@seahorsepj

Are pooled insurance funds solvent enough to cover catastrophic slashes? The solvency of pooled insurance funds against catastrophic slashes is the central challenge of the model. Most funds are likely not initially solvent for a true worst-case scenario, such as a bug that simultaneously slashes 20% of all operators on a major AVS. These pools grow organically from premiums and are designed to handle a steady trickle of independent claims. Their solvency is managed through the caps and limits previously discussed. They are solvent for expected losses and moderate stress scenarios, but a full-scale catastrophic event would breach the aggregate cap, leading to pro-rated payouts and a failure to make all policyholders whole. This is not necessarily a design flaw, but a reflection of the economic reality that insuring against systemic collapse is prohibitively expensive.

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