Insurance & Reinsurance Through Restaking From Eric Waisanen AlphaGrowth

Good morning, ETH Denver. My name is Eric Weissman. I'm here to talk about the product's market fit for restaking and why it will be a boom in the industry beyond what crypto has done so far. A little background. I manage DeFi and tokenomics operations for Alpha Growth.

My background is in economic philosophy and I have focused for the last four or five years on decentralized businesses and monetization. We are very good as a space at building science fair projects , creating new ways of doing new things, but we struggle to integrate real businesses, generate real revenue, and increase real sales. And, uh, we found a great way to do that. We have some projects that are working on it projects that are working on it . Today I'll review restaking, give a brief overview, talk about insurance, show why it fits perfectly as a new business narrative, and then we'll look at a couple of examples with health insurance and DeFi insurance.

So, what is restaking? By now everyone has heard the term . Many companies raised a lot of money using this as a narrative. Um, but let's review the history. We started with staking.

You know, Ethereum is finally making the switch. You stake Ethereum. This is how you provide security to the network, but now you give up the opportunity costs of liquidity and being able to participate in DeFi. So, Lido, Rocketpool, and many other service providers create LSTs, or liquid staking tokens. So, yes, you secure the network, but you can also take action in, uh, DeFi.

But the next step was the security mortgage. This is what EigenLayer discovered. And this is taking that new liquid staking token and staking it again, and now you provide security in a second place at the same time. And they, they did this in theory, you know, it's exploded in the last two or three years. I think the story is that three years ago, Shriram, whom we saw recently, was struggling to get in here, and now, obviously, EigenLayer is one of the biggest names in Ethereum.

Um, but he made this possible and now it's our job to figure out how to make this work for business. And fundamentally, the benefit of this mortgaged security is access to capital. Keep that in mind. We'll go back to that. Access to capital.

So, who are the customers of restaking right now? You may have heard the term as an Actively Validated Service (AVS). Well, I helped design the King protocol, if you've heard of it , working with Etherfi and many of the major LRT providers to be able to package all these different rewards from all these different AVS that come and rent security. But one of the FUDs or arguments surrounding this is like: "Oh arguments surrounding this is like: "Oh , so these will just be new tokens," or maybe, you know, with a low float and high FDV, those things that have burned us out before, paying in their native token to rent security, without doing anything with it. So, how do you get real money?

How do you get a real return? We're talking about live fire, right? At what point does it become something substantial? And right now , this is a gap that remains unfilled. Changing the subject slightly, unfilled.

Changing the subject slightly, what is insurance? Insurance is like a shared savings account, but with a shared savings account, you start from scratch and gradually increase your balance . With insurance, you need money immediately, right? So it's like a shared savings account that starts high. This brings us back to access to capital.

Insurance is like an open loan, a line of credit, if you will, that becomes a shared savings account once it is paid off. Insurance is a different way of accessing capital. And it's disguised as the private sector. But I have some problems with that. Again, economic philosophy, if you delve into monetary theory or economics, you know monetary theory or economics, you know , economics is fundamentally about how to distribute scarce resources and the private sector creates resources.

They are finite, but they are not fixed. So, the private sector creates resources. Hey, insurance is a private sector, right? Is n't it great? But the public sector will then distribute resources more effectively.

Everything is in the private sector. You get crony capitalism private sector. You get crony capitalism . More resources distributed in an incredibly inefficient way. If you go to the entirely public sector, you get communism.

Minimum resources distributed very equitably. We are all equally poor. We need something better. And in trying to make insurance companies fairer, the public sector has forced everyone to buy them and created a captive audience. You all have insurance.

I have insurance. A lot of different types of insurance. We have to do it to live our daily lives. And the processes that the bureaucracy or the public sector have used to make us buy this, you know, the profit caps that insurance companies have, have really forced them to operate intentionally inefficiently based only on game theory in order to make more profit. Because they are all corporations, their only obligation is to maximize profits and they only think one year ahead.

So we have inefficiency and forced ineffectiveness that is destroying insurance, but we have a new opportunity. I analyzed who the customers of the restaking providers are. There are a couple, but right now it 's not enough. It is not enough to justify current valuations, much less to increase them. We need to improve.

But who are the insurance providers? United, Cigna, Aetna, those are health insurance companies. Aetna, those are health insurance companies. What about the big banks? Yes.

They 're not everyone's favorites. Not everyone is aligned to help the people who, you know, are being cared for. Deny, deposit, depose. So, let's begin with our first example. We will enter the realm of health insurance and DeFi insurance health insurance and DeFi insurance .

Could we decentralize health insurance? Could we match access to available capital through restaking with the capital required by these insurers? Let's take a look at health insurance. Health insurance companies also have insurance. You know that insurance companies have insurance.

That's called reinsurance. It goes in levels, levels, and levels. Typically, a health insurer will have at least two types of coverage. Stop-loss insurance to ensure you don't assume all the risk in case someone costs $250 billion or something like that. Both types are aggregated.

This would be, in his opinion, his maximum out-of-pocket expense for his personal health insurance . The second would be specific or specific stop-loss. This would be like your deductible. This would be the maximum allowance for a single person. When you pay your premium, the costs that go to your provider, if you have Cigna or United, are included in your premium because they pay their reinsurers for both.

However, upon reviewing these models, we believe, and in fact have, a product where we can eliminate specific insurance, charge less for added insurance, and save a lot of money on operations by using EigenLayer and its associated projects for a line of credit. Here on the screen I have the maximum added insurance . Think of this as a health company that has, say, 100,000 members. Perhaps we have a stop-loss insurance policy where any cost over $60 million will be covered by a reinsurance provider. And right now that's still traditional, you know, State Farm or one of these other big banks.

We don't have specific insurance here. And we know we have the ARR, the annual recurring income from health insurance premiums. So if we have a maximum expenditure of, let's say, 60 million and we know that we are going to generate, I don't know, 100 million. Uh, I'll adjust the figures to 80 and 120 million. It works best for the calendar.

Uh, so we can only spend a maximum of $80 million . We know we're going to generate $120 million. We can assure you that by the end of the year we will have obtained at least $40 million in profits. Perhaps the operating expenses are 20 million of that. So, the profit would only be 20 million.

But you know there is a minimum profit that can be made. The only risk now is if you reach that aggregate early, if you know that a third of your patients end up suffering heart attacks in the first few months and you have to resort to this line of credit available from the beginning. So what we need now is a possible line of credit to protect ourselves from early claims and thus guarantee profits at the end of the year. So, what is a RELOC? I assume you 've heard of the HELOC, a home equity line of credit.

Well, we're talking about a restaking credit line. This helps our insurance products. It is not insurance itself, but it provides access to the capital necessary for a regular insurance company to underwrite the plans it offers. If we reach an agreement with a reinsurer or an LRT provider for a line of credit, we can back it up with legal contracts. We're talking about a combination of legal contracts and smart contracts, where we can predefine when penalties (" when penalties (" slashings") occur, when you can make withdrawals, how to take part of the initial capital, and you can block participants, and even create a whitelist of who can get this return.

And maybe we'll say, " this return. And maybe we'll say, " Hey, we can offer you a 12% APR for a year. You just have to keep your funds locked for a year." If expenses are lower, it might even be higher than that. But now we can guarantee real returns and the profits that insurance companies currently take.

And current insurance providers may come to you if you stake Ethereum and your broker chooses things that could be penalized, but will end up with a higher net return than people who just, you know, nowadays a lot of restaking is kind of a meme. Uh, not even all the penalties are active. So congratulations, you successfully operated a node . We're talking about real business. The specialty is not the operation of the node.

The specialty is the contract, the services, and the capital that is allocated. Essentially, this becomes a completely new type of market . Any type of insurance is possible. We can serve any type of customer. Any LRT provider, any wallet operator for these LRTs, can assume as much risk as they wish to underwrite for their users.

We get some new credit rating agencies . This is a real business. TradFi becomes an AVS. AVS is a customer of LRT providers. Oh, what kind of performance are we going to get?

Well, maybe points. We obtain our ETH and then we can get some governance tokens. We're talking about receiving cash payments . I say that, if we pay 10% . I say that, if we pay 10% annually to this insurance company with a guaranteed profit, I prefer to give that 10% to people who stake ETH, working more transparently and efficiently, eliminating corporate bureaucracy, six-month payment times, and saving a lot of money by managing the business well.

This is not only the right time technically, now that the pieces are in place to make this work. This is the right time socially, since we are all very aware of how insurance companies operate and how terrible their service is. I'm not going to go into too much detail about products right now, but if any of this interests you, I'd love to talk to you later love to talk to you later . There are real projects working on these real products I'm talking about these real products I'm talking about . And that's good for health insurance .

And that's good for health insurance . What's happening with DeFi? Is DeFi doomed? Will it just be governance tokens upon governance tokens, narrative after narrative, monkey drawings? What is OEV?

All these new developments that are emerging. DeFi has not attracted money from traditional finance. We are waiting for him. We want it. We all know we need it, but we've surely seen several presentations here on this journey about how we can improve our trading a little.

And what are you going to say about bringing in hedge funds to start managing their funds on-chain? Where is that? funds on-chain? Where is that? What's holding it up?

And at Alpha Growth, basically, what we've accepted, especially when dealing with family offices, and even sometimes with state actors, is what it would take for them to start using take for them to start using , say, Compound, which we work with. Start using Compound instead of Bank of America. And what this means, in short, is that they need to eliminate contract risk, variable rate risk, and regulatory risk. Well, regardless of your political opinion, I think we can all agree that the current presidential system is better in terms of regulatory risk. Depending on the country you live in, there are better opportunities than in others.

But we're all working on it. Lobbying activities are underway. God knows we need better laws and to educate the people in Congress who don't even know what an email is . But we are working on the regulatory risk aspect. We have created protocols that allow changing the variable rate to a fixed rate.

Why are people buying Michael Saylor bonds at a 50% premium Michael Saylor bonds at a 50% premium over Bitcoin? It's because their funds can only buy and trade bonds. So they assume the risks and benefits that they can within what they are legally allowed to do. And many, many of these funds and companies are not allowed to engage in variable rate risks. We ourselves cannot fix the variable rate risk.

Therefore, protocols that allow these types of OTC swaps reduce that risk. But how is the contract risk resolved? And I'm sure you'll get there . You can assure it. What can you guarantee?

You can insure anything . The TVL of a protocol. What if Compound's entire TVL was insured? What if I launched a memecoin, but insured the coverage of that liquidity? I mean coverage of that liquidity?

I mean , it might be difficult for Etherfi to subscribe to it or for an operator to participate. But any of these things is possible now. I hope you saw MetaMask showing off their new debit cards. Well, debit cards must go through KYC. If you go through KYC, you really can't create fake identities.

So what if we launched our own FDIC-insured account with higher per-user insurance and higher returns than a traditional checking account , without needing government backing? Bridges, we've seen bridge hacks. Hell, you can probably even get operators to underwrite bridge mortgages, making bridges profitable for ecosystems that attract TVL. Uncollectible debt. We've all seen DeFi protocols that weren't as secure as we were led to believe: stability pools, parities, SMOs.

We can insure anything. This is a completely new market. So, that's all for the time I had with this preview. I would love it if someone had questions or wanted to talk to me more. Yes sir.

Yes. He asked, "What is the next largest asset or industry that will be insured?" And I think it will start with health insurance. Um, I think that will happen maybe in conjunction with DeFi, but I think we're closer to health insurance being possible and existing now than many of you realize. Um, and that will help capture the narrative to extend it to DeFi as these payment methods are incorporated.

I mean, we need completely new service providers for this to exist. We need actuaries to come in. We need each LRT provider to become an insurance company and for the operators to determine insurance company and for the operators to determine , so to speak, which Moody's system they will use to decide what to insure and what not to insure. This is a job I've been doing for the last five or six months, so we have a bit of a head start. Um, but it's an inevitable narrative and one that we desperately need in Ethereum.

Brilliant. If you have any other questions, I apparently have two minutes, but other than that, I'd love to talk offstage. Aside from that, I'd love to know what kind of insurance you'd like and who you'd like to hire. Hi, thanks for that chat hire. Hi, thanks for that chat .

It's very interesting. Um, is there a risk that people who deposit their restaking tokens as collateral could be liquidated because someone needs the insurance, or, you know, you mentioned that if we have too many claims at the beginning of the year, is there a loophole? So, if that happens, are those restaking tokens liquidated to cover the debt, and how is the person reimbursed? Well, it depends on the fund and the agreement. The possible agreement I showed in the example, yes, it is possible, that's why we would ask for a 12-month blocking period .

Um, we want to avoid gamification, which again, in a dynamic market, could be configured into anything. But for real commercial contracts, we would like to avoid the gamification of withdrawing your stake before being penalized (slashed) and depositing afterwards to collect rewards. So , something like a one-year freeze on the allocated funds. That way, you know, if you were penalized 60% you know, if you were penalized 60% because you had a terrible first two months of the fiscal year, those people will still receive more than they are entitled to based on the bonus they accepted upon joining. Can you tell us a little about your vision of how you foresee things getting closer?

I'm sorry. Could you tell us a little about your vision for how you foresee mass adoption in health insurance? In other words, what would be needed to take the first steps? Thank you. Uh...

Perhaps you've heard of his example. They have been reselling health insurance for six or seven years. Resale is going very well. To achieve mass adoption, you need a real insurance company that not only resells, but creates the policies. To create policies, you need a minimum of 10,000 registered members.

I have helped in the process so that companies can achieve this. And we anticipate that, towards the end of this year, when open enrollment arrives, a significantly larger number of people will join an insurance plan. By being able to secure a plan that operates much more economically than others, even by a wide margin, we can outperform current providers, get employers to switch and enroll their employees, save them 20 or 30% on their coverage, and save them 20 or 30% on their coverage, and once we have that definitive annual recurring premium income, well, we need that deal ready. So it's a bit like the chicken and the egg dilemma. We need the deal finalized so we can get the people on board for the plan.

But at the same time, when we get people to join the plan, the agreement gains value. So the right parties are talking. This is nothing new. It's been going on for a while. Brilliant.

Thank you all so much for your time.