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Cozy is an open-source protocol for automated and trust-minimized protection markets. Protection markets allow users to provide and receive protection against predefined conditions like loss of funds due to a smart contract hack.
Conceptually, a protection market is what enables Cozy users and developers to get and provide protection against losses stemming from a specific trigger condition.
The main components that define a protection market are:
A money market with a liquidity pool of digital assets with an underlying token for the market.
A trigger contract that specifies an on-chain condition to protect the assets in the pool against.
An interest rate model that determines the interest rate that borrowers pay.
The trigger contract for a protection market defines a trigger condition to check for. As long as the trigger condition has not occurred, the protection market borrowers and suppliers accrue interest. If the trigger condition occurs, the trigger contract is executed and any outstanding debts in the protection market are cancelled for protection borrowers.
To learn how to create a protection market, see Create a protection market.
Users provide and get protection by participating in protection markets. Each protection market has a trigger contract that defines the condition users can provide and purchase protection against.
The trigger condition is an expression that, when evaluated, returns true if the trigger condition has occurred. If the trigger condition remains unchanged (that is, when evaluated, the trigger condition returns false), the protection market earns interest and collects payments from protection borrowers. If the trigger condition occurs, the trigger contract is executed and any outstanding debts in the protection market are cancelled for protection borrowers.
You can get and provide protection for any DeFi protocol that has a protection market. The specific conditions you are protected again depend on the trigger contract for the protection market in which you are interested.
If a protection market doesn't yet exist for the protocol or the type of protection you're interested in, you can create a new protection market.
Protection markets price protection based on utilization. Typically, the more demand there is for protection relative to supply, the higher the interest rate. However, creators of protection markets can set their own interest rate curves, so make sure to check how pricing works for the protection market you're interested in using.
Anybody can create protection markets.
You can use ETH, USDC, DAI, and WBTC.
Each protection market takes a percentage of each interest payment. This fee is determined by the
Reserve Factor just like in Compound. The
Reserve Factor for each market is adjustable by governance and is held to backstop shortfall events in the protocol.
Borrowing power is calculated by dividing your active borrow amount by your total collateral.
Active borrows is the USD value of all the assets you've borrowed.
Total collateral is the USD value of all the assets you've deposited as collateral multiplied by their collateral factor.
Cozy uses Chainlink oracles to get asset prices for ETH, DAI, and WBTC. The one exception to this is USDC, which has a hardcoded price of $1.
In the first phase of the protocol (alpha), each market will have a maximum amount of assets that can be borrowed. This is to limit the overall exposure users can get on the protocol as things are still relatively untested. Over time, these borrow limits will be removed.
The Cozy protocol is implemented through a mostly immutable set of smart contracts. Protocol improvements sometimes require a complete redeployment of the smart contracts. If you are reading this, it is likely that a new version of the protocol has been deployed, which means you'll have to migrate your funds to keep using the app.
Migrating your funds is as simple as closing out your positions, withdrawing your funds, and redepositing them in the latest version of the Cozy app available on the cozy.finance website.