Enhance README with detailed protocol information

Expanded the README to include detailed sections on the insurance protocol's abstract, motivation, specification, rationale, and security considerations.

Author: wflores9

XLS-0098-insurance-protocol/README.md

@@ -1,3 +1,124 @@
+<pre>
+  xls: 98
+  title: Institutional DeFi Insurance Protocol for XLS-0065 Vaults
+  description: An ecosystem-layer insurance protocol enabling vault depositors to purchase coverage against borrower defaults in XLS-0066 lending vaults.
+  author: Will Flores <wflores@wardprotocol.org>
+  category: Ecosystem
+  status: Draft
+  proposal-from: https://github.com/XRPLF/XRPL-Standards/discussions/474
+  requires: XLS-0020, XLS-0030, XLS-0065, XLS-0066, XLS-0070, XLS-0080
+  created: 2026-02-23
+  updated: 2026-02-23
+</pre>
+
+# Institutional DeFi Insurance Protocol for XLS-0065 Vaults
+
+## 1. Abstract
+
+Ward Protocol is an ecosystem-layer insurance protocol for the XRP Ledger that enables vault depositors to purchase coverage against borrower defaults in XLS-0066 lending vaults. The protocol uses existing XRPL primitives: XLS-0020 NFTs for policy certificates, XLS-0030 AMM pools for capital aggregation, and native Escrow for claim settlement, without requiring any protocol amendments. The reference implementation is live on XRPL testnet at https://wardprotocol.org.
+
+## 2. Motivation
+
+XLS-0066 introduces fixed-term, fixed-rate lending using pooled liquidity from XLS-0065 single-asset vaults. While XLS-0066 includes First-Loss Capital protection, vault depositors face uninsured tail risk when defaults exceed that protection:
+
+    DefaultAmount  = Principal + Interest
+    DefaultCovered = min(FirstLossCapital x LiquidationRate, DefaultAmount)
+    VaultLoss      = DefaultAmount - DefaultCovered
+
+Example: A $55,000 default with $1,000 First-Loss coverage leaves depositors absorbing $54,000. This prevents institutional participation because regulated entities require risk transfer before deploying capital at scale.
+
+## 3. Specification
+
+### 3.1 Overview
+
+Ward Protocol operates as an off-chain service with on-ledger settlement. All financial obligations are backed by on-ledger AMM pool reserves. Policy ownership is represented by XLS-0020 NFTs. Claims settle via native XRPL Escrow.
+
+### 3.2 Policy Issuance
+
+A depositor purchases a policy by sending a premium payment to the Ward Protocol operator account. The operator mints an XLS-0020 NFT as the policy certificate with URI metadata:
+
+    {
+      "protocol":        "ward-v1",
+      "vault_id":        "<XLS-0065 VaultID>",
+      "coverage_amount": "<drops>",
+      "coverage_ratio":  "<percent>",
+      "coverage_start":  "<ISO-8601>",
+      "coverage_end":    "<ISO-8601>",
+      "pool_id":         "<AMM AccountID>"
+    }
+
+### 3.3 Premium Calculation
+
+    epoch_premium   = coverage_amount x base_rate x term_factor x risk_multiplier
+    total_premium   = epoch_premium x num_epochs
+    base_rate:        1-5% annually (per vault risk tier)
+    term_factor:      term_days / 365
+    risk_multiplier:  0.5x-2.0x based on vault utilization, First-Loss ratio,
+                      LossUnrealized impairment ratio, historical default rate
+
+### 3.4 Claim Validation (9-Step Process)
+
+1. Verify loan has lsfLoanDefault flag set on-ledger
+2. Calculate vault loss using XLS-0066 AssetsTotal delta
+3. Retrieve policy record linked to submitted NFT TokenID
+4. Verify policy status is active
+5. Verify default occurred within coverage window
+6. Verify defaulted vault matches policy vault_id
+7. Calculate payout: min(VaultLoss x CoverageRatio, FaceValue)
+8. Verify pool capital adequacy: ReserveBalance >= payout
+9. Approve or reject; log result on-chain via Memo field
+
+### 3.5 Claim Settlement
+
+Approved claims settle via native XRPL Escrow with a 48-hour dispute window. Operator creates EscrowCreate with FinishAfter = 48 hours. After window closes, EscrowFinish releases funds.
+
+### 3.6 Capital Pool Solvency Constraint
+
+    TotalActiveCoverage <= ReserveBalance x MaxCoverageRatio / 100
+
+MaxCoverageRatio defaults to 200 (200% minimum reserve). Enforced at policy issuance and pool withdrawal.
+
+### 3.7 XLS-0070 Credential Integration
+
+When a pool requires credentials, the operator validates the depositor holds a valid unexpired XLS-0070 credential before issuing a policy. The credential hash is recorded in the policy NFT URI metadata.
+
+### 3.8 XLS-0080 Permissioned Domain Integration
+
+When a pool sets domain restrictions, the operator validates the depositor is a member of the pool's XLS-0080 Permissioned Domain before issuing a policy.
+
+## 4. Rationale
+
+An ecosystem implementation allows rapid deployment and market validation before requesting protocol changes. XLS-0020 NFTs provide policy transferability and on-ledger metadata. XLS-0030 AMM pools provide transparent reserve verification. Native Escrow provides dispute resolution without smart contracts. If adoption warrants it, a future amendment (XLS-104) could add native InsurancePolicy ledger objects and PolicyClaim transaction types.
+
+## 5. Backwards Compatibility
+
+This proposal introduces no changes to existing ledger objects or transaction types. No backwards incompatibilities exist.
+
+## 6. Test Plan
+
+The reference implementation includes 60 automated tests with 75% code coverage covering policy issuance, premium calculation, 9-step claim validation, escrow flows, XLS-0070/0080 verification, and pool solvency enforcement.
+
+Test suite: https://github.com/wflores9/ward-protocol/tree/main/tests
+
+## 7. Reference Implementation
+
+- Website: https://wardprotocol.org
+- API: https://api.wardprotocol.org
+- Docs: https://api.wardprotocol.org/docs
+- GitHub: https://github.com/wflores9/ward-protocol
+- XLS-0080 Domain ID: 0a0fb36bcd46e16b4391d5c0df0d1fbb1841b602b11d13c8d06c6ed5463dc17a
+
+## 8. Security Considerations
+
+**Oracle Risk:** Default detection uses only on-ledger state. No external oracles are used. Multiple monitoring nodes with 3-of-5 consensus prevent single points of failure.
+
+**Capital Adequacy:** 200% minimum reserve enforced at policy issuance. Pool withdrawals violating solvency are rejected.
+
+**Claim Fraud:** All claim inputs are verifiable on-ledger. The 48-hour escrow window provides a dispute period.
+
+**Key Management:** Operator account uses multi-signature (3-of-5) with cold storage for reserve keys.
+
+**No Smart Contracts:** All transactions use native XRPL transaction types only.
 ---
 xls: 98
 title: Institutional DeFi Insurance Protocol