The LifeDAO: Inspired by Takaful, native to the blockchain

The LifeDAO is inspired by Takaful principles, but as a blockchain native protocol, introduces several new features made possible by blockchain technology.

The DAO in The LifeDAO stands for Decentralized Autonomous Organization. A DAO is a group of people coming together for a specific purpose. To do this in the off-chain world, people would incorporate a legal entity (a company) with a set of bylaws enforced through a nation’s courts. A DAO on the blockchain is organized by smart contracts: computer code that is immutable and that ensures that whatever needs to happen, happens. Smart contracts are both the bylaws and the enforcers of the bylaws.

Structured as a DAO, The LifeDAO builds on Takaful fundamentals with the following key differences:

• The LifeDAO is a membership organization structured as a Decentralized Autonomous Organization that is run on the Takadao technology protocol. It is a mutual protection DAO where members voluntarily share in the risk without a commercial interest.

• There is a strict separation between The LifeDAO and the technology services provider, Takadao. Each is a separate legal entity with different ownership and governance structures.

• The conventional “sum assured” is now a “benefit multiplier” to derisk the TLD risk and to ensure solvency. In simple terms, the benefit in the event of a claim is based on the amount contributed to the TLD fund and the individual risk. In conventional insurance, only individual risk matters in claims calculations, the risk of the fund as a whole doesn’t factor into the claim.

• The “benefit multiplier”, which determines the claims amount, will vary in a given range, based on the performance of the TLD fund. If the fund is healthy, the benefit multiplier (and claim amount) increases, if the fund performs badly, the benefit multiplier decreases.

• The distribution of the underwriting surplus is “on-demand” (subject to lock-up periods) as opposed to being tied to the fiscal year end.

	The LifeDAO	Traditional Takaful
Legal entities	2 separate legal entities. The LifeDAO entity that owns and manages funds from participants’ contributions. Funds are held in the name of the TLD. TLD may appoint treasury managers to manage funds on their behalf. Takadao, the technology services provider, that owns and manages funds generated from protocol fees charged to TLD	The takaful operator is the single legal entity that manages all funds. Funds are accounted for separately, but are held and managed by the same entity. Participants have no say in who manages the funds.
Members/Participants	Members are owners of the TLD fund and are known to one another. Their ownership and equity stake is represented by TLD Membership Credits. TLD governance by members is engaged in through voting, one token, one vote.	In theory, participants are the owners of the takaful risk fund, but in practice, they have no legal right nor access to the monies in takaful risk fund
Appointed Committees v Board of Directors	Operational Committee Contributors of TLD are selected from members and voted in by members. They represent the interests of TLD solely. They are not to be confused with the board of directors of Takadao.	The participants are not represented by an independent board of directors. The board of directors of the takaful operator represents the interests of both the takaful operator and participants.
Variable vs fixed benefit	The member is assigned a benefit multiplier at the initial joining of TLD based on individual risk. To determine the actual benefit payout amount, annual contributions are multiplied by the benefit multiplier. The higher the contribution, the higher the benefit amount. The benefit is variable depending on the overall performance of the fund to ensure fund solvency. In the event of a catastrophe, all benefits are reduced to ensure that there is enough money to pay out the maximum number of people	The participant/insured is guaranteed a certain “sum assured” in the event of a claim. This sum assured is determined at the initial underwriting of the policy and remains fixed throughout. The sum assured is not variable based on fund performance. In case there is a catastrophic event, the sum assured is still paid, which can lead to fund depletion such that remaining claims are unpaid.
Distribution of fund surplus vs underwriting surplus	The benefit payout amount varies within a stated range according to the performance of the TLD risk fund. In case fund performance is better than projected, surplus amounts increase and are redistributed to members. In case fund performance is worse than expected, benefit payouts are reduced across the board to ensure fund solvency. There is no surplus in this scenario.	Declared at the discretion of the takaful operator and usually at the end of the fiscal year end. In case of underwriting deficit, the takaful operator provides a no-interest “qard hasan” loan to the takaful risk fund. The loan should be repaid in subsequent years when an underwriting surplus is realized.
Benefit payout vs claims management
Reprotection vs. Reinsurance/Retakaful	While the TLD risk fund is self-adjusting based on fund performance, it cannot account for a single catastrophic event that significantly depletes reserves in one go. For this scenario, Takadao has established a reprotection pool (rePool) that makes a no-interest loan to TLD to help increase Benefit Payouts in catastrophic events. The rePool is funded by Takadao token holders who choose to stake their TAKA tokens in the rePool. TLD will repay any such loan to the rePool with its future surplus. Repayments are triggered once certain TLD fund conditions are met.	Traditional insurance companies have rigid underwriting models that are vulnerable to reserve depletion and fund insolvency. This is exacerbated by regulations that don’t allow insurance companies to change premium rates easily. To mitigate and spread their risk, insurance companies engage with reinsurance companies. In case losses exceed a certain threshold, reinsurance companies step in to pay the excess claim amounts. In return, the insurer shares part of the premium with the reinsurer and keeps any fund surplus as shareholder profit.
Regulatory regime	Takadao is regulated as a for-profit entity providing consulting and technology services to the community TLD. TLD fund is regulated as a non-profit association or foundation engaged in a risk-sharing pool. There is no offering of a paid service. Participants are protected from personal liability.	The takaful operator is regulated as an insurance company engaged in risk-transfer insurance contracts.