Decentralized insurance protocol Cover holds vote to cover Pickle hack

In what might be an important step towards the maturation of the decentralized insurance space, a claim was filed yesterday with DeFi insurance protocol Cover following the $19 million Dai hack of Pickle Finance — and so far, the majority of users want to see a payout happen.

According to the claim on Cover’s website filed Nov. 21, there have been 99 votes at the time of publication throwing roughly 9,800 COVER tokens — more than 99% of respondent tokens — behind a “yes” vote to pay out affected coverage holders. Ivan Martinez, a technical advisor for Cover, said on Twitter that should the vote pass, the claim will move to its Claim Validity Committee “to decide if it’s valid for a payout or not.”

— DeFi Ted (Bakes) (@DeFi_Ted) November 21, 2020

Although the hacker absconded with roughly $19 million in Pickle user funds, Cover clarified that any payout was not going to cover the entirety of the loss. In an interview with Cointelegraph, semi-anonymous and core Cover developer Alan said that after CVC approval, “all PICKLE CLAIM token holders will be able to redeem 1 CLAIM token for 1 DAI,” assuming the Claim Validity Committee, or CVC, approves a 100% payout to holders, as Alan expects.

There are currently over 340,000 Pickle CLAIM tokens outstanding, where they trade on secondary markets for $0.90. Alan pointed out that this could lead to some “arbitrage opportunities” for traders who expect the proposal to pass. 

Pickle’s claim is one of the first test cases for a decentralized insurance protocol using a blockchain snapshot to vote on coverage. As many in the crypto space have been affected by hackers taking advantage of exploits since the DeFi boom began, the response on social media has been supportive of a payout, but also skeptical.

Many are concerned about what Cover will decide because yesterday’s attack on Pickle did not use a flash loan attack — a common tactic for hackers targeting DeFi protocols — but rather a maligned tool which some claim resembles more of an exit scam. The hackers were able to swap funds between a malicious copycat contract and Pickle’s yield-bearing vault — called the cDAI jar — leading to users noticing the jar had been emptied.

Under Cover’s guidelines, the project states it will pay out claims from exploits or certain attacks on smart contracts — specifically referencing flash loan attacks — resulting in “a material loss of funds from the smart contract, or smart contract system with funds either moved to another address which the original owner or owners do not control or the funds are made permanently irrecoverable.”

No matter what conclusion Cover ultimately reaches, its decision will have ramifications for the DeFi community. In addition to Pickle Finance, hackers have targeted several DeFi protocols this year resulting in the loss of millions in funds, from Harvest Finance, Value, Akropolis, Cheese Bank, and Origin, to name a few. A robust selection of insurance protocols such as Cover may help mitigate the fallout from such attacks. 

Said Cover’s Alan:

“I think DeFi coverage is essential for mass adoption of these protocols. Some of these protocols that people are creating will change the financial industry for good, but since we are especially early, there are many attack vectors present, and many more unknown. Our job is to allow users to experiment with game-changing protocols while also remaining hedged against exploit risk.”

Voting on Pickle’s claim will end on Nov. 23 at 11:59 AM EST.