ISM’s DAO Governance Details
The governance of ISM for its first-tier insurance products follows that from Nexus Mutual where governance is facilitated by an Advisory Board who makes (collective) decisions requiring interaction with the non-blockchain world as well as govern some of the more extreme scenarios. The advantage of an advisory board is that it protects existing members by ensuring the overall fund is sustainable. The governance of the second- and third-tier insurances is accomplished by the DAO mechanism. Hence, the governance of ISM relies on a combination of a DAO mechanism and an advisory board.
Advisory Board: In fact, an advisory board consists of experts and professionals which are necessary for the first-tier insurance. This is true because the first-tier insurances are provided to 10 cover risks from rare events in the real world, and therefore their verification and claim assessments have to be monitored and determined by the group of experts. Therefore, similar to Nexus Mutual the first-tier insurances require an advisory board to implement wishes of members, punish bad actors with the claims assessment process, and guarantee that all legal and regulatory requirements are met.
DAO: The DAO mechanism guarantees governance similarly effective as an advisory board because all customers are beneficiaries and insurers at the same time. The customers govern the provision, cancellation, and insurance claims in the ISM platform. Governance of insurances in the second- and third-tiers are achieved through a DAO mechanism. Users holding ISM are allowed to vote for or against a motion such as replacing the insurance for token A’s price to the insurance for token B’s price. Since the total amount of ISM that customers can obtain from purchasing insurance is pre-specified, it is unattractive to add new insurance for a new token. Instead, a previous insurance product must be cancelled and replaced by the new insurance. Such replacement, however, do not affect the funding pool corresponding to the previous insurance and the same rules apply to the new insurance. For example, there are 100,000 ISM in the funding pool of the insurance for token A and DAO voting has decided to replace token A with token B. Then, there are 100,000 ISM in the funding pool of the insurance for token B and a claim is made automatically if the price of token B reaches corresponding threshold in the corresponding tier. Insurance-mining is not affected in the event of a replacement in that the return from mining after the replacement continues from before the replacement. Evidently, this is only true for the second- and third-tier insurances because the conditions for successful claim is pre-determined and automatically executed.
Voting: To initiate a replacement of insurance, a customer must have over 100 ISM/ETH. One ISM equals one vote, and all ISM used in voting for a replacement is burned afterwards.
This simple mechanism guarantees costly and sincere voting behavior within the ISM system.
