Month: April 2021

20 April 2021


Last week, the ZILHive team spoke with the co-founders of Cerchia to understand why two veteran quants and risk managers of global banks left their jobs to address the problems with how businesses, financial institutions, and even governments hedge their risk exposure.

Insurance is perhaps the most common tool both individuals and institutions use to protect themselves from various risks. But traditional insurance products are rife with numerous inefficiencies. In 2020, Swiss Re, the world’s largest reinsurer, estimated that nearly US$1.24 trillion of economic losses globally were not insured. Besides insufficient coverage for various risks, the claims process can be opaque, lengthy, and tedious. Traditional insurance policies are shrouded in legalese, creating ambiguities in interpretation over what is claimable from insurers. Within just six months of the World Health Organization (WHO) declaring the coronavirus pandemic, over 1,000 lawsuits were filed against insurers in the U.S. by businesses affected by COVID-19.

Having spent long careers at investment banks, Michael Rey and Fabian Buchmann saw the problems with traditional risk transfer tools as the perfect use case for blockchain technology. Their company’s name, Cerchia, is an Italian word reminiscent of the ancient defensive walls that used to ring around its cities. Like their namesake, the company hopes to connect protection seekers with protection providers through blockchain-based smart contracts. With Cerchia, funds in the form of digital assets like stablecoins can be held securely in escrow until the payment is triggered either by an event (like air pollution, seismic activity, flash floods, etc.) or upon maturity.

Unlike traditional risk transfer products like insurance, Cerchia’s smart contracts can automatically disburse payouts without requiring supporting documentation. Where claim conditions in traditional insurance policies are open to interpretation, Cerchia relies on trusted oracles that feed real-world data to smart contracts. For instance, a traditional insurance product might claim to provide a payout in the event of “losses incurred due to adverse weather events”. In contrast, Cerchia can automatically disburse payouts with smart contracts if the Singapore National Environmental Agency’s website indicates that the 1-hr PM2.5 reading (µg/m3) rises above 200, allowing for greater efficiency in the claims process.

The use of smart contracts to escrow funds also eliminates the risk that an insurer cannot fulfil its obligations when a claim comes due. In the US alone, there were on average 17 insurer insolvencies every year between 1998 and 2015. Cerchia’s founders believe that directly connecting protection seekers with protection providers through smart contracts eliminates the complexities associated with traditional insurance products, which can reduce the costs of both providing and receiving protection. When evaluating protocols that could support Cerchia, Rey and Buchmann say they found Zilliqa to be the ideal partner. “Unlike the prototype I built on Ethereum, the Zilliqa blockchain offered far lower transaction fees and quicker transaction confirmations”, explains Buchmann. Rey notes that these features would allow new bids and offers to buy and sell protection to be made within seconds through the ZilPay wallet, without having to review lengthy contracts across jurisdictions.

In November 2020, Cerchia joined the 8th wave of the ZILHive Grants programme, which funded the successful development of a minimum viable product (MVP) on the Zilliqa mainnet. Cerchia also received another ZilHive grant in the subsequent 9th wave in January 2021 to develop a prototype that integrates Chainlink oracles with the Zilliqa blockchain.

While Buchmann found programming in Scilla, Zilliqa’s native programming language, to have a steeper learning curve than Solidity, he believes it was well worth the effort. Despite the relatively smaller developer community, the founders say they enjoyed greater attention and support for their project from the core development team at Zilliqa. “I doubt Vitalik or the Web3 Foundation could give me their time to address my development questions on an almost daily basis”, Buchmann laughs.

Cerchia’s founders say they are currently applying for other grants and initiatives at ZILHive to enhance their MVP with a more refined user interface, more robust and flexible smart contracts, and automated processes.

The ZILHive Grants programme is constantly looking to provide seed funding for a greater variety of projects to build on the Zilliqa blockchain. Interested applicants can pitch an idea or project for the Grants programme.