Hey guys :) I’m back with another comprehensive Q&A piece, this time for the decentralized insurance protocol – Nexus Mutual (NXM).
Built on Ethereum, Nexus Mutual is an open platform that lets DeFi users pool and share risk through a community-owned insurance alternative, otherwise known as a “discretionary mutual”.
As of September 28, 2020, Nexus Mutual is ranked as the 16 largest DeFi protocol in terms of locked USD value with more than $70 million locked in.
Now, before we dive in, the following piece is similar to my latest articles on FTX (FTT), Yearn Finance (YFI), and Swipe (SXP), so if you haven’t already seen those, be sure to check them out as well.
Hope you enjoy!
The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:
- What is Nexus Mutual?
- Who and When Created Nexus Mutual?
- What is the Key Problem Nexus Mutual Aims to Solve?
- How is Nexus Mutual different Than Opyn?
- What is the $NXM Token Used for?
- How is Nexus Mutual Governed?
- Has Nexus Mutual Paid out Any Money Yet?
- What is Wrapped NXM?
- Where to Store $NXM?
- Where to Buy & Sell $NXM?
1. What is Nexus Mutual?
Nexus Mutual website homepage
Nexus Mutual is a decentralized insurance protocol that offers DeFi users the ability to take out covers (insurance) on smart contracts using the project’s native token – NXM.
Nexus Mutual protects DeFi users who join Nexus Mutual’s discretionary mutual offering (insurance alternative) against hacks in smart contract code and against general smart contract failure.
People who join the mutual become members and hold native NXM tokens which represent membership rights. These members pool and share risk through the discretionary mutual and are entitled to a share of any capital held in excess of what's necessary to pay potential claims.
That said, Nexus Mutual is community-driven which makes it a people-powered alternative to insurance for Ethereum users.
Key Aspects of Nexus Mutual:
Unlike traditional insurance companies that hold all of the power, take on all of the risks, and profit from its insurance holders; Nexus Mutual transitions this power to its members through the use of blockchain technology. Nexus Mutual uses the power of Ethereum to allow its members to share risk together without the need for an insurance company.
Smart Contract Cover
Nexus Mutual protects its members from potential bugs, hacks, and failures in smart contract code. Members can purchase smart contract cover to protect themselves from events like The DAO hack or Parity multi-sig wallet issues.
Nexus Mutual is not a centralized insurance company, it is run entirely by its members. Only members can decide which claims are valid and all decisions are recorded and enforced by smart contracts on the public Ethereum blockchain.
2. Who and When Created Nexus Mutual?
Nexus Mutual Founder, Hugh Karp
Nexus Mutual was founded by Hugh Karp in November 2017 and its native NXM cryptocurrency launched later in July 2020.
As the founder of Nexus Mutual, Hugh Karp maintains a leading role in the project and is joined by a team of 8 talented individuals working on Nexus Mutual.
Hugh has over 15 years of experience in a broad range of insurance and reinsurance roles including Product Development Actuary, Head of Financial Reporting, and CFO of Munich Re (Group), as well as various insurance roles at National Australia Bank (NAB).
Apart from Hugh’s extensive insurance experience, he is also an OG Bitcoiner and blockchain enthusiast since 2011.
Getting back to Nexus Mutual, Hugh set the project up as a company limited by guarantee in the United Kingdom and has raised an undisclosed amount from blockchain-based venture capital firms such as; Kinetic, KR1, MilliWatt, 1confirmation, Blockchain Capital, Version One, Semantic Ventures, Collider Ventures, and 1kx.
Though Nexus Mutual is a registered company in the UK, it operates under a discretionary mutual structure, which means that all insurance claims are paid at the discretion of the Board (i.e. Nexus Mutual members).
3. What is the Key Problem Nexus Mutual Aims to Solve?
Nexus Mutual insurance model (source)
Nexus Mutual aims to mitigate the risk involved in interacting with novel smart contracts, specifically ones used in decentralized finance (DeFi) products and services where large sums of money are at stake.
DeFi smart contracts are generally valuing storing contracts (meaning they store Ether or other crypto assets). And 2020 has experienced a mass influx of new DeFi products and services which has spawned a ton of these new smart contracts – which are vulnerable to various hacks and bugs that can lead to smart contract failures resulting in the loss of user funds.
A widely known instance of a compromised smart contract was the DAO hack in 2016 where nearly 3.6M Ether was stolen from investors. That said, in order to progress the crypto and DeFi movement forward we need to mitigate the risk and losses from these types of attacks – which is what Nexus Mutual aims to solve.
Nexus Mutual aims to provide the users of smart contracts with cover against potential smart contract failure. It aims to do this in a decentralized fashion where people can share risk together without the need for an insurance company.
That said, Nexus Mutual is playing an integral role in the realm of Ethereum DeFi by protecting users who opt into its services and is well on its way to becoming an industry standard.
4. How is Nexus Mutual different Than Opyn?
Opyn Insurance logo
Both Nexus Mutual and Opyn are permissionless and decentralized insurance platforms that protect users from smart contract failure. However, Nexus Mutual differs from Opyn in a variety of ways including:
Smart Contract Cover
Nexus Mutual enables its members to purchase smart contract cover on over 40 different smart contracts for various DeFi applications including Uniswap, 1inch, Aave, Ampleforth, Argent, Balancer, and many more.
Opyn on the other hand only offers coverage for 1 DeFi protocol, Compound. It offers cover on USDC and DAI Compound deposits.
Nexus Mutual currently offers its members only 1 insurance product – the ability to purchase smart contract cover on over 40 different smart contracts for various DeFi applications.
Opyn offers its users insurance products for Uniswap, Compound, Balancer, Curve. You can also buy protection to hedge ETH downside, volatility, and flash crashes. Very recently it added put options for Synthetix, and YFI.
Nexus Mutual has its own native cryptocurrency, NXM, which is used to represent membership rights among other things. Opyn does not have its own native crypto token.
For one willing to buy cover on his funds, he must go thru the KYC process on the Nexus Mutual platform. Opyn, however, allows you to buy and sell protection in a decentralized manner via put options.
5. What is the $NXM Token Used for?
Nexus Mutual (NXM) Token logo
Nexus Mutual’s native cryptocurrency NXM is primarily used to represent membership rights. Anyone can buy the NXM token and become a member of Nexus Mutual and earn membership rights which are represented by NXM tokens.
Only Nexus Mutual members can purchase, hold, and use NXM.
NXM has the following uses:
Purchase and Cover
Nexus Mutual members can use NXM to purchase smart contract cover. In doing this, 90% of this NXM is burned and the remaining 10% is retained by the Member and can be used as a deposit when submitting claims.
Holders of NXM can participate in Nexus Mutual’s governance as NXM acts as the platform’s voting weight. Also, members who participate in voting earn NXM.
NXM can be staked to vote on claims and voters who vote with the consensus earn NXM. Members who vote against the consensus simply get their NXM staked for longer periods of time and members who vote fraudulently will get their stake burned.
NXM can be staked against any smart contract to lower the price of cover and when cover is purchased, the staker earns NXM in return. However, if a valid claim is made within 250 days some stake is burned.
The Tokenized Mutual Model
NXM’s tokenized mutual model presents a variety of key benefits for users seeking smart contract insurance. Such benefits include:
By tokenizing NXM’s insurance mutual, the mutual can more easily raise risk capital on a large scale when funds are required.
Since all members of the mutual benefit from the platform’s success, each member is incentivized to foster a community spirit. This is in contrast to the existing adversarial and unbalanced relationship between the individual and institution.
Value and Performance
NXM’s token price is linked to the adoption and underlying performance of the mutual, rather than pure speculation.
6. How is Nexus Mutual Governed?
Nexus Mutual strives to be a decentralized alternative to insurance by using the UK's discretionary mutual model and enforcing this model with the NXM token.
All Nexus Mutual users become members of the mutual when they purchase NXM tokens. NXM tokens represent the mutual’s membership rights and enables members to vote on proposals, assess, and vote on claims, among other governance-related things.
To participate in Nexus Mutual’s governance, members must stake their tokens for the allotted time period and use their NXM tokens as voting weight. Members are rewarded with NXM tokens for their participation in the Nexus Mutual governance process and they can delegate their voting weight to someone any other member if they feel incompetent. If a member is delegated, they will earn all of that member's voting rewards.
All in all, Nexus Mutual is entirely community-driven and only members can decide which claims are valid and all member decisions are recorded and enforced by Ethereum smart contracts.
7. Has Nexus Mutual Paid out Any Money Yet?
Yes, Nexus Mutual had its first insurance payout following the bZx attacks in February 2020.
It took two rounds of voting for Nexus Mutual to payout members involved in the bZx case because, during the first claim, it was originally thought that there was no unintended use of code.
However, after the post-mortem of the attack surfaced, Nexus Mutual members changed their opinion to be in favor of paying out on the claims. Two claims worth approximately $31,000 were successfully paid out.
The successful payout to the two Nexus Mutual members who purchased cover proves that Nexus Mutual’s discretionary mutual model for smart contract cover actually works, or at least it did in this scenario.
8. What is a Wrapped NXM ($WNXM)?
Wrapped version of Nexus Mutual Token is freely transferable and only NXM holders can wrap or unwrap NXM. As NXM can be only used within the Nexus Mutual platform, its wrapped version allows transferring its underlying value anywhere in the defi space.
9. Where to Store $NXM?
The Nexus Mutual (NXM) is an ERC-20 token residing on top of the public Ethereum blockchain. That said, you can store NXM in any ERC-20 token supported wallet.
However, the best wallets for storing NXM are non-custodial Web3 wallets that provide seamless access to the latest DeFi applications. DeFi wallets are the best for storing YFI because the token is widely used and supported in the Ethereum-DeFi ecosystem.
Popular Nexus Mutual Wallets:
- Argent (mobile)
- Metamask (web)
- MyEtherWallet (MEW) (web)
In addition to the above-listed wallets, NXM can be stored on a wide variety of other reputable wallets supporting ERC-20 tokens.
10. Where to Buy & Sell $NXM?
NXM can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade NXM is through cryptocurrency exchanges.
You can buy YFI with cryptocurrency or fiat currency at the following top exchanges. In most cases, you will be able to buy YFI with BTC, ETH, fiat or stablecoins.
- Binance - BTC, USDT, BUSD
- Uniswap - WETH,
- Huobi Global - USDT, BTC, ETH
In addition to the exchanges listed above, Yearn Finance (YFI) is also traded on a variety of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.