We are addressing a financial problem known as the Diversification Illusion. It is when the diversification benefit of traditional assets disappears when the market crashes, thus failing the investors when they need it most. We securitised Lapse Risk because it is negatively correlated to traditional assets and thus provides a real diversification benefit as it increases when the market crashes. We gamified Lapse Risk into EtherTree. In EtherTree we have two types of players: Planters and Waterers. Planters determine the parameters of the contract and can add a bounty to attract waterers. Waterers choose a seed to water. Watering needs to be done at time intervals and requires ether. If the waterer misses a payment then they are knocked out and forfeit what ever ether they have previously paid. If the waterer doesn't miss a payment then they get a share of the final fund amount after the planter has taken their fee. Planters have high risk and high expected return. Waterers have low risk and lower expected return to the planters. Both have exposure to Lapse Risk which can help diversify their portfolios.

Ether Tree - Securitising Lapse Risk showcase

How it's made

EtherTree smart contract works with AAVE’s WETHGateway to deposit all payments from both planter and waterer during the gamification of planting the tree. Once Fruits are harvested, we send waterers back there original portion of eth along with what they earned while other waterers lapsed and interest from AAVE. We also reward waterers with NFT of tree they have planted. On frontend we are using scaffold-eth along with Infura to connect with Kovan network.

Technologies used

EthereumSolidityAaveAave Governance