Decentralized Finance (DeFi) is the town’s talk, and with the recent boom and bust hitting the scene, getting insurance may be worthwhile – enter Nexus Mutual (NM). NM is an insurance protocol that offers its users coverage for DeFi protocols; by allowing them to hedge against risks born by smart contracts. Last week, NM serviced 1% of the entire DeFi space, eclipsing $74 million in active coverage.
Understanding Nexus Mutual
In their whitepaper, the NM site intends to create “a peer-to-peer risk sharing mutual”, which means reverting to a quasi-pre-industrial insurance model, where communities pool together individual resources and distribute them to those who succumb to a certain risk.
The reason for the creation of a “risk sharing mutual” is that NM believes that modern insurance blueprints give rise to “[a] lack of trust between customers and the institutions.” However, with blockchain technology and smart contracts, costs can be reduced, and trust can be moved “from institutions and regulations to transparent code.”
A crucial component to NM’s community-driven ‘mutual’, is their NXM token, an ERC-20 compatible token that serves as an incentive to “bind the mutual together.” Within the mutual, NXM promotes the undertaking of crucial functions such as: rewards for assessing claims, risk assessment, and governance duties, etc.
Conversely, on the customer side, NXM can be used for: purchasing smart contract cover, the redemption of tokens, participating in claims, and risk assessment stakes. Additionally, customers can suggest governance proposals, vote on governance suggestions, and contribute capital to the mutual.
Throughout NM, the key concept is that all mutual share members share the burden of risk with one another, and members decide which claims payments will be made.
What this means for crypto users:
With the DeFi scene kicking off, NM’s ambitious task of providing a DeFi insurance solution throughout the Ethereum ecosystem is a game-changer. Naturally, NM will not just stop at ensuring DeFi projects, with cold and hot wallet coverage the next logical step. Thus, the ability to take out an insurance policy on a host of products and actively engage in the community is revolutionary, particularly for an industry in need of some insurance.
If you want to find out more about Nexus Mutual, follow the links below: