Redeem/burn tokens, exit the DAO
Last updated
Last updated
Tokens determine the value of the Underwriting Surplus (UWS)
Unstaked tokens can be redeemed by members against their share of the underwriting surplus which is equivalent to the value of the token.
Recall that the value of the token is pegged to the value of the digital assets in the DAO fund. Recall also that the underwriting surplus are the assets left over after claims and expenses and paid and investment returns realized. Hence the underwriting surplus at any given point in time is equal to the digital assets held by the DAO fund (which do not include reserves for insurance losses that have occurred, but yet unpaid). As such, whenever a token is redeemed, it is equivalent to a member cashing out his share of the underwriting surplus.
Once a token is redeemed, digital assets equivalent to the token value is transferred out of the DAO fund to the token owner and the token is burned or destroyed. This ensures that the remaining tokens maintain their value and are not affected by the reduction in overall assets.
TL;DR:
Tokens = contributions
Benefit = tokens x B.BM x BM.A
Tokens burned once claim is paid, other tokens decrease in value
The decrease in value of tokens represents the cost of coverage
In the event of a successful insurance claim, the benefit is determined by an individual’s token holdings and assigned benefit multiplier (see previous section).
Benefit payout
=
Base Benefit Multiplier (B.BM)
x
Benefit Multiplier Adjuster (BM.A)
x
Individual Contributions (Token holdings)
The benefit payout is paid from the digital assets held in the DAO fund which will reduce the overall holdings of assets in the DAO fund. Tokens will also be burned as part of this transaction, however, they are not burned in the corresponding amount; instead, the entire token holdings of the member making the claim will be burned.
Example:
At the time of issuance or minting, 10 USDC is added to the DAO fund and 10 TAKA tokens are minted and issued to members who purchased the tokens.
The DAO fund now has 10 USDC and there is 10 TAKA outstanding which implies a value of 1TAKA = 1USDC.
A successful claim is made by a member who has 1 TAKA and has been assigned a benefit multiplier of 5x or 5 USDC. The benefit payout amount is therefore 1TAKA x 5USDC = 5USDC.
5 USDC is transferred out of the DAO fund to the beneficiary and 1 TAKA is burned. After recalibration, there is now 5 USDC for 9 outstanding tokens which implies a value of 1TAKA = 0.56USDC.
This example assumes that there are no additional tokens minted and there are no investment returns or token redemptions.
The example above shows the change in value of the token in the event of a claim. It should be clear that the token value decreases for all members in the event of a claim. If a member chooses to cash his/her underwriting surplus out now by redeeming his/her token, it will be less in value than at mint. This reduction in value represents the cost of his/her insurance coverage for the period from first mint till the time of redemption.
