🔖The LifeDao Model

Islamic alternative to insurance still represents less than 1% of the global insurance market despite its numerous benefits. Adoption has been hamstrung by a lack of transparency, a lack of regulatory consistency and a lack of access for people outside of Muslim countries.

To respond to these challenges, Takadao came up with The LifeDao (TLD), a web3 technology-first approach to building alternative insurance products of the future.

The LifeDao is articulated around three pillars which makes it unique in its kinds:

Community

A DAO is an independent entity that is owned and managed by its members.

Organized as a DAO, TLD allows people to come together and contribute to a fund that is professionally managed and fully owned by the members of the community.

As an alternative to conventional insurance, TLD has been developed by promoting ta'awun among a group of individuals to mutually guarantee and aid each other. Such cooperation involves contribution of money by all members for a specific purpose.

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in Standard No. 26 paragraph 3 according to Islamic jurisprudence states the following:

Islamic insurance is based on the commitment of the participants to make donations for the sake of their own interest. The participants, therefore, protect their group by payment of the insurance fund, and assign the management of that fund to a committee of policyholders, or to a joint stock company that possesses the license of practicing insurance business. In the latter case, the company assumes this job on the basis of a remunerated Wakalah (agency) contract. In addition to managing the insurance operations, the committee policyholders or the company also assumes the responsibility of investing the assets of the funds through Mudarabah or investment agency.

3/1 - The company is entitled to its own capital and returns on capital, the agency fees, and its specific share of the profit earned by investing the insurance assets through Mudarabah or investment agency. The company also bears all the expenses of its operations including those relating to its tasks for investing the insurance assets.

The LifeDao Model

TLD has adopted this common model, known as hybrid Wakalah-Mudarabah business model, based on Wakalah for managing underwriting operations and Mudarabah in investments. This model provides diversification in terms of sources of income and transparency in managing funds.

Wakalah (agency) is a contract between a party (principal) who appoints another party (agent) to perform a certain duty on behalf of the principal in representable or assignable matters according to the shariah perspective. So as a wakil, Takadao which is a for-profit service provider, manages the underwriting and technology functions on behalf of the DAO fund. This is in exchange for a previously set fee, estimated as a percentage of total contributions made to the fund, known as the agency or wakalah fee charged on subscriptions. Scholars have unanimously agreed on the permissibility of wakalah in a tabarru` mutual protection business.

Mudarabah is a profit-sharing arrangement between two or more parties. This Arabic word can be translated as the mutual action of two people. It refers to a form of business contract in which one party brings capital whereas the other provides the professional, managerial, skill, expertise to carry out the business.

The contract was commonly used by the Prophet ( صَلَّی للهُ عَلیۡہِ وَ آ لِہٖ وَسَلَّم ) tribe in pre Islamic times.

When Islam came, the Prophet ( صَلَّی للهُ عَلیۡہِ وَ آ لِہٖ وَسَلَّم ) continued to approve of the contract. The capital provider is known as rab al mal and the entrepreneur as Mudarib.

In Islamic Jurisprudence, different duties and responsibilities have been assigned to each party. As a matter of principle, rab al mal does not interfere in the management of the enterprise. However, he has the right to specify some conditions that would ensure better management of his money. An important characteristic of Mudarabah is the arrangement of profit sharing. The proportionate share in profit is determined by mutual agreement. If there is a loss, it is only borne by the financier while the entrepreneur loses the fruit of his labor. The profit, if any, is shared in pre-agreed ratios. There is no loss sharing in a Mudarabah contract. The capital provider usually bears the loss, if any, unless it is caused by negligence or in violation of the terms of the contract by the agent who actually runs the business.

Reserve

Islam emphasizes on the management of life, among other, by ensuring the orderly economic aspect and Islamic mu'amalat. Therefore, it encourages preemptive measures to counter any unpredictable future event. In line with the objectives of shariah , the allocation of reserves as a pre-emptive measure will be established to ensure the efficiency of the members' fund in meeting its liabilities.

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in Standard No. 26 paragraph 10/5 according to Islamic jurisprudence states the following:

For the sake of serving the policyholders interest, it is permissible to deduct part of their funds or profits to be used as reserves or allocations pertaining to the insurance fund. Such deductions, however, should by no means belong to the shareholders of the Joint Stock Company. The accumulated balance of the insurance account shall be spent on charity purposes in case of liquidations.

Surplus

Assuming no claims were made and no insurance benefits paid out, at insurance contract maturity TAKAs will be unstaked and released to the member. Unstaked tokens can be redeemed by members against their share of the underwriting surplus. The underwriting surplus are the digital assets left over in the DAO fund after payouts and expenses are paid and investment returns realized.

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in Standard No. 26 paragraph 5/5 according to Islamic jurisprudence states the following:

The adopted rules may comprise disposal of the surplus in a way that serves the cause of common interest of the participants, such as accumulation of reserves, reduction of the contribution, charitable donations and partial/full distribution of the surplus among the participants. The managing company is not entitled to any share of the surplus.

Top Technology

A DAO is far superior than a real world company in that it is governed by auditable smart contracts that cannot be changed by any one person. This allows a “trustless” entity, one that doesn’t require a centralized authority to enforce.

Featuring the Benefit Multiplier

In any insurance-type product, there is an expected amount of losses that are incurred from claims, called the “loss ratio”.

The loss ratio is based on the amount of risk that is taken on as a result of the underwriting process. Therefore, the solvency of the DAO fund, which results in the ability to honor all membership payouts, is always the ultimate goal of all underwriting and financial decisions. The key point is that all risk and reward accrue to the DAO fund only and not the operator.

The worst thing that can happen to a risk sharing fund is that the fund runs out of money and is discontinued. This would mean a total loss for all the members who would lose their coverage and all their contributions as well. Hence, dynamic underwriting is applied to prevent this scenario by adjusting benefit amounts to maintain fund solvency.

For this very reason, with TLD’s dynamic underwriting model, hereby referred to as Takawriting, the benefit, or membership payouts is not strictly defined. It is not a sum assured. Instead the model starts by determining a targeted loss ratio and underwriting surplus and works backwards to determine the benefit amount based on the amount that was contributed by the member and his individual risk. Rating will depend on age, residence, occupation and lifestyle, among other factors. The better the rating, the lower the risk and the higher the ensuing benefit multiplier.

At any given time, there is a balance between the loss ratios and benefit payouts that optimize for the solvency of the fund. In case the loss ratios become too high to threaten the fund solvency, the benefit payouts will be reduced to bring the loss ratios back to the desired level. TLD’s most important role is to ensure that its members are protected and benefit from mutual aid and assistance in times of adversity so the decrease is shared among many so that not one single individual will be disproportionately impacted. However, since benefit payouts are a multiplier of an individual’s contributions, the minimum benefit payout that can be received will equal that individual’s contribution. In the event of a payout, the beneficiary will receive at least what was paid in. In the event that loss ratios are lower than expected, meaning the fund is performing better than expected, then benefit payouts and underwriting surplus are increased, benefiting all members of the fund.

These adjustments are not arbitrary and are based on published financial models and also coded into smart contracts that are open source and publicly auditable. This precautionary mechanism aims to protect the interest of the members as a whole.

This is in line with the following fiqh maxim:¨Public interest is given priority over specific interest. Harm must be removed¨.

Token Economy

The issuance of DAO tokens by Takadao to members is an unparalleled innovation in mutual protection fund management since tokens represent ownership and voting power in the fund and are digitally tracked on the blockchain, reducing human error and fraud.

Cryptocurrencies have many names and are used for various purposes. For example, Tokens represent assets or various commodities that can be distributed, such as physical or digital assets, shares, votes, membership, loyalty bonuses and other utilities. Tokens are created through the smart contract platform that is built on blockchain technology used by other digital currencies, such as ERC-20, that can only be developed using the Ethereum blockchain.

Cryptocurrency or ‘crypto’ is a class of digital or virtual assets created using encryption algorithms which makes it nearly impossible to counterfeit. Crypto-assets come under

Shariah principles and rulings regarding utility, benefits, or future services are relevant to such tokens. Those principles and rulings should be adhered to for Shariah-compliant tokens in order to differentiate them from ungenuine tokens that have little to no actual use case or value, but are instead created solely for speculative purposes. Therefore, it is important to approach each project on its own merits and consider factors such as its underlying technology, use case, and overall market demand before making any judgments.

In Islamic Jurisprudence, the ‘fuqahas’ say, “لا يمكن إصدار حكم على شيء ما إلا عندما يتم تضمين تصور مسبق لذلك الشيء في الشخص” meaning “a judgment can only be passed on something when a prior conceptualization of that thing has been embedded in a person”. According to Cheikh Al Islam Ibn Taymiyyah: « The ruling [shariah] of a thing is based on its [actual] knowledge [and understanding]»

( Majmu’ al Fatawa. Madinah: Majma’ Al Malik Fahd Publishing House 1994)

This enhances the understanding of the reality of that thing before developing a shariah ruling.

TAKA Token

The Takadao ecosystem’s native token, the TAKA token underpins all the financial operations of the DAO fund. Taka tokens are not pre-mined so they are only issued when new money is added into the DAO fund. At issuance, the token price is pegged 1:1 to USDC but the token value redemption will be different for functional reasons.

Members are allowed to participate in governance voting and are entitled to a share of the underwriting surpluses of the fund. To become a member of the DAO, individuals should purchase TAKA tokens and stake them. In order to obtain insurance coverage, members need to lock up their tokens into an insurance smart contract that defines the parameters of the coverage. When the TAKAs are locked up, they cannot be withdrawn out of the smart contract and so they cannot be traded nor redeemed. As long as the TAKAs stay staked, the insurance coverage is in force.

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.

Investment in Liquidity Provisioning

According to shariah principles compliant basis the funds cannot be invested in prohibited products or activities such as tobacco, alcohol, or gambling among others.

In TLD, funds are staked in liquidity pools with our partners who offer halal staking solutions for the Muslim community. These partners acting as a 'wakil,' will receive a small portion of the earnings made by each member in the form of 'hujrah' or 'wakala' fee.

However, it's important to understand that participating in these financial solutions carries risks independent of our company's control, which may arise due to rare conditions like extreme market reversals.