Each Fungible token is minted when the user approves a smart contract. The cover determines the protocols to be covered, type of collateral needed, amount of collateral, and insurance length.

Two types of Fungible tokens can be minted from the system that are CLAIM and NO CLAIM tokens. One DAI equals one CLAIM + one NO CLAIM token. If a claim is approved, the CLAIM value goes to 1 and NO CLAIM to 0. Holders can deposit the two token types on the Balancer pools.

Cover Protocol creates two Balancer pools; one with 80% CLAIM coins and 20% collateral token (DAI) and the second with 98% NO CLAIM and 2% DAI. In this way, IL (Impermanent Loss) is minimized. The pools are created by the launch of a new cover to the protocol.