The Mechanism

Insurance Cycles — How Mithril’s Hedging Engine Transforms Prediction into Protection

Mithril’s core innovation: Liquidity Biasing. We don’t just create markets—we engineer them to make protection affordable.

Hedging Engine Architecture

Mithril leverages the PNP Protocol to deploy binary outcome prediction markets that function as decentralized insurance products. These markets use bonding curve mechanics—not peer-to-peer order books—ensuring guaranteed liquidity and mathematically-backed payouts.

Why Bonding Curves? Unlike traditional order books that require counterparties, bonding curves provide instant liquidity at any size. Buy or sell YES/NO shares anytime—the curve is always there.

But Mithril goes further. We actively bias the bonding curve to favor hedgers.

┌─────────────────────────────────────────────────────────────┐
│              MITHRIL HEDGING ENGINE (PNP Protocol)          │
├─────────────────────────────────────────────────────────────┤
│                                                             │
│   ┌─────────────┐     ┌─────────────┐     ┌─────────────┐  │
│   │  BONDING    │     │   $MITH     │     │  CHEAP YES  │  │
│   │   CURVE     │◀────│  Treasury   │────▶│   HEDGES    │  │
│   │  LIQUIDITY  │     │  (NO Buys)  │     │  FOR USERS  │  │
│   └─────────────┘     └─────────────┘     └─────────────┘  │
│                                                             │
│   ┌─────────────┐     ┌─────────────┐     ┌─────────────┐  │
│   │   Creator   │────▶│  50% Fee    │────▶│   $MITH     │  │
│   │    Fees     │     │  Buyback    │     │   Demand    │  │
│   └─────────────┘     └─────────────┘     └─────────────┘  │
│                                                             │
└─────────────────────────────────────────────────────────────┘

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Insurance Cycles

Cycle 1: Market Bootstrap

When Mithril creates an insurance market, the protocol seeds it with liquidity using $MITH from the treasury:

1. Market Creation

   A binary outcome market is deployed: “Will [Protocol] TVL drop by X%?”

2. Treasury Allocation

   2% of $MITH token supply allocated to bootstrap initial liquidity across all genesis markets.

3. Liquidity Depth

   Markets launch with sufficient depth for retail users to take meaningful positions immediately.

Cycle 2: Liquidity Biasing

This is where Mithril’s magic happens. The protocol continuously buys the NO side with $MITH tokens:

The Effect: When protocol buys NO shares, the price of NO rises and YES falls. Users get cheaper hedges.

Action	Market Impact	User Benefit
Protocol buys NO	NO price ↑	YES becomes cheaper
Cheap YES shares	More users hedge	Greater protection coverage
More trading volume	More fees generated	Sustainable ecosystem

Cycle 3: Fee Recycling

50% of all creator fees are used to buy back $MITH daily, creating a perpetual demand flywheel:

Trading Fees → 50% Buyback → $MITH Price Support → 
More NO Buying Power → Cheaper YES → More Users → More Fees

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How to Hedge (User Flow)

1. Browse Insurance Markets

   Visit Mithril and explore available markets: Jupiter TVL, Kamino Health, Jito Staking, etc.

2. Assess Your Risk

   Have exposure to Jupiter? Find the “Jupiter TVL -50%” market.

3. Buy YES Shares

   Purchase YES tokens. If the event occurs, your shares pay out 1:1. If not, you lose your premium (the cost of protection).

4. Automatic Settlement

   Markets resolve automatically via oracles. No claims, no paperwork. Payouts hit your wallet instantly.

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The $MITH Tokenomics Engine

$MITH is the cornerstone of Mithril’s sustainability:

Treasury Reserve

Protocol-controlled $MITH funds NO-side buying, ensuring YES hedges stay affordable.

Liquidity Mining

Market makers and early hedgers earn $MITH rewards, bootstrapping network effects.

Governance Power

$MITH holders vote on new market deployments, fee structures, and treasury allocations.

Value Accrual

Daily fee buybacks + protocol utility = sustainable demand for $MITH.

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Why Bonding Curve Markets = Superior Insurance

Guaranteed Liquidity

Bonding curves provide liquidity mathematically—no need to wait for counterparties. Buy or sell any amount, anytime.

No Counterparty Risk

Payouts are guaranteed by the bonding curve mechanics, not promises from an insurance company or opposing traders.

Price Discovery

The curve dynamically prices risk based on market demand—more accurate than any actuary, updated in real-time.

Instant Exit

Sell your YES shares back to the curve anytime. No lock-ups, no surrender fees, no waiting for buyers.

Transparent Pricing

Premium = YES share price on the curve. No hidden fees, no complex calculations. What you see is what you pay.

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Next: The Roadmap

Phase 1

Genesis Markets: 5 flagship protocols

Phase 2

Expansion: 10+ new markets

Phase 3

The Future: Full ecosystem coverage