With Ethereum development momentum building, there’s now over $500M worth of cryptocurrency locked up in smart contracts. No traditional insurance company is willing to insure this value, which presents an opportunity for a crypto-native alternative to aggregate capital, data and the wisdom of the crowd to provide smart contract cover. This is what Nexus Mutual is doing and we’re glad to share that we recently became a member of the mutual.
Ben Franklin formed the first American insurance mutual, the Philadelphia Contributionship, in 1752. 267 years later, the mutual is still providing homeowners insurance for people in the greater Philadelphia region and beyond
There has not been much innovation in the insurance industry in the past 250+ years; there are a limited number of large companies that have aggregated enough capital and data to compete. The emergence of open blockchains like Ethereum is changing that by enabling global capital and data to be aggregated more efficiently. Nexus Mutual is at the forefront of this change.
What is Nexus Mutual?
Founded by Hugh Karp, Nexus Mutual is a community-run organization designed to offer products that provide users with an alternative to traditional insurance, starting with smart contract cover. The first product offered by the mutual has already reached over $1M in total coverage in less than 3 months on the Ethereum mainnet. Nexus is insuring funds locked up in many of the most widely used DeFi products like MakerDAO, Compound, dYdX and Edgeware. Just this week, two new projects took out cover: Paraswap and Kickback. If you have value locked in a smart contract on Ethereum that you’d like to protect, you can purchase cover here.
Mutuals and co-operatives have existed in various forms for hundreds of years. Nexus is a modern iteration that binds all participants together with the NXM token. NXM incentivizes a variety of participants that make the system work: security auditors who stake NXM to price the smart contract cover and earn fees in exchange for this work, claims assessors who vet the validity of insurance claims once they are made and earn fees for this work, a group of global evangelists who distribute the insurance and the development team who writes the Nexus smart contracts and manages the primary interface where people interact with Nexus.
What does joining Nexus Mutual mean?
Almost anyone in the world can become a member of the mutual by signing up, going through the KYC process and purchasing NXM tokens with ETH.
When you purchase NXM and join the mutual, the ETH you contribute goes into the capital pool in exchange for legal ownership of the capital pool proportional to the amount of NXM tokens that you own. The fees associated with smart contract cover goes to the members as well as the losses that come with policy payouts — so all of the risk and all of the reward of the policies are absorbed by mutual members.
Joining Nexus as a member does not mean being a passive owner of NXM; you must actively participate in the organization. In exchange for the fees earned from smart contract cover, mutual members are responsible for determining which insurance claims are valid and at what price to sell the cover. Mutual members also make decisions regarding governance and product. Here are the current rules of the mutual in full: https://nexusmutual.gitbook.io/docs/docs
We contributed $1M to the mutual ($800K into the foundation and $200K into the bonding curve) and I’m joining Hugh on the board of the Nexus Mutual foundation, which is funding the development of Nexus. In the future, the hope is that we can fully decentralize the funding of the development of Nexus via a DAO, but for the near term we think that there are practical benefits of funding development in a more centralized manner from the foundation. We are hiring developers now, so don’t hesitate to reach out if interested!
Why join the mutual?
We think smart contract insurance is a foundational piece of infrastructure that’s necessary for a thriving DeFi ecosystem. It’s early days for Nexus and there are many challenges ahead, but we think if we can execute the growth of smart contract insurance will have a positive impact on not just the Ethereum community but also the broader cryptocurrency ecosystem.
Disclosure: 1confirmation is a holder of NXM tokens. This post is in no way promoting NXM as an investment. In fact, you should not buy NXM unless you’re able to spend significant time understanding the complexity of the Nexus Mutual system and contributing to the Nexus Mutual ecosystem.