Token Economics

Arrow's platform token gives owners access to the Insurance Pool, where they can participate as liquidity providers. Being an LP for the insurance pool grants access to the residual premia from the primary pools, including surplus from the hedging portfolios, as well as option creation and transaction fees. In addition, 40% of the platform token fixed total supply will be distributed to token owners actively LPing in the insurance pool over the first two years.
The cost of providing liquidity to the insurance pool is positively related to the overall health of the system, introducing a market mechanism for the cost of providing insurance. When there is more activity in the trading pools, more trading pools, and low insolvency rates for the trading pools, the rewards to providing insurance are high so the value of the platform token is high. The primary pools have a low cost of capital in this case. Conversely, when the trading pools have less activity or higher insolvency rates, the expected rewards to insurance provision are lower, reducing the platform token value and hence reducing the cost of buying into the insurance pool.
Arrow’s platform token also provides access to participation in the DAO voting. The DAO is responsible for updating the Arrow pricing mechanism as improvements materialize and for adding new underlying markets.