CoverMax 🛡️

A decentralized insurance protocol powered by tradeable risk tokens

🎮 Quick Start for Testing

Want to try out CoverMax? Use this test wallet that already has test tokens:

Test Private Key:

994fc012e651448eacdba62f2e49c17796e44aac67155e512894c23ddbf3e1fd

This wallet is pre-funded with test tokens (aUSDC, cUSDT) that you can use to:

• Deposit into insurance pools
• Receive and trade risk tokens
• Submit test claims
• Experience the full protocol lifecycle

⚠️ WARNING: This is a test private key for development purposes only. Never use it on mainnet or with real funds.

Overview

CoverMax is a revolutionary insurance protocol that transforms traditional insurance through tradeable risk tokens for yield-bearing collateral. Users deposit yield-bearing assets (like aUSDC or cUSDT) and receive dual-tier risk tokens that can be traded on Uniswap. The more risk tokens sold in the market, the more insurance coverage is provided to the community.

🎥 Demo Video

Watch CoverMax in action: https://youtu.be/CvOf5WiP0co

🧠 How It Works

The Insurance Mechanism

1. Deposit Phase (2 days): Users deposit yield-bearing assets (aUSDC, cUSDT) into insurance pools
2. Token Issuance: For each deposit, users receive equal amounts of:
   • Senior Risk Tokens (CM-SENIOR) - Lower risk, priority claims
   • Junior Risk Tokens (CM-JUNIOR) - Higher risk, subordinate claims
3. Trading Phase: Risk tokens can be traded on Uniswap like any ERC20 token
4. Coverage Phase (3 days): Active insurance period where claims can be submitted
5. Redemption Phase: Token holders can redeem remaining tokens for underlying assets

The Risk-Insurance Relationship

The core innovation is that selling risk tokens = providing insurance coverage:

• When you hold risk tokens: You bear the risk of insurance claims
• When you sell risk tokens: You transfer that risk to the buyer
• When you buy risk tokens: You're taking on insurance risk for potential yield

Example Scenarios

Risk Tier Trading (Advanced Strategy)

1. Alice deposits 1000 aUSDC → receives 500 CM-SENIOR + 500 CM-JUNIOR tokens
2. Bob deposits 1000 cUSDT → receives 500 CM-SENIOR + 500 CM-JUNIOR tokens
3. Bob wants more downside protection, so he trades on CM-SENIOR/CM-JUNIOR pool:
   - Sells 200 CM-JUNIOR tokens → receives 190 CM-SENIOR tokens (5% lost in value)
4. Bob now holds 690 CM-SENIOR + 300 CM-JUNIOR tokens (990 total)
   - Result: Bob forfeited 10 tokens of potential upside for senior claim priority
5. Alice see a opportunity to buy cheap CM-JUNIOR tokens that are redeemable to the same underlying token, so she buys the them. She now holds 310 CM-SENIOR + 700 CM-JUNIOR tokens (1010 total)
6. If one of the underlying yield protocols get exploited: Bob's 690 senior tokens get paid before any junior tokens. He can withdraw up to 990 yield tokens.
7. if there was no exploit: Alice's 310 senior tokens get paid before any junior tokens. She can withdraw up to 1010 yield tokens.

🏗️ Protocol Architecture

Core Contracts

• RiskVault.sol: Main protocol contract managing deposits, claims, and tokenization
• RiskToken.sol: ERC20 implementation for risk tokens with mint/burn functionality
• IRiskToken.sol: Interface for risk token operations

Supported Assets

• aUSDC: Aave interest-bearing USDC
• cUSDT: Compound interest-bearing USDT
• Extensible to other yield-bearing assets

Risk Token Tiers

Token Type	Risk Level	Claim Priority	Use Case
CM-SENIOR	Lower	First claims	Conservative insurance providers
CM-JUNIOR	Higher	Subordinate	Risk-seeking yield farmers

🔄 Protocol Lifecycle

Phase 1: Deposit Period (2 days)

• Users deposit yield-bearing assets
• Dual-tier risk tokens are minted 1:1 with deposits
• Tokens can be traded immediately on Uniswap

Phase 2: Coverage Period (5 days)

• Active insurance coverage for deposited assets
• Claims can be submitted and processed
• Risk tokens continue trading on secondary markets

Phase 3: Senior Claims (1 day)

• Priority redemption period for senior token holders
• Senior tokens have first claim on remaining assets

Phase 4: Final Claims (1 day)

• All remaining tokens can be redeemed
• Protocol cycle completes and can restart

💰 Economic Model

For Insurance Providers

• Deposit yield-bearing assets to earn insurance premiums
• Hold tokens to bear risk and earn yield from claims that don't materialize
• Sell tokens to reduce risk exposure and lock in profits

For Risk Traders

• Buy risk tokens on Uniswap to speculate on insurance outcomes
• Sell risk tokens to exit positions or reduce exposure
• Arbitrage between risk levels and market pricing

For Insurance Seekers

• Submit claims backed by evidence when covered events occur
• Receive payouts from the insurance pool when claims are approved
• Benefit from community-funded insurance coverage

🦄 Uniswap Integration

Why Uniswap?

Risk tokens are standard ERC20 tokens that can be traded on any DEX. Uniswap provides:

• Liquidity: Deep markets for risk token trading
• Price Discovery: Market-driven risk pricing
• Accessibility: Anyone can buy/sell insurance risk
• Composability: Risk tokens can be used in other DeFi protocols

Trading Strategy Examples

1. Risk Tier Arbitrage (CM-SENIOR ↔ CM-JUNIOR Pool)

// Strategy: Trade down risk by converting junior to senior tokens
// Bob wants more downside protection, less upside exposure
uniswapRouter.swapExactTokensForTokens(
    200 * 1e18, // Sell 200 CM-JUNIOR tokens
    190 * 1e18, // Expect ~190 CM-SENIOR tokens (forfeit some upside)
    [juniorToken, seniorToken],
    msg.sender,
    deadline
);

// Result: Bob now has more senior tokens (priority claims)
// but less junior tokens (subordinate claims)

2. Complete Risk Exit (Risk Token → Stablecoin)

// Strategy: Exit insurance position entirely
// Sell risk tokens for stablecoins to eliminate exposure
uniswapRouter.swapExactTokensForTokens(
    250 * 1e18, // Sell 250 CM-SENIOR tokens
    minAmountOut,
    [seniorToken, USDC],
    msg.sender,
    deadline
);

3. Risk Speculation (Stablecoin → Risk Token)

// Strategy: Buy underpriced risk for potential yield
// Charlie thinks insurance claims are unlikely
uniswapRouter.swapExactTokensForTokens(
    1000 * 1e6, // Spend 1000 USDC
    minTokensOut,
    [USDC, juniorToken],
    msg.sender,
    deadline
);

🔧 Technical Implementation

Smart Contract Features

• Reentrancy Protection: All external functions protected against reentrancy attacks
• Phase-Based Logic: Automated lifecycle management with time-based phases
• Proportional Redemption: Fair distribution of assets based on token holdings
• Emergency Pause: Owner can pause protocol in emergencies
• Claim Processing: Structured insurance claim submission and approval system

Security Considerations

• Audited OpenZeppelin contracts for standard functionality
• Custom errors for gas-efficient error handling
• Precision math using 27-decimal precision for accurate calculations
• Access controls with owner-only administrative functions

📊 Key Metrics

Protocol Health

• Total Value Locked (TVL): Combined value of all deposited assets
• Insurance Coverage Ratio: Amount of active insurance coverage
• Token Distribution: Spread of risk across token holders
• Claim Success Rate: Percentage of approved vs submitted claims

Market Dynamics

• Risk Token Price: Market valuation of insurance risk
• Liquidity Depth: Available trading volume on Uniswap
• Volatility: Price stability of risk tokens
• Arbitrage Opportunities: Price differences between risk tiers

🚀 Getting Started

For Developers

Test Coverage

• Automated tests are provided for all core contracts in test/RiskToken.test.ts and test/RiskVault.test.ts.
• The test suite covers:
  • Deployment and initialization
  • Minting and burning permissions and edge cases
  • Deposit and withdrawal logic, including error scenarios
  • Asset support and minimum/uneven deposit checks
  • Event emission and state changes
  • Revert and access control checks

Running Tests

# Install dependencies
npm install

# Compile contracts
npx hardhat compile

# Run all tests
npx hardhat test

All tests should pass. For troubleshooting, ensure you are using a compatible Node.js version and Hardhat is installed.

Deploy to local network

npx hardhat ignition deploy ignition/modules/RiskToken.ts --network localhost

🤝 Contributing

Contributions welcome! This project includes:

• Hardhat development environment
• TypeScript support
• Comprehensive test suite
• Deployment scripts

📜 License

MIT License

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CoverMax: Phase-based risk management with dual-tier tokens