Nexus Mutual, an alternative insurance provider for a variety of Ethereum-based DeFi protocols, has seen its risk pool double over the past 90 days to more than $4 million.
Indeed, Nexus can barely keep up with the demand for smart-contract cover in the exploding decentralized finance (DeFi) arena.
“We are in this position where there are lots of people that want heaps of cover, but we don’t quite have enough assets to cover everything we would like to right now,” said Nexus Mutual CEO and founder Hugh Karp. “So it’s a good problem to have and we’re working on it.”
The recent boost has been due to a few large covers, especially on Balancer, a newly launched protocol that is offering bonuses for people providing liquidity. Other significant deals for Nexus stem from DeFi platforms Aave and Compound.
Stepping back, the London-based Nexus may be using bleeding-edge tech but the mutual insurance model dates back to the 17th century and potentially aligns the interests of participants better than today’s profit-maximizing insurance firms.
Nexus is exploiting an unregulated pocket within the British insurance sector called a “discretionary mutual,” where members have no contractual obligations to pay claims. As a provider of insurance, the platform recently proved to be worth its salt, however, making its first payout following an exploit of the smart contract code of DeFi lender bZx.
The way Nexus works is members of the mutual join by purchasing NXM tokens that allow them to participate in the decentralized autonomous organization (DAO). All decisions are voted on by members, who are incentivized to pay genuine claims.
“DeFi is expanding rapidly so I’m expecting the number of yield-bearing options to increase exponentially over the next few years,” said Karp.“DeFi users want the returns available, but want to avoid the smart-contract risk. A new protocol wants liquidity, so they offer some bonus to enhance yield, and more professional users take out Nexus cover to access yield safely.”