Decentralized finance (DeFi) has revolutionized how we interact with financial services by offering faster, cheaper, and more accessible alternatives to traditional finance. One such DeFi project is Nexus Mutual, which aims to provide a decentralized insurance platform that offers coverage against smart contract failure, exchange hacks, and other risks unique to the blockchain ecosystem. In this article, we will delve into the history, workings, and benefits of Nexus Mutual, as well as the NXM token, its native utility token.

What is Nexus Mutual?

Nexus Mutual is a decentralized insurance protocol that leverages the Ethereum blockxwchain to offer coverage for various smart contract risks. It is a self-managed and member-owned mutual that allows users to pool their funds and collectively underwrite insurance policies. By removing the need for traditional insurance providers, Nexus Mutual aims to provide a more transparent and cost-effective alternative for users who require insurance coverage. Nexus Mutual also allows users to participate in the underwriting process, enabling them to earn rewards for correctly assessing risks.

History of Nexus Mutual (NXM)

Nexus Mutual was founded in 2017 by Hugh Karp, a former actuary who recognized the need for insurance coverage in the rapidly growing DeFi ecosystem. After spending years working in the traditional insurance industry, Karp noticed the lack of insurance solutions for blockchain technologies. With the increasing adoption of this technology, the associated risks also became more evident, especially because they are different from the traditional financial system, and there were no existing insurance products to cover them.

Karp believed that insurance was a vital component of a well-functioning financial system and that the DeFi ecosystem needed insurance solutions to grow and become more stable. As a result, he founded Nexus Mutual to provide a decentralized platform enabling users to share and pool risks in a more cost-effective, transparent, and secure manner.

In May 2018, Nexus Mutual launched its initial membership offering, allowing users to become members and participate in the underwriting process. These members could earn rewards for correctly assessing risks and providing capital for the mutual’s underwriting pool. By October of that year, the platform had raised over $2 million in seed funding to support its development and growth.

In September 2019, Nexus Mutual launched its first product, which is a smart contract cover that offers coverage against the failure of smart contracts. The product was well received by the DeFi community, and by the end of 2019, the company had underwritten over $3 million in smart contract coverage. Since then, the platform has expanded to offer other insurance products, including custodian cover, personal cover, and exchange cover, to cater to the growing needs of the DeFi ecosystem.

As the DeFi ecosystem continues to grow and evolve, Nexus Mutual aims to provide a reliable and trustworthy platform that offers insurance coverage against risks unique to the blockchain industry. With its member-owned structure and transparent operations, Nexus Mutual is well-positioned to become a leading player in the decentralized insurance market.

How does Nexus Mutual work? DAO and Risk Assessment

Nexus Mutual offers a decentralized insurance platform that enables users to pool their funds and provide coverage against various risks in the DeFi ecosystem. It offers a number of different options:

DAO

Nexus Mutual operates as a decentralized autonomous organization (DAO), meaning its members govern it through a decentralized decision-making process. It is designed to be transparent, decentralized, and trustless.

The DAO is comprised of members who hold NXM tokens, which give them voting rights and the ability to participate in the governance process, as well as propose changes to the platform, vote on proposals, and make decisions that affect the direction of the organization

The governance process is based on a quadratic voting system, which gives more weight to members who hold a larger number of NXM tokens, ensuring that the decision-making process is democratic and representative of the interests of the majority of members. Nexus Mutual also uses a smart contracts system to automate the governance process. These contracts ensure that proposals are executed automatically once they are approved by the members, eliminating the need for intermediaries and making sure it is a secure and efficient process.

The DAO of Nexus Mutual is designed to be transparent, with all governance decisions and proposals recorded on the blockchain, allowing members to review the decision-making process, and minimizing risks associated with fraud and one-party interests.

Risk assessment

Risk assessment is a critical aspect of the Nexus Mutual platform, as it is the basis for determining the premiums that members pay and the amount of coverage that they receive. This process involves analyzing the potential risks associated with each smart contract that is added to the platform and assigning it a score.

To determine the risk score, Nexus Mutual uses a combination of automated and manual assessment processes. The automated process uses machine learning algorithms to analyze the smart contract code and identify potential vulnerabilities or security risks. The manual one involves a team of experts who review the smart contract code and perform additional analysis to identify any potential risks.

Once the risk assessment process is complete, a score is assigned to the smart contract, determining the premiums that members pay for coverage. Higher risk scores end up resulting in higher premiums.

To ensure that its risk assessment remains effective and up-to-date, Nexus Mutual has established a Risk Committee that is responsible for overseeing the process. This Committee is made up of members who are elected by the DAO and have the expertise and experience to analyze smart contract risks.

Nexus Mutual’s Main Features: Cover Products

Source: Nexus Mutual - Buy Cover

Yield Token Cover

Nexus Mutual’s Yield Token Cover provides a crucial safeguard for investors against failures in any protocol associated with their yield-bearing token, specifically limited to the Ethereum network. This coverage offers a robust protection mechanism, allowing investors to mitigate risks associated with potential protocol failures that could result in losing their investments.

By acquiring the Yield Token Cover, investors can enjoy a sense of security, knowing that they have a reliable safety net in place to shield them from adverse events that could impact the performance and value of their yield-bearing tokens on the Ethereum network. With Nexus Mutual’s Yield Token Cover, investors can confidently explore the exciting opportunities presented by yield-bearing tokens while ensuring their investments are protected against protocol failures within the Ethereum ecosystem.

An example of this feature is the Yield Token Cover, designed to safeguard users’ yield-bearing tokens in the event of a significant de-pegging in value. With this cover in place, if the value of their yield-bearing token drops by more than 10%, they have the opportunity to claim up to 90% of their losses. The process involves swapping their yield-bearing token for claim payment, helping to mitigate potential financial risks associated with token devaluation.

Protocol Cover

Protocol Cover is designed to safeguard protocol users from experiencing significant financial losses caused by failures in various aspects such as the protocol code, economical design, governance set-up, or oracles. This coverage aims to provide investors with peace of mind, knowing that their investments are shielded from unforeseen circumstances that could adversely impact the performance or stability of the protocol.

Source: Nexus Mutual - Buy Cover

Custodian Cover

Custodian cover is a feature offered by Nexus Mutual that provides protection to members who hold digital assets in custodial accounts, in which the assets are held by a third party, such as a cryptocurrency exchange, rather than being directly controlled by the account owner.

Custodian cover allows members to purchase coverage for their digital assets held in custodial accounts. Members must hold NXM tokens to purchase custodian cover, which is used as collateral to secure coverage. Once a member has purchased custodian cover, they will be protected against any financial losses that result from a security breach or loss of their digital assets.

The amount of coverage that a member receives is determined by the amount of NXM tokens that they hold and their current price. The coverage is also subject to a maximum payout limit, which is determined by the Risk Committee and is based on the estimated maximum potential loss associated with the custodial account.

In the event of a security breach or loss of assets in the custodial account, members can submit a claim for reimbursement of any financial losses that they incurred as a result of the incident. That claim is then reviewed by the Risk Committee, which determines whether it is valid and the amount of compensation that should be paid out.

What is the NXM Token?

The NXM token is a crucial component of the Nexus Mutual ecosystem, serving a range of functions that facilitate its decentralized insurance operations, and acts as collateral for coverage within the protocol. NXM is also used for governance within the Nexus Mutual ecosystem, through which token holders have the right to vote on key decisions related to the platform’s operations, including changes to the risk assessment and coverage processes.

The NXM token is built on the Ethereum blockchain and is an ERC-20 standard token, meaning that it is fully compatible with Ethereum wallets and can be easily traded on cryptocurrency exchanges.

One of the unique features of the NXM token is its ability to be staked within the protocol. This involves locking up tokens in a smart contract for a predetermined period in exchange for rewards in the form of additional NXM tokens. Its functionality and flexibility make it a valuable asset for platform members seeking to secure coverage and participate in decision-making processes.

Is Nexus Mutual (NXM) a Good Investment?

Investing in Nexus Mutual (NXM) tokens can be a potentially lucrative opportunity, but as with any investment, it is important to consider the factors that could affect the token’s value and market performance.

One important thing to consider is the overall demand for decentralized insurance products in the cryptocurrency market. As this industry continues to grow and mature, the need for reliable and secure insurance coverage becomes increasingly apparent, driving up demand for NXM tokens, which may in turn lead to an increase in their value.

However, as is the case with every type of investment, there are also risks associated with investing in NXM. Like all cryptocurrencies, the value of NXM is subject to market volatility and can be affected by a range of external factors such as regulatory changes or technological developments in blockchain.

Despite these risks, investing in NXM has the potential to be a profitable opportunity. As a key component of the Nexus Mutual ecosystem, it serves multiple functions and offers flexibility and utility to its users. However, it is important to carefully evaluate the risks and opportunities associated with investing in this token before making any decisions.

How to Own NXM?

One way to own NXM is to go through a centralized crypto exchange. The first step is to create a Gate.io account and complete the KYC process. Once you have added funds to your account, check out the steps to buy NXM on the spot or derivatives market.