Businesses and Farmers Can Now Hedge Weather Risk Through the Arbol Platform and Chainlink Data
We are excited to announce the world’s first live, in-production weather coverage product on the blockchain. It uses smart contracts and Chainlink oracles to provide anyone with an Internet connection access to blockchain-enforced weather coverage that immediately settles based on weather data. This completely changes the way businesses and farmers all over the world hedge risk, allowing them to safely expand their operations knowing they are fully covered against periods of unforeseen weather events.
By leveraging smart contracts on the Ethereum blockchain and Chainlink powered data feeds, we are able to offer weather coverage without all the downsides and inefficiencies that afflict traditional insurance agreements, including fraud, corruption, and delays. Its end-to-end decentralized design ensures that the execution of the agreement and the delivery of the necessary data cannot be tampered with by either counterparty or an external influence, providing new levels of trust and determinism to the business and farmers facing weather risk that need it most.
This introduces unprecedented transparency and permissionless access to key financial instruments, ensuring one bad season doesn’t cause financial ruin. With the help of Chainlink, we are updating the insurance industry with unlimited possibilities for how to protect against risk.
With traditional insurance offered by centralized institutions, there is a high degree of human subjectivity and inefficiency that increases coverage premiums across the board and slows down settlement. Disputes between clients and insurance companies are commonplace, which most cannot afford to pursue in court, or the delays in payment extend out and hinder the farmer’s ability to purchase new seeds and equipment. Thus, they are often forced into accepting whatever payments are deemed fair by the insurers, reducing the policy holder’s trust in the process. This has led to insurance traditionally being highly expensive, unreliable, and inaccessible to the vast majority of businesses around the world. On the farming side, it is estimated over $1 trillion dollars worth of crops are uninsured globally each year. In addition to agriculture, business sectors as diverse as renewable energy, tourism, retail, and logistics all face increasing uncertainty from rising weather volatility and climate change.
While many US farmers often enjoy high government subsidies for crop insurance, there are still many gaps and situations where there is little to no coverage. For example, many insurance products are only available to farmers, whereas if you are a cotton gin that processes a farm product then you are out of luck. Additionally, traditional insurance agreements require a human adjuster to physically come to a farm location to assess damages, further increasing costs and extending out settlement timelines. Covid-19 further highlights the weakness of human driven systems with a need for more robust, automated, and data driven products.
Outside of agriculture, Arbol is working with renewable energy operators, fertilizer companies, shipping companies, real estate companies, ski lodges, and municipalities to develop products for a diverse range of weather risks such as wind speed, snow fall, and excess rain.
Decentralized Weather Coverage
Arbol provides a solution to these traditional insurance inefficiencies by offering an international weather risk marketplace built on the Ethereum blockchain. Users are able to create derivatives on the blockchain that pay out based on weather outcomes. This allows weather-exposed entities like farmers to hedge their weather risk, while anyone in the world, subject to certain conditions, can help finance it.
These parametric agreements autonomously pay out the correct parties at the time of execution using deterministic weather data delivered by Chainlink’s decentralized oracle network. This greatly accelerates settlement times and leads to far fewer disputes, as there is no human subjectively involved in the process.
Arbol uses Chainlink’s decentralized oracle network and its external adapter technology to connect the smart contracts providing coverage to rainfall datasets from the National Oceanic and Atmospheric Administration (NOAA) and others. This ensures that not only is the smart contract itself tamper-resistant and immutable (thanks to the Ethereum blockchain), but the inputs that trigger the smart contracts are equally secure and reliable thanks to Chainlink.
The ability to settle immediately upon receipt of Chainlink data allows businesses and farmers to recover immediately. Thus, they now have the working capital to, for example, purchase seeds or resume operations rapidly, as opposed to waiting months of delay to settle. Payments are irreversible and made using stable value cryptocurrencies (stablecoins), which eliminates charge-backs and fraud, decreases premiums, and allows broader access to weather coverage agreements.
Arbol Founder and CEO, SIddhartha Jha, praised the Chainlink integration, “Chainlink has proven itself the market leader in providing premium data feeds to smart contract applications. Not only were we able to quickly integrate, but their decentralized architecture provides further security and reliability guarantees to users relying on Arbol for critical weather coverage. We look forward to continued work with Chainlink around expanding into new markets.”
Creating permissionless and censorship resistant weather coverage agreements is a monumental shift in the way businesses and farmers can hedge their risk. Anyone with an Internet connection now has access to new financial primitives that ensure their business stays operational for decades to come.
This is just the beginning of what can be built using Chainlink oracles. We are already looking into how Arbol and Chainlink can work together to create energy coverage agreements and a whole host of innovative new programs such as those using sensors or satellites allowing an even wider range of entities around the world to hedge risk against unforeseen outages and circumstances.
Arbol Inc. is a software platform that connects end-users with innovative weather risk management solutions at lower cost. Arbol is reshaping the weather risk market by combining Big Data, machine learning and Smart Contracts to give end-users the assurance they will be paid quickly and automatically when adverse weather causes losses.
If you’re a developer and want to connect your smart contract to off-chain data and systems, visit the developer documentation and join the technical discussion on Discord. If you want to schedule a call to discuss the integration more in-depth, reach out here.
Chainlink is an open-source blockchain abstraction layer for building and running decentralized oracle networks that give smart contracts on any blockchain access to secure and reliable data inputs and outputs. It provides oracles to leading DeFi applications like Synthetix, Aave, and Kyber Network; numerous blockchains such as Ethereum, Polkadot, and Tezos; as well as large enterprises including Google, Oracle, and SWIFT.