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Risk Pools and Capital Efficiency
In order to pay claims capital is locked in Risk Pools
In order to guarantee that claims can be paid the risk platforms need to "lock" capital. The beauty of blockchain technology is that it's fully transparent how much capital have been locked against certain risks. Each Risk Platform has a different approach to "locking capital" which impacts the risk and price of the covers they offer. There are two goals which need to be carefully balanced:
Goal 1: Guarantee claims payout Goal 2: Increase the Return On Investment of the locked capital
In case a Risk Platform offers a protocol failure cover for 10 protocols and locked $1M in capital for each. Should the Risk Platform then allow only 10x$1M=$10M worth of assets to be insured? The answer is NO, As it's highly unlikely that all 10 protocols will be hacked at the same time. Hence the Risk Platform can look for Capital Efficiency which allows them to use the $10M of locked capital to ensure a higher value of assets.
Each of the risk platforms has a different approach to staking the above balance.