Decentralized Insurance “R-Pools” for Recoverable Wrapper Tokens

Decentralized Insurance “R-Pools” for Recoverable Wrapper Tokens

Circle Research

  • In conjunction with Stanford researchers, Circle Research introduced the concept of “R-Pools” which can be used to exchange unsettled recoverable wrapped tokens for base tokens.
  • On November 30, 2023, Circle Research presented and published this idea as part of the DeFi Security track at the ACM Conference on Computer and Communications Security held in Copenhagen. 
  • It is recommended for the reader to familiarize themselves with the research from our recent post on recoverability, which can be found here.

Previously, we introduced recoverable wrapper tokens as a configurable, programmable mechanism to add recoverability features that can help protect developers and users from theft and illicit finance. Different configuration sets suit different contexts and use cases. These sets can range from a general recoverable asset for consumers to a wrapper issued and arbitrated by DeFi protocols to protect their locked funds. 

 

In the latter scenario, the DeFi protocol could still accept normal base tokens, but wrap them immediately to keep them protected and recoverable. When a user withdraws from the protocol, the withdrawal is in recoverable wrapped form. At this point, the user could spend the tokens on a service or entity that accepts recoverable wrapped assets, or they could wait for the settlement period to elapse before unwrapping and subsequently spending the base tokens. However, many DeFi services may not accept recoverable wrapped assets, as they do not expect funds to be revoked post-deposit. What if the user wants to spend the wrapped tokens immediately on another DeFi service, and is even willing to pay a fee to do so? 

 

Circle Research teamed up with Stanford researchers (Dan Boneh and Qinchen Wang) to dive deeper into this thought experiment and answer this very question. We invented the concept of the “R-Pool” which is used to exchange unsettled recoverable wrapped tokens for base tokens. Another way to think about the R-Pool is as a decentralized insurance protocol. In our paper, we discuss the design challenges of the R-Pool and two potential types of implementation: AMM and order book. 

 

On November 30, 2023, we presented and published this research as part of the DeFi Security track at the ACM Conference on Computer and Communications Security held in Copenhagen. We invite you to read the paper to learn more and check out proof-of-concepts for the R-Pool in our open-source recoverable wrapper repo

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Have a question or Interested in a research collaboration? Please reach out to crypto-research@circle.com.

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