Tier 3 — Parametric Derivatives

The full financial product. A parametric weather derivative with a defined trigger condition, a defined payout, and automatic settlement via independent oracle data. Ensuro provides counterparty capital.

How It Works

1. Cliff Horizon prices the risk — the engine produces a calibrated probability for the trigger event (e.g., P(rainfall > 100mm in 30 days) = 18%)
2. Ensuro provides the capital — the probability feeds into Ensuro's premium decomposition formula, which determines the full premium including capital costs
3. The client pays the premium — structured as a single payment or periodic instalments
4. An independent oracle monitors the weather — NWS, SatSure, Chainlink, or other agreed data sources
5. If the trigger is hit, payout executes automatically — no claims process, no loss adjustment, no waiting

Trigger condition met (oracle data)
  → Smart contract resolves
    → USDC payout to client
      → Settled. No dispute, no delay.

What Makes It Parametric

Unlike traditional insurance, parametric derivatives pay out based on an objective index crossing a defined threshold — not on proven loss.

The trade-off is basis risk — the possibility that the index triggers (or doesn't trigger) while the client's actual experience differs. Cliff Horizon mitigates basis risk through hyper-local satellite data (SatSure Layer 1) and multi-variable trigger design.

Derivative Structures

Cliff Horizon offers three primary structures, configurable per client and peril:

Binary (Digital)

Pays a fixed amount if the trigger condition is met. Simplest structure, clearest risk.

Example: Pay $500,000 if cumulative rainfall exceeds 200mm in any 7-day window during the construction period.

Collar (Capped Linear)

Pays proportionally between a lower strike and an upper cap. Provides graduated protection.

Example: Pay $10,000 per mm of rainfall above 150mm, capped at $300,000 (triggered at 150mm, maxes out at 180mm).

Basket (Multi-Variable)

Combines multiple weather variables into a single contract. Covers the integrated risk profile.

Example: Pay $250,000 if either (a) rainfall > 100mm in any 5-day window or (b) temperature > 38°C for 3+ consecutive days during the construction period.

Pricing Waterfall

Every Tier 3 derivative is priced through a transparent waterfall:

Engine probability (lossProb)
  × Payout (notional)
  × Margin of Conservatism (MoC)
  = Pure Premium
  + Junior Cost of Capital (jrCoc)
  + Senior Cost of Capital (srCoc)
  + Ensuro Commission
  + Cliff Horizon Commission
  = Total Premium

The client sees the full decomposition on the Derivatives tab of the dashboard. There are no hidden fees.

Ensuro Integration

Cliff Horizon integrates with Ensuro via the SignedQuoteRiskModule:

1. Engine calculates lossProb for the requested derivative
2. Cliff Horizon's pricing API generates a quote with full premium decomposition
3. Quote is cryptographically signed (PRICER role)
4. Signed quote submitted on-chain → Ensuro PolicyPool mints a policy NFT and locks solvency capital
5. At expiry or trigger: RESOLVER role submits oracle outcome data → smart contract resolves → payout executes

The client never interacts with blockchain infrastructure. Cliff Horizon handles the on-chain integration; the client pays premium and receives payout in fiat via Ensuro's front-end entity.

Contract Terms

Each Tier 3 derivative specifies:

Who It's For

Tier 3 is for clients with material weather exposure that justifies standalone financial protection:

• Construction firms with weather delay clauses in project finance agreements
• Solar operators with PPA performance guarantees tied to irradiance
• Wind farm operators managing generation shortfall risk
• Agricultural cooperatives hedging drought or excess rainfall
• Utilities managing temperature-driven demand volatility