Nexus Mutual, a concept built upon the Ethereum platform and decentralized financial decentralization is a very interesting one.
Project launched May 2019, and users can insure positions in smart contracts with the NXM native token. Nexus Mutual creates risk-sharing pools that allow everyone to either cover their smart contracts or stake capital to earn passive income.
DeFi Insurance: Do you need it?
In the past, there has been an increasing number of accounts that have had coins and private keys stolen. Some high-profile cases have seen users lose their private keys, and thus their access to coins. What if these coins were insured instead?
Unfortunately, there were no reliable ways to protect crypto assets until Nexus Mutual launched. State Farm was not a company you could contact to get a policy protecting your Bitcoin addresses or any other crypto currency. Stolen property was simply lost.
Smart contracts, introduced in 2014, exacerbated these problems. In 2020, many of the smart contract types will be value-storing contracts which store Ether and other assets. Each of these contracts is at risk to be hacked. You may remember the 2016 hack that led to the loss 3.6 million ETH.
To make cryptocurrency mainstream, they must be safe enough for users to not worry about their money being lost. It is important to find a solution to prevent the theft of cryptocurrency or its loss before it becomes widely accepted. This brings us to the necessity of a decentralized Insurance Protocol, particularly as the amount ETH and other Crypto-Assets locked up in DeFi apps continues to increase.
Everyone acknowledges the risk of the DeFi application, yet no one mentions insuring funds poured into smart contracts-controlled portals. The insurance market has a lot of potential to add a level of security and confidence for those working with smart contracts.
Nexus Mutual – What is It?
Nexus Mutual offers users the chance to be protected or “cover” Some of their DeFi activities. It’s called insurance by some, but not the DeFi team, for a variety of reasons, including legal ones. It also differs from the insurance we are used to.
Insurance providers in the traditional model are motivated by profit. Insurance companies would cease to exist if they did not make profits. In many cases, the desire to earn a profit is more important than the interest of the insured. Nexus Mutual hopes that blockchain technology will change this for-profit mindset and improve insurance for all.
It is no secret that insurance has become an important part of our lives, but there are ways to improve it so it can be more beneficial to the users and less profitable for large corporations. Nexus Mutual is a new product and project, so it has a long way to go to disrupt the industry. However, its blockchain-based solution is working hard to achieve that.
It is named after an insurance company. “mutual” The policyholders own the company. Nexus Mutual is no exception. In this instance, the policyholders who own the NXM native token are the owner of the Blockchain and make the decisions about payouts and blockchain governance.
Nexus Mutual is used in a variety of ways.
Nexus Mutual’s insurance options are limited compared to traditional mutual insurers. Nexus Mutual cannot be used to cover you or your home against car accidents, natural disasters, illness, death, and health concerns. Nexus mutual is currently used for smart contract failures only. The team hinted at the possibility of these in the future.
It’s a great use case because, over time, we have seen how susceptible smart contracts and blockchain assets can be. This is because it’s too easy to permanently lose coins. Whether this be due to an active attack stealing coins or a malfunctioning code within a dApp (or wallet), or even simple human error. Smart contract vulnerabilities are becoming more concerning as DeFi grows in popularity.
Nexus Mutual has taken on smart contract vulnerabilities. Smart Contract Cover is a product that offers a layer of protection to users, which would allow them to prevent losses similar in nature as those caused by the DAO Hack of 2016. It is clear that the project can provide coverage for certain things, but it also clearly defines when payouts will be made.
It is therefore very important that users carefully review all the conditions and terms of their coverage. Nexus Mutual’s coverage will not compensate you if a network problem is the cause of a problem. This insurance doesn’t cover external entities such as Oracles or Miners. The insurance will not cover funds lost in a result of phishing attacks.
Even though payout conditions are well defined, the ultimate decision on whether to pay out a claim is made by the members.
Buy Smart Contract Cover
Nexus Mutual offers a product named Smart Contract Cover. Protocol’s FAQ Document “Smart Contract Cover is intended to provide protection against material loss of value resulting from "unintended uses" of smart contact code.” It covers any instance where a security flaw in code is exploited, and money becomes irrecoverable. Sadly, at the moment this does not include hacks of exchanges and also it doesn’t include personal keys lost by users through negligence.
Each Smart Contract Cover that is purchased in the Nexus Mutual Scheme has a predetermined amount, called the Cover amount. This is the amount that will be paid out if a claim has been filed, and it’s approved by the claims assessment procedure. The payout does not always equal the amount of the loss. The payout is equal to the covered amount. This is decided at the moment the policy is purchased and is based upon the size of stake.
- Choose “Get a Quote” You can download the app from our website.
- Choose “Buy Cover” The dashboard is the best place to start.
- Enter the address of your smart contract that you wish to cover.
- You can enter the Dai or Ether amount you want as your fixed cover.
- You can enter the desired duration for the coverage.
This process only takes minutes. After completing these steps you will receive a quote and can decide whether or not to purchase insurance. The system will ask you to sign up for Nexus Mutual as well if you choose to purchase the coverage.
The Benefits of Smart Contract Coverage
Nexus Mutual’s members are currently primarily focused on buying insurance. Coverage is frequently purchased as a way to reduce the risk of smart contract failure. The cover is paid for and the amount of it goes into the Capital Pool. This improves the overall financial standing of the mutual group. Cover amounts are set in such a way as to generate surpluses in the Capital Pool, which is shared with the members of the Mutual.
Nexus Mutual members: their role
Nexus Mutual has many members who play different roles. The primary role of the members is to assess the level of risk of every smart contract that they cover. They are responsible for assessing the risk level of each smart contract and voting on its legitimacy.
Members can stake tokens on various smart contracts depending on the level of security they feel that contract offers. In other words, the higher the stake for a contract in NXM, the lower the cost of cover. Since the high stake indicates the community members believe the contract is safe, it’s cheaper to get insurance. In contrast, a contract with less staked means that the community is concerned about the contract’s risk and will charge more for cover.
The user of NXM stakes is exposed to the risk of losing a portion of the stake in the event that the smart contract was hacked. It is important that users stake their NXM funds with a high level of understanding about the contracts. NXM is a very active form of staking, as there’s always the risk that the user could lose a part of their stake in the event of a smart contract claim.
The user who is the first one to stake the contract will also receive rewards. This is because they are signaling the other participants that the contract is secure.
All NXM token holders will be asked to vote every time there is a smart-contract claim. They can then decide whether or not the claim should pay out. Voting with consensus rewards users more, while voting against consensus locks their tokens for a certain period. The purpose of this is to prevent users from simply voting for themselves.
You can even have your tokens destroyed by attempting to submit a request that clearly falls outside the scope of insurance coverage.
Some tokens may even be thrown away if they are used to submit claims which clearly do not fall under the coverage definition.
Members (NXM Holders) have the following options:
- Smart contract cover is available for purchase.
- Smart contracts can be staked to demonstrate that the smart contract is safe and secure.
- Stake is responsible for assessing claims that are submitted by the other members.
- Propose governance measures
- You can vote on the proposals that have been put forth by your team members or others.
- Hold NXM tokens and contribute funds to mutual.
- The mutual is a group of people who share the risk.
Claiming a Claim
You can use your cover for as long as you like during the duration of the policy and even up to 35days after it has expired. The assessment voting process is simple because the cover amount has been fixed. “yes” The following are some examples of how to use “no” No determination is required based on damage caused to the policy holder. Cover holders must bet a minimal of 5% on the NXM Tokens they locked when the policy was bought in order to make a claim.
This gives users the opportunity to make two claims for the same amount. To prevent fraudulent claims, this staking charge was introduced. In the event that a user’s claim is approved, the 5% to 10% stake returned is fully refundable.
Although members are not benefited by the payment of legitimate claims, they have a long-term benefit in paying all claims. It builds trust and encourages new users to enter the system because they know that legitimate claims will be honored.
Claim Assessment
Nexus Mutual is a decentralized system that allows members to vote on claims. In traditional insurance, claims are either approved or refused by a centralised group. The mutual members all act as claim assessors, and vote to determine the validity of each claim.
The voting results in a decision that either confirms or denies the claim. It is not possible to escalate the claim. In addition, this system allows flexibility and discretion to the members of the mutual. In some instances, a member may decide to pay a legitimate claim even though the policy terms would have denied it.
For this system to work, there needs to be an incentive for people who vote on claims as well as strong disincentives that stop fraudulent claims being approved. Nexus Mutual achieved this goal by rewarding those that vote for a claim in the majority and punishing those who do not.
Who is Nexus Mutual Team?
Hugh Karp is a veteran in the insurance business with more than two decades experience. The team and advisors that he is surrounded by include a few others. Kenetic Blockchain Capital Version One and other venture capital firms have also backed the project. Solidified and London Crypto Services are notable partners.
Nexus Mutual’s advisory board is controversial because it has become a centralized organization. Nexus mutual says the advisory group exists for a variety of reasons. “provide qualified technical guidance to the members of the mutual as well as enact emergency functions should they be required.”
The advisory board may be able to mitigate fraudulent claims or malicious actions against the mutual. If there is a reason, they can burn members’ tokens or kick them out.
How does the NXM Token work?
Nexus Mutual’s platform is the only place where you can purchase this token. The NXM token is only available on the Nexus Mutual platform. It cannot be purchased through other trading platforms, brokers, exchanges, etc. On exchanges, those who want to speculate on NXM’s price can do it by buying and selling NXM wrapped (WNXM).
NXM was not included on exchanges because its value is based solely on the Nexus Mutual trading platform. Even though it’s largely driven by market forces, the actual dynamics are more complex than simple supply and demand.
Minimum Capital Requirement is one of the factors that influences price. It is this level which determines if the system has sufficient capital to pay out all claims. An increased MCR means that there is a greater chance for all claims to be paid. The value of NXM is also increased.
A higher MCR implies that there are more funds in the Capital pool. All token holders also belong to the mutual, so they all benefit from its success. The more capital invested in the platform the greater the value of each token.
Many advocates of decentralized finance have taken note of the Continuous Token Model. By mid-November, the NXM Token is currently trading at $23.29 which is down over 70% compared to the high in August of $82.35. This is a near 300% increase from the June 2020 low price of $6.84.
The conclusion
Nexus Mutual is, as stated in the introduction to this piece is unique and stands out on what could be a huge market. It is currently focused solely on smart contract insurance, but the team has found traction to continue growing. Future prospects are quite promising.
First, they were able to pay out approximately $31,000 as claims after the February 2020 hacking of bZx. The project gained a lot of credibility after the hack on bZx in February 2020.
Nexus Mutual, and its team, still faces many challenges. It is obvious that the most important issue to address first, and which direction to take coverage in, is to determine how much to cover. The niche of smart contract vulnerabilities may be a good one, but that’s just the tip.
Karp the project’s founder, already hinted at the inclusion of coverage for common things like injuries and natural disasters. This is a huge step forward, and it’s encouraging to see how big Nexus Mutual can grow in the long term.
We could suggest that the only change to be made is getting rid of the advisory board or decentralizing it.
Nexus Mutual appears to be an excellent project that occupies a niche in the blockchain industry which is not overcrowded. Nexus Mutual is making good progress and has a large future potential, as long as it stays in front of other potential competitors.
