Crypto Gem Series Part 2: Nexus Mutual

Insurance has come to be an integral part of our regular existence, to protect our assets and lives in case any catastrophe is to strike. Now, when so many of us are entering the world of blockchain and cryptocurrencies, and trusting smart contracts (virtual self-executing contracts) with our funds and personal information, it’s only normal that we’d want to safeguard these smart contracts against any unfortunate events – such as a hacking attempt or a smart contract glitch.

Indeed, to correctly execute your trades according to both the counterparties’ terms, smart contracts must function properly; this is where Nexus Mutual comes in. You can insure smart contracts with the Smart Contract Cover Nexus Mutual offers.

The Ethereum-based decentralized insurance platform Nexus Mutual is developed and governed as a DAO, or a decentralized autonomous organization, fully owned by its community of members. Nexus intends to offer users an alternative to traditional fiat insurance, and provide a range of products to shield its users against smart contract vulnerabilities.

The Nexus Mutual token, or the NXM token is used on the platform to maintain membership, issue rewards, and distribute governance voting rights.

Nexus Mutual: The Background

Hugh Karp, insurance professional, actuary, and an acute blockchain enthusiast, founded Nexus Mutual back in 2019, with the vision to create an insurance platform that would act as a mutual in which members can pool their assets together to provide protection against the many vulnerabilities within the cryptocurrency markets. Among the other members on the Nexus Mutual team, there’s Ricky Tan in business development, Roxana Danila, Anatol Prisacaru, Dragos Horodnic, and Dan Octavian in the engineering department, and Kayleigh Petrie as the director of community engagement.

Among the advisors of the Nexus Mutual platform, there’s Steve Barker – the founder and CEO of SwapForex, and Evan van Ness – the founder of WeekInEthereum.com.

The Nexus Mutual Technology Architecture

In case of smart contracts falling victims to hacking attempts or any technological shortcoming, both users and project founders are known to suffer the loss of funds. Nexus Mutual specializes in providing protection from smart contract failure, as mentioned above. It’s to be noted that a pay out on the platform doesn’t get triggered by a phishing attack or any issues to come out of network congestion, and any entities external to the smart contract (like oracles and miners) are not covered in the insurances. 

Nexus Mutual set sail with one specific type of coverage: the Smart Contract Cover, that shields users against smart contract bugs and hacks. Here’s how you can purchase a Smart Contract Cover on Nexus Mutual:

1. Visit the Nexus Mutual website and click on the “Buy Cover” option you can see on the home page. 
2. Choose the protocol you want smart contract coverage for. The options on Nexus are broad in range, and include major DeFi protocols such as the 1inch.exchange and Yearn Finance.
3. Mention the smart contract address that you want the smart contract coverage for.
4. Declare the amount, the duration for your cover, and the currency (either ETH or DAI) for your coverage. 
5. Next, get a quote generated.
6. Now purchase the coverage by transferring your NXM, ETH, or DAI through your Metamask wallet address.
7. If you are not an existing member on the Nexus Mutual platform, now you have to pay a new member fee of 0.002 ETH, then go through the platform’s KYC (Know-Your-Customer) process and AML (Anti-Money Laundering) screening.

You might be wondering what roles the Nexus Mutual members play on the protocol. Well, Nexus Mutual is entirely governed by its community of members, and an advisory board through its DAO. Technically anyone can become a member on the Nexus Mutual platform, and purchase the Nexus Mutual token, or the NXM. As for the advisory board, it’s a group of five members, including the platform founder Hugh Karp and other industry experts in the fields of smart contract security, insurance and mutuals, along with the legal and regulatory issues. As per the platform’s rules, any member can be elevated to the advisory board and replace any of the existing board members through community voting. 

If you are a Nexus Mutual member, you get to suggest changes to the way the Nexus Mutual protocol is run by submitting a proposal through its governance platform. And of course, you can vote on the governance proposals already submitted and verified by the advisory board by holding the Nexus Mutual token or the NXM. The weight your vote holds is proportional to the amount of NXM you have staked for voting. However, it’s important to note that when it comes to the rewards, they are distributed as per the number of members who participated in the voting, and not in direct proportion to the number of tokens a voter had staked. The reward mechanism of Nexus Mutual makes sure that a fairer and more impartial reward structure is in work, instead of depending wholly on the NXM holdings of a member.

Nexus Mutual members get to stake their NXM tokens with smart contracts brought to the platform for coverage, in proportion to how safe the members believe a specific contract to be. The more NXM staked on a particular smart contract, the cheaper it gets for other members to buy coverage, since the community puts their own money at risk to declare a specific smart contract to be low risk.

Once a member stakes their NXM  in a high-risk smart contract, they of course risk losing a part of that stake in case the smart contract is hacked, and a claim is made on the basis of that hack. Moreover, as per the protocol’s rules, stakers who seek out the less risky smart contracts before other Nexus Mutual members get to generate rewards for that signal. 

In the case of any mishap or the violation of a smart contract covered by Nexus, when a claim is made, Nexus Mutual members are asked to vote on the legitimacy of the claim, and whether a payout can be executed. If the members vote with the broader consensus, they earn more NXM tokens, but those voting against the majority have their tokens locked in for some time. However, if a member tries to fulfil claims that fall outside of the platform’s restrictions for coverage, they might have their tokens destroyed. 

(Source: Nexus Mutual white paper)

Some members of Nexus Mutual even determine the price of coverage; they are known as the Risk Assessors, people who typically have expertise in smart contract auditing. Once the Risk Assessors have deemed a smart contract safe, coverage on the Nexus Mutual platform is to be initiated. The Risk Assessors stake the NXM they hold towards the coverage pool. Since their stakes are used to pay for the claims in case a breach happens, the Risk Assessors are incentivized to only stake on the smart contracts they completely trust. After a Risk Assessor stakes their Nexus Mutual tokens, they are locked up for 90 days. The final cost of a particular coverage is determined using information like the amount of coverage a user requests, its duration, and the amount of NXM Risk Assessors have staked. Once the process is done, Risk Assessors get rewarded with a fraction of the fee paid by the user seeking coverage towards the Nexus platform.

All Ethereum smart contract addresses are eligible to be covered by the Nexus Mutual Smart Contract Coverage; only if there are enough NXM or Nexus Mutual token staked to cover claim liability, that is. Some instances of smart contracts covered only in 2020 include quite a few of the current leading decentralized finance lending platforms, such as Compound Finance, Uniswap, MakerDAO, Curve Finance, and the Aave protocol. The duration of a Nexus Mutual Smart Contract Coverage can be anywhere from a day to several years, and the insurance staked can also be anywhere between 1 ETH to 50,000 DAI. As a result, a dynamic marketplace of community of stakeholders all working towards maintaining the perfect code and bringing down financial losses is formed.

Nexus Mutual: Competitor Analysis

When it comes to the specific niche of smart contract insurance, Nexus Mutual doesn’t really have any competition at the moment. In fact, with increasing numbers of unfortunate occurrences like the 2016 DAO attack, Nexus Mutual is one of the leading projects in DeFi insurance as of May 2021.   

Token Economics

The Nexus Mutual token or NXM is a multi-faceted utility token; it is of course the platform’s governance token, can be used to stake on a particular smart contract, and is utilized to distribute rewards. As for further usabilites, NXM can be used to buy insurance coverage on Nexus. 

Nexus Mutual tokens can only be transferred between Nexus Mutual members. The NXM price shifts according to the amount of capital the platform holds, compared to the amount of capital it requires to fulfil its liability across claims. Therefore, the price of the Nexus Mutual token goes up to symbolize the mutual is sufficiently capitalized, and strays the opposite way when it requires more funds.

So far, NXM can only be purchased through the Nexus Mutual platform, and it is not available on any exchange platforms. NXM had a circulating supply of 6,375,553 tokens as of March 2021, however, information regarding the maximum supply of the token is not available. 

However, Wrapped NXM are currently Binance, Huobi Global, OKEx, VCC Exchange, and BiONE. 

Fundraising History and Investor Details

Back in 2018, the Nexus Mutual platform raised $1.4 million from a Nexus Mutual token issuance. Now very recently the platform received a boost by $2.7 million to its foundation treasury. This latest wave of strategic contribution came from Collider Ventures in the lead, and with help from Nick Tomaino’s 1confirmation, Blockchain Capital, Version One, 1kx, and several other angel investors. Now the total fund raised by the Nexus Mutual protocol has come to $4.1 million. 

Milestone and Future Roadmap

The Nexus Mutual platform achieved its first milestone when the mainnet launched back in May 2019. Now, after collaborating with a number of prominent investors from within the crypto universe, Nexus aims to sell over $1 billion worth of smart contracts cover throughout 2021, that too spread across around 30 protocols.

Price Performance History

During the early token sales, the NXM price was about $2 per token. The Nexus Mutual token entered 2021 with a price of a little over $26. However, as the total value locked in DeFi has grown to $76.6 billion as of the beginning of May 2021, the NXM price has also risen, currently standing at over $130. 

Conclusion

Nexus Mutual’s Smart Contract Cover has already made its place among the crypto traders and investors as an essential tool in the DeFi ecosystem, even more so as the disruptive and risk-prone sector innovates further with every passing day. The platform also successfully cleared its very first real challenge in February during the bZx hacks, paying out nearly $31,000. 

The spectacular growth of the NXM token is also bringing more and more members to the Nexus platform, helping it become even more robust for users looking for coverage. We can expect more creative Nexus Mutual insurance products in the near future, including coverage for crypto wallets, as well as the usual range of insurance based services, such as the coverage in case of natural disasters. 

If you’d like to find out more about the Nexus Mutual platform, you can follow the platform’s accounts on various social media, such as Github, Medium, Twitter, Discord, and Telegram.