Over the past 5 months, a small team of entrepreneurs have been hard at work on a new project. The project is called Nayms, and with backing from several leading players across crypto and insurance domains (to be announced shortly), we’re excited to take you through this venture.
But first, why Nayms?
In 1686, individuals called ‘names’ came together to cover risk of all varieties by pledging capital in return for a yield. The Lloyds of London marketplace was born. It’s now 2019, and individuals called ‘nayms’ are coming together via a smart contract powered platform, creating the most efficient capital provision ecosystem for the worlds digital risk in 333 years.
The Nayms Platform: Risk Sharing. Risk Trading.
Nayms is entering the world of risk by using what we believe is the most appropriate tool to do so: Blockchain. We allow crypto-holders to invest in ‘underwriting smart contracts’ that provide cover for crypto-related risk. This risk could be digital assets held within custodians for example, and would be denominated in the same currency as the underwriting capital that is providing the cover. Think BTC to cover a BTC loss, ETH to cover an ETH loss and so on. You can even utilise a stabelcoin to cover a fiat loss, exposing this capital provision platform to not only the emerging risk growing in the crypto space, but all the world’s existing risk in the traditional insurance industry. More on this to follow.
So what has been our journey so far?
Nayms grew from the problem of traditional insurance capital looking to gain exposure to crypto risk in the hope of generating returns from this growing market. However using dollars to underwrite risk denominated in Bitcoin or Ether, for example, creates a pricing problem where insurance companies become over or under-exposed when the price of the underlying asset moves. Such volatility makes this method of underwriting very inefficient and has meant a cap has been placed on the capacity being provided to cover crypto-related losses. Such cover is vital for further adoption.
Generating a yield
By pledging capital into a smart contract, investors generate a yield whilst not losing ownership over their pledged capital. The yield could vary depending on a number of factors. We’ll cover this later. Currently there are several ways that holders of cryptocurrencies can generate a passive return whilst hodling their assets. Some wallets now generate interest, and when MakerDAO launch Multi-Collateral Dai they’ll be an opportunity for a ‘Dai Savings Rate’ (DSR). Staking as a Service has also been talked about a lot over the past year, where funds can be ‘given’ to staking companies who participate in Proof of Staking blockchains on your behalf. These solutions are showing that the cost of capital is rising for crypto holders, and that the sophistication of investors in the space is rising also. A key point here is that interest can’t just come from other crypto-holders, but instead more bridging technologies between traditional capital markets and the crypto space are needed for these yielding solutions to scale.
Why an Insurance Linked Security (ILS) is so interesting
So how can a number of different yields be generated? How can individual risk be spread based on varying investor appetites? How can automation be used to make capital provision as efficient as possible and risk as transparent as possible? The answer…fully collateralised, ILS structured smart contracts.
So what is an ILS? An ILS is an Insurance Linked Security. It allows insurance returns to be securitised so that such risk/returns can be traded in capital markets. The most common use of an ILS contract is for catastrophe losses, such as Florida wind. A ‘Cat Bond’ is created, say of $100m, and if there is a loss of $99m there is no payout to cover this loss. If there is a $101m loss then the $100m contract pays out. It is a clean way for insurance companies to shift $100m of risk off their balance sheet. However, due to the no payout if the loss is measured at $99m a number of tranches can be set up to minimise this risk. Taking out five tranches over the $100m every $20m means that if there’s a $99m loss, at least $80m is paid out.
Using smart contracts, and automating claims as more oracles become available, the Nayms platform aims to apply this simplicity and transparency of ILS contracts to many more types of risk. The platform will also be able to set up 100, 1000 or even 10,000 tranches over an entire contract at no extra administration cost. This enables (re)insurers and ILS providers greater flexibility when structuring these policies for clients and allows investors to spread their capital over the entire risk curve based on their risk profile. For example, if an investor wishes to cover the first $1m of loss in a $100m policy they will earn a very high yield in the event of no claim above this level. These binary, clean contracts can be applied to crypto-risk, allowing brokers to price risk for custodians et al in a highly efficient manner.
They also satisfy two other vital features: limited liability and transparent risk. As the contracts are fully collateralised, the amount in the event of a claim is known. This is unlike the controversy of the Lloyds Names during the 1980’s. Another controversy of that time was losses were being paid out on risk that was unknown at the time of underwriting (in the 1980’s example, asbestos). This is not possible with our smart contract design, putting transparency and risk mitigation at the front of our proposal.
Forming a base for our future
Through the process of setting up this project we have found it helpful to outline some key principles:
- Participant Inclusion
Throughout the 1980’s the Lloyds of London ‘names’ concept allowed High Net Worth Individuals to pledge capital in return for a yield. As they ended up covering losses that they didn’t sign up for, this figure was consolidated down from circa 30,000 ‘names’ to roughly 2000 today with higher barriers to entry in the insurance industry. Using smart contracts and positioning ourselves correctly when it comes to regulation should allow everyone to have access to insurance related returns.
- A tend towards decentralisation
Such participants on the platform (brokers, Nayms Investors, Investment Managers) are rewarded via our fee share program for facilitating on-boarding and liquidity on the network, a fee share that will encourage the move towards a decentralised model over time as the active requirements of Nayms Limited diminishes.
- Collaboration with crypto and traditional financial markets.
This final principle grew from our initial problem, in that traditional insurance capital was struggling to gain exposure to crypto-denominated risk, and players like custodians required such cover to appeal to institutional investors. There are currently few options for transferring risk within the crypto space, and as Nayms is here to deliver underwriting capital to such areas of risk, we wish to position our technology between these two worlds.
So who are we?
The project started with three months of research and was set up with funding from Insurtech Gateway, an incubator in London as part of the Venture Capital firm Hambro Perks. With lead pre-seed investment from the Gateway we secured further investment from two entities in the crypto space (announcement coming) setting us up for a seed round Q3 2019. Our team now sits at five and we have secured some exciting insurance partners in preparation for our pilot early 2020. Our mvp can be found at http://mvp.nayms.io/ where you can interact with our smart contracts. We welcome feedback.
/// Contact us for details of our upcoming seed round ///
We look forward to hearing from you.
The Nayms Team