TandaPay can allow any community of people to submit and verify their own insurance claims locally within their group. The protocol was designed to provide a guaranteed attestation to outside parties as to the validity of an insurance claim. It excels as a system which provides outsiders a record as to how the community reached consensus on a claim’s validity. It can allow communities to verify the contents of a whistleblower claim while simultaneously providing anonymity to the whistleblower. If an invalid claim is approved for payment then the community should collapse. The protocol provides specific guarantees for a group’s collapse based upon specific assumptions. The power of the protocol is that these assumptions result in guarantees which can be formally verified. In this way TandaPay can be evaluated as an algorithm for producing an honest record of the community’s perspective.
How it works
TandaPay has four layers that are required to work together to produce a guarantee of honest attestations. When these four layers work together the community can produce a claim that is guaranteed by the protocol to meet the criteria for validity. If any one of these four layers is missing or improperly integrated then the guarantees of a claims validity will be compromised.
The four layers are:
- Payment layer — The layer used for paying premiums and claims must inherently possess specific properties. Usage of blockchains and smart contracts is required to enforce specific rules for participation and record transparency. All other layers rely on attributes guaranteed by the unique features inherent in public blockchains like Ethereum
- TandaPay Protocol layer — Smart contract escrows built upon the payment layer enforce specific rules. The rules which guarantee that communities collapse upon approval of an invalid claim are specified in the TandaPay architecture and enforced by the TandaPay protocol. These rules effectively enforce consequences and penalties when actors violate the social contract of the community.
- Consensus Layer — Social contracts are established using a system of charters, pledges, and roles. These social contracts outline specific instructions which are reinforced by monetary incentives. Published charters provide communities specific directions for how to identify and approve claims that meet the criteria for validity. It informs participants what their roles and responsibilities are for approving and paying valid claims and denying invalid ones. A charter also outlines the potential penalties for failing to meet the expected duties of their role within the community.
Charters establish a group’s values and pledges establish an individual’s commitment to uphold those values. When combined with monetary incentives the result is that people are highly motivated to act together. It is easier to coordinate on the truth and harder to reach consensus on a lie. Given a small percentage of honest participants, the motivation for groups to continue only exists when valid claims are approved for payment.
- Community Record Layer — Attestation to others outside the community as to what the community believes happened. A claim approved by the community represents a community’s historical record of truth from their perspective.
A review of the assumptions required to build the protocol layer
- Eliminate reliance on global structures. Allow communities of of 50–110 policyholders to form. Give each community complete independent autonomy from other groups of policyholders.
- Zero-reserve architecture and rebate pricing of risk to eliminate any motive to deny valid claims.
- Permit defections but don’t allow voting. The moral hazard of the group approving invalid claims is greater than the moral hazard of an individual defection.
- Require a fixed level of coverage resulting in a variable cost of premiums as a consequence of the group holding zero-reserves. Coverage levels are required by the charter to be fixed which leaves premiums dependent on a group’s membership numbers.
- Allow premiums to increase as policyholders leave or defect.
- Do not permit individuals to obtain coverage from the group.
- Require that people form subgroups of 4–7 people to obtain coverage.
- If the number of policyholders in a subgroup that pay premiums on time falls below 4, refund any premiums made by the remaining members making them ineligible to receive coverage.
- Reorganizing subgroup membership to maintain a group’s viability when there are many defections should be difficult, this is because subgroup members are required to make overpayments.
- Every policyholder is required to bet that no one in their subgroup will defect against an approved claim. This bet is called an overpayment.
- Overpayments require policyholders to know and trust 4–7 other policyholders. It also requires subgroups to coordinate their decisions ahead of time to avoid financial penalties caused when scumbag (individual) defectors withhold payments to approved claims.
- TandaPay groups that lose too many members should become unstable and collapse.
- Prototype used windows of 36 days intervals where 6 days overlap with adjacent intervals. The following three windows of time make up one interval:
- Pre period 3 days: for the payment of premiums
- Active period 30 days: Coverage period for the submission of claims
- Post period 3 days: allow for either the defection or finalization of premiums to claims approved during the coverage period.
The architecture creates groups that collapse when dishonest claims are submitted for payment through the following mechanism:
- Holding no reserves.
- Allowing policyholders to defect against claims.
- Prohibiting individual policyholders from obtaining coverage.
- Encouraging subgroups to defect together.
- Using charters to require a mandatory fixed level of coverage resulting in a variable cost of premiums dependent on a group’s membership numbers.
- As members leave, the protocol forces premiums to increase.
- This dynamic causes a decrease in morale and an increase in members who leave.
- Eventually groups which approve invalid claims collapses with a certain probability because members continue to decrease and premiums continue to increase.