Understanding Nexus Mutual
Nexus Mutual is a discretionary mutual offering an alternative to insurance for Ethereum users. People who join the mutual become members, and members can buy cover to protect themselves against hacks in smart contract code. It is a mutual, and each member can hold tokens which represent membership rights. It runs on the Ethereum blockchain.
Things that our members can do
- Buy smart contract cover.
- Stake on smart contracts to show they think that contract is secure and to earn rewards.
- Stake to assess claims submitted by other members
- Put forward governance proposals.
- Vote on proposals put forward by the team or other members.
- Contribute funds to the mutual and hold NXM tokens.
- All members of the mutual are sharing risk with each other.
Things that the Nexus Mutual team has developed and will generally instigate discussion on
Note: All of these items are open to any member to develop and champion as they wish.
Base pricing: This has been calculated by insurance experts, actuaries and advisors.
Investments: This feature will be used to maximise return on the pool of funds in the mutual.
Product development: Based on feedback from the community, progression of the Ethereum and DeFi ecosystem and the capacity/expertise of the team.
Things that our members are specifically responsible for
Governance: Members are encouraged to vote on proposals or put forward their own proposals.
Capital provision: Members pay a nominal fee for membership, and contribute to the pool by purchasing smart contract cover. Members can also purchase NXM tokens to contribute directly to the pool.
Risk assessment: Members can stake against the security of a smart contract and get rewarded for their staking. Enough staking needs to happen before anyone can purchase cover on that smart contract.
[Staking with Nexus Mutual is more knowledge based than with other DeFi systems and therefore should be undertaken only by members who are prepared to risk losing their stake if there is a claim on that smart contract. It should be considered as active rather than passive staking.]
We are also currently working on a new pooled staking system which will change the way staking rewards are distributed.
Claims assessment: When Nexus Mutual is alerted to a claim, members will be asked to vote on whether to pay out on that claim or not. Claims should be resolved within 12–48 hours.
The token
The NXM token represents membership rights in the mutual, with all members owning the mutual together.
It runs on a bonding curve which is a mathematical curve that defines the token price based on specific financial metrics.
It can only be bought and sold with the Nexus Mutual application. Only members of Nexus Mutual can hold NXM tokens.
The legal framework
Nexus Mutual is a digital cooperative (a DAO with a legal wrapper around it) and operates as a discretionary mutual in the UK. Nexus Mutual complies with the relevant laws and regulations in the countries from which it accepts members.
The Advisory Board
There are five advisory board members. Their main purpose is to provide qualified technical guidance to the members of the mutual as well as enact emergency functions should they be required.
Advisory Board members do have special powers, however the members can decide to replace them at any time if they see fit.
Common misconceptions
Not insurance
Nexus Mutual does not offer insurance because it is a discretionary mutual. Smart Contract Cover is not a contract of insurance. It is discretionary cover provided by members of the mutual to each other. Members have full discretion on which claims payments are made. Members are putting trust in the economic incentive model rather than an insurance company.
Staking
Using Nexus Mutual to stake on a smart contract system is a way of demonstrating you think a contract is safe. Any member can become a risk assessor by staking their NXM (Nexus native tokens) on a contract to earn rewards. If there is an accepted claim on that contract, the risk assessor’s stake can be burned.
There must be some staking by risk assessors to enable cover purchases on any new smart contract or smart contract system.
[We are currently working on a new pooled staking system to more evenly distribute rewards and enable staking across multiple contracts with one deposit.]
Demonstrating material loss for a claim
Purchasing smart contract cover process:
Become a member.
Select smart contract to cover.
Select how long you would like cover for.
Select amount of cover you would like.
You’re covered.
In order to make a claim, members do not have to demonstrate that they lost personal funds, only that some funds were lost from the smart contract. (20% of cover amount must be lost in order to make a valid claim.)
Members can stake their NXM on risk assessment (whether they think a contract is secure) and claims assessment (whether they think a claim should be paid). Members can vote in any way they wish when a claim is raised. This involves taking the available information on a claim and using it to decide whether it is in the best interest of each party (the claimant, themselves and the mutual as a whole) to pay out.
If Nexus Mutual begins denying legitimate claims and thus failing in its core purpose, then no new users would come to the platform and make contributions to it. While it’s true that claims would lower the value of the pool — and hence the value of NXM tokens that the claims assessors hold — in the short-term, claims assessors are also financially incentivised to take a long-term view as they are required to lock up their stake.
