# kaal:claim:3396542-022

**Claim.** A sufficiently large negative shock to the number of policies issued per period drives the value of the DAO negative and renders the DAO insolvent, so falling new business volume is a principal insolvency channel.

**Type.** failure  **Support.** argued

**Holds when.**

- Mt follows a random walk
- one time large decrease in M

**Source quote.**

> Thus, if ε0 is sufficiently negative and large in magnitude (i.e., if there is a sufficiently large decrease in M), then the value of DAO will become negative and the DAO will become insolvent.

**From.** Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, *Decentralized Underwriting* (2019), V. MODEL, 3. DAO Insolvency, page 21

**Cite as.** Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542

**Verify.** sha256 of source PDF `ce2bda03a0b788ea3e7747f02c3c351ef7c808a41150d5cda34767bbe98800c0` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Calcaterra%20et%20al.%20-%202019%20-%20Decentralized%20Underwriting.pdf

**Failure mode.** Insolvency from sharp decline in policy issuance  (family: valuation-and-pricing-failure)

**Topics.** dao

**Keywords.** insolvency, demand-shock, random-walk, dao-design

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