Nexus Mutual is an decentralized insurance platform built on the Ethereum blockchain.
Insurance has been a hard nut to crack in both the traditional and digital space. For example, the conventional insurance scene has evolved from simple community-based settings to giant insurance firms. While this might be a good thing, it also presents problems that see customers’ bare major frictional costs.
The digital space, conversely, has suffered since not all scenarios in the space can be insured. For instance, in the blockchain space, it’s hard to cover things like loss of funds from crypto wallets since the claims cannot be individually established. A wallet owner can decide to transfer the coins and later claim a loss or inadequately secure their wallet leading to a hack.
However, a loss from a smart contract hack can be verified and properly insured. Nexus Mutual surveys and covers insurable risks arising from the use of distributed systems. To understand the different phases of the insurance platform, let’s take it from the top.
Hugh Karp is the protocol’s founder. Karp’s experience spans multiple insurance-focused fields, such as reinsurance. For instance, he was the CFO of a global reinsurer, UK Life.
Others furthering the Nexus mission include Reinis Melbardis, an insurance expert, Graeme Thurgood, a mutual expert with over 17 years’ experience in insurance, and Roxana Danila, a technical expert. Danila heads the project’s engineering team.
Additionally, the project draws experiences from notable advisers and partners such as Kenetic, Blockchain Capital, Version One, Semantic Ventures, and Collider Ventures.
What is Nexus Mutual?
Nexus is an insurance platform built on the Ethereum blockchain. The network brings decentralized insurance to users on the ETH-powered blockchain. The system operates using the United Kingdom’s discretionary mutual model.
As a mutual company, policyholders make crucial decisions regarding the network. Therefore, the members have a significant impact on the platform’s core functionalities, including risk, governance, and claims assessment.
5 Ways Policyholders Interact with the Nexus Mutual Network
Instead of the centralized insurance offerings in the traditional world today, Nexus makes a u-turn to provide blockchain-based insurance products. Notably, the project delicately infuses the features of permissionless decentralized platforms such as Ethereum and a mutual structure to enable enhanced community involvement.
The community can decide on which proposals to uphold or deny. Also, they can front for new proposals. Nexus uses an advisory board that first checks recommendations before they’re subjected to a community vote.
The advisory board helps in, among other things, initiating an interaction with the real world. Also, it deliberates on extreme issues on the systems. This approach is beneficial since, in an insurance setting, not everything can practically be handled using lines of code.
As a reward for participating in governance issues, the voters receive NXM, the system’s native currency (more on this later).
Buying Smart Cover
Smart Cover is Mutual’s flagship product. It covers funds lost through a smart contract hack or any other verifiable loss emanating from a non-intended use of code. It can be used to cover more than just the cover holder.
Network members have the privilege to purchase the cover using a fixed cover amount. Interestingly, in the event of a claim, the claim amount is not decided by the unfortunate event but by community members who assess the claims’ validity.
Nexus members can have the opportunity to raise a claim at any time provided the cover is still active. Where this is not possible, the network allows them a grace period of 35 days from the date of cover expiration.
Making a claim is a process. For example, the claim owner has to stake 5 percent of the network’s token locked when they were purchasing the cover. Note that a 5 percent deposit of NXM tokens covers a single claim assessment request.
This is the project’s approach to hindering malicious actors from presenting unfounded claims. Submitted claims are forwarded to Claim Assessors. The assessors have to stake the native token to vote on the claims.
Their stake has to be more than five times the cover amount. Also, 70 percent of the assessors have to agree on the claim for it to be considered for payout. Fortunately, failure to reach the required voting and consensus threshold subjects the voting to the entire Nexus community where a 50 percent consensus is needed.
Being community-owned, the platform assesses individual claims. The network has a setting where members can become claim assessors. Where the assessors do not reach a consensus, the decentralized family of members comes to the rescue.
Assessors are also incentivized. However, to avoid burning tokens due to a difference in valid opinions, the protocol’s incentive structure is interfaced with other factors such as human involvement and voting timelines.
Nexus Mutual is a decentralized world. As such, it welcomes those with experience auditing smart contracts to assess the risks of using the system. Risk assessors bet their NXM tokens on smart contracts with codes they think are secure for use.
Additionally, they can stake their tokens on other assessors they think are more qualified to review the smart contract code.
Nexus Mutual and Decentralized Finance (DeFi)
Staking, yield farming, and liquidity mining are common phrases in the DeFi world. The protocol brings this world closer to its users through shield mining.
Shield mining is a project’s way to reward stakers that interact with Nexus-focused projects. Some community projects interacting with the protocol include, but are not limited to, yinsure, and SAFE.
With shield mining, the system’s community can stake their tokens on the platforms and earn their native tokens. On SAFE, for example, NXM (wNXM) can be staked to farm SAFE coins. Unfortunately, rewards from the mining excavation are distributed on a weekly basis and cannot be rolled over in case they are unclaimed.
Nexus Mutual Token (NXM)
The protocol has a native currency called NXM. The token acts as a membership right into the Nexus Mutual ecosystem. Apart from being used for farming yields on supported platforms, the token has a myriad of use cases.
For example, it’s needed for purposes such as:
- Governance matters where it provides a weighted voting mechanism.
- Risk assessment where it’s used to lower the price of a cover.
- Claim assessment. Here, voting on claims requires staking the tokens.
- Buying the protocol’s Smart Cover. Ninety percent of the tokens used in this process are burned.
- Yield farming. It can interface with other protocols for yield farming purposes.
Note that NXM follows the tokenized mutual model. This model ensures capital efficiency, aligned incentives, value, and performance.
Apart from a tokenized mutual model, NXM’s price is derived from a token bonding curve. Also known as a continuous token model, the pricing is influenced by the amount of capital in the mutual and the funds needed to estimate probability when meeting claims.
Notably, NXM didn’t go through a pre-mine. The purchase of NXM coins is active on the project’s website.
The many DeFi protocols being launched today use a high return rate to attract yield farmers and liquidity providers. However, some of the protocols’ smart contract code is unaudited, presenting a risk factor to users. With Nexus Mutual, it’s possible to interact with DeFi networks without worrying that funds may be lost.
The protocol’s Smart Cover provides the necessary protection against such risks. Additionally, the platform is community-governed and employs different categories of participants to ensure transparent claim and risk assessments.