Token Economics

Arrow's platform token offers owners access to the Insurance Pool, where they can contribute as liquidity providers. By participating in the insurance pool as a liquidity provider, individuals can earn residual premiums from primary pools, including surplus from the hedging portfolios, as well as option creation and transaction fees. Additionally, active LPs in the insurance pool will receive 40% of the platform token's total fixed supply during the first two years.
The cost of providing liquidity to the insurance pool is correlated 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 for 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.