaimPortion`)</li><li>Idle capital in CapitalPool</li><li>Backstop Pool (global reserve)</li><li>Protocol Treasury (last resort)</li></ol> If all layers are exhausted, the claim is partially paid and deficit is recorded.
T0 (Time Zero)	Block number when a claim is filed. Underwriter positions snapshot at T0 to lock salvage rights and prevent gaming.
Checkpointed Salvage	Mechanism tying salvage rights to the underwriters backing a policy at T0, blocking late entrants from claiming salvage.

Yield & Rewards

Term	Definition
Yield Adapter	Smart contract integrating with external DeFi protocols (Aave, Compound, etc.) to deploy idle capital and generate yield. Each adapter targets a specific protocol/asset.
aTokens	Aave interest-bearing tokens (e.g., aUSDC) that automatically accrue yield as the lending pool earns interest.
cTokens	Compound interest-bearing tokens (e.g., cUSDCv3) that function similarly to aTokens for the Compound protocol.
Reward Distributor	Contract that records premium earnings per pool and distributes them to underwriters based on their pledges.
Harvest	Process of collecting yield from external protocols and crediting it back to the CapitalPool. Anyone can trigger harvests on a regular cadence.

Withdrawals & Deallocations

Term	Definition
Withdrawal	Pulling capital out of a Syndicate. Unlocked capital (not backing active policies) can be withdrawn by redeeming shares.
Capital Locking	Capital backing active policies is locked and cannot be withdrawn until those policies expire or settle, protecting against claim front-running.
Deallocation	Reducing capital allocated from a syndicate to a specific pool. Managed by the syndicate manager, subject to coverage floor constraints.
Backstop Pool Notice Period	The Backstop Pool may impose a waiting window before withdrawals complete, separate from syndicate rules.

Governance & Administration

Term	Definition
ProtocolConfigurator	Central admin hub - the owner-controlled contract that manages pool configuration, fees, system parameters, and contract upgrades. Owned by a DAO multisig or timelock.
Committee	A single privileged address (typically a multisig) with limited emergency powers: pausing and unpausing pools during incidents. Cannot change parameters, move funds, or modify claim logic.
Incident Reporting	Emergency process where the committee flags a covered event (e.g., hack, depeg) and pauses the affected pool, blocking new policy purchases while existing policies and claims remain active.
COVR Token	The protocol's ERC-20 governance token with a fixed supply cap of 1 billion. Supports burning and EIP-2612 gasless approvals.

Technical Terms

Term	Definition
ERC-4626	Tokenized vault standard used by CapitalPool and Syndicates, providing a common interface for deposits, withdrawals, and accounting.
ERC-721 (NFT)	Non-fungible token standard where each policy is a unique token that can be transferred, traded, or pledged as collateral.
Basis Points (BPS)	Unit that expresses percentages in hundredths of a percent; 100 bps equals 1%, so a 500 bps fee equals 5%.
Intent	An off-chain signed quote (EIP-712) from a syndicate manager specifying a rate, pool, and capacity. Buyers select intents from the orderbook to purchase coverage atomically.
IntentMatcher	Smart contract that atomically matches buyer and seller intents - locking capital, transferring premium, and minting the policy NFT in a single transaction.
SystemRegistry	Service locator contract that provides protocol-wide dynamic dependency resolution. All core contracts resolve their dependencies through the registry at runtime.
Revert	Transaction failure that rolls back all state changes because validation failed, balances were insufficient, or another error occurred.

Actions & Operations

Term	Definition
Mint	Creation of new tokens such as Syndicate shares or policy NFTs; occurs when users deposit capital or purchase policies.
Burn	Destruction of tokens, typically happening when shares are redeemed during withdrawals or policies are closed after claims.
Settle	Automatic process that applies pending rewards, fees, and losses to bring account balances up to date during an interaction.
Harvest	Action that pulls accumulated yield from external protocols (Aave, Compound, etc.) back into the CapitalPool for distribution.
Rebalance	Adjustment of capital allocations across pools to maintain a target strategy, respond to market changes, or manage risk.
Sweep	Retrieval of unclaimed salvage after a grace period expires, allowing governance to redistribute or allocate the recovered assets.

Referrals

Term	Definition
Referral Code	Unique bytes32 identifier that policyholders can enter during purchase to trigger rewards for the referrer.
Referrer	User who registers a referral code and earns a share of premiums whenever their code is used.
Referrer Reward	Portion of premium (e.g., 5%) paid to the referrer as a commission to incentivize user acquisition.

Emergency & Safety

Term	Definition
Emergency Mode	Protective state where withdrawals rely solely on idle capital, bypassing yield adapters when external protocols appear compromised.
Pause	Temporary suspension of new policy purchases on a pool, initiated by the committee to mitigate threats during an incident. Existing policies and claims remain active.
Circuit Breaker	Automated safety layer (DIA-based) that monitors asset prices and heartbeats, automatically pausing new cover issuance if thresholds are breached or data becomes stale.
Failed Adapter	Yield adapter flagged as non-functional, blocking new deposits and triggering emergency withdrawal procedures for its positions.
Reentrancy Guard	Contract pattern that prevents recursive calls during execution, protecting against reentrancy exploits.
Access Control	Role-based permission system that restricts access to sensitive functions across the protocol.

Events & Monitoring

Term	Definition
Event	On-chain log emitted by contracts to announce state changes such as deposits, claims, or allocation updates.
Subgraph	Indexed dataset accessible via GraphQL that aggregates LayerCover activity for analytics and app consumption.
Entity	Structured representation within the subgraph that models protocol objects like policies, pools, or claims.
Query	Data request sent to the subgraph or blockchain to retrieve filtered, sorted, or aggregated information.

Mathematical Concepts

Term	Definition
Pro-Rata	Distribution method that allocates amounts proportional to each participant's share of the total, used for salvage, losses, and rewards.
Share Price	For ERC-4626 vaults, `Total Assets / Total Shares`; rises with premiums and yield, falls when losses occur.
APY (Annual Percentage Yield)	Yearly return measure that includes compounding, commonly used to present underwriting yields.
APR (Annual Percentage Rate)	Yearly rate without compounding, typically used to quote policy premium rates.

Term	Definition
Aave	Decentralized lending protocol that LayerCover integrates with for both yield generation on idle capital and insurance coverage products.
Compound	Lending protocol used similarly to Aave for earning yield and backing insurance offerings within LayerCover.
Chainlink	Decentralized oracle network that can supply price feeds, rate data, and other external information to the protocol.
USDC / USDT / DAI	Leading stablecoins that act as the primary assets for policy coverage amounts and underwriting deposits.

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This glossary is regularly updated as the protocol evolves. Last updated: March 2026