Editors Note: This article comes fromFirst class warehouse blockchain research institute (ID: first_vip1), reprinted by Odaily with authorization.
Editors Note: This article comes from
First class warehouse blockchain research institute (ID: first_vip1)
First class warehouse blockchain research institute (ID: first_vip1)
, reprinted by Odaily with authorization.
In the circle of cryptocurrency, investors face technical risks, that is, when tokens are stored in wallets or smart contracts, there is a risk of being attacked or stolen by hackers. For users who do not have the ability to directly understand the code quality, it can be solved by purchasing insurance. The current situation in two aspects has given rise to the demand for smart contract insurance: 1) the risk transfer caused by the expansion of the DeFi ecosystem; 2) frequent hacker attacks. Nexus Mutual is currently the only project that offers smart contract insurance, so its competitive advantage is very clear.
The team members of Nexus are very reasonable, including insurance actuaries and blockchain practitioners for many years. Their code commits are in good shape.
In summary, Nexus Mutual deserves attention.
1. Basic overview
1.1 Project Introduction
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1. Basic overview
1.2 Basic information
1.2 Basic information
2. Project details
2.1 Team
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2. Project details
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2.1 Team
There are 8 team members and 2 consultants, three of whom are experienced insurance practitioners.
Hugh Karp, founder and CEO, is based in London, UK. He is an insurance professional and actuary with 15 years of experience. department worked.
Roxana Danila, CTO, joined the company in January 2019, a product-minded engineer with 5+ years of experience in large-scale applications and building software products. Worked at Facebook for four years and was the head of technology in the New York area.
Nitika Arora, board member and technologist, she is a full-stack developer and chief technical architect at Somish Solutions. Focus on technical design, enterprise scalability
and security. He is also the CTO of Somish Blockchain Labs and the co-founder of GovBlocks.
Renis Melbardis, board member and insurance actuary, worked in Munichre, Munich Reinsurance Company for five years, one of the worlds largest reinsurance companies, joined NXM from May 2018 to April 2019, and joined Aon in May 2019 Group (Aon Corporation), one of the worlds largest insurance group companies.
Graeme Thurgood, a member of the board of directors and an expert in mutual insurance, an insurance practitioner with 17 years of insurance experience, has extensive experience in establishing and operating mutual societies in the UK. Previously at RSA, Allianz and Aviva and now at Regis Mutual Management.
Ish Goel, board member and blockchain expert, is the CEO and core blockchain architect of Somish Solutions and the founder of GovBlocks. A blockchain center was established in 2016, overseeing the development of multiple blockchain MVPs across multiple industries and governments. Joined Nexus Mutual in 2017, served as CTO before Roxana Danila came to the company, and has submitted the most codes for NXM so far.
2.2 Funding
Steve Barker, Advisor, Founder and CEO of SwapForex. He has over 22 years experience in financial services and start-ups, managing a number of UK and international investment funds. He has co-founded a number of start-ups in media, Internet TV and financial services.
Evan van Ness, consultant, founder of WeekInEthereum.com, a news site around the Ethereum ecosystem.
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On May 11, 2018, it announced the completion of the seed round of financing, and the investors were KR1 and Kenetic. Among them, KR1 invested 184,000 euros [1] (US$ 215,500) in Nexus in April 2018. The investment institution also invested in projects such as Argent, Herdius, and Vega.
Investors in the seed round were allocated 700,000 NXM.
On July 23, 2020, KR1 sold 35,128 NXM (36.5% of holdings) at an average price of $14.03, making a profit of $492,991 compared to the initial gain of $2.24. KR1 stated that it still holds more than three-quarters of its initial Nexus position (calculated as 63.5%), and intends to buy back some tokens after the price and capital pool dynamics return to normal levels[2].
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2.3 Code
The code submission status of Nexus Mutual reflects the update of its version. After the first business was generated in July 2019, the code submission stagnated, reflecting that the code has been updated and the main focus is on business promotion. From the beginning of 2020, the team began to add a new pledge system, and because of the rapid iteration of the entire DeFi ecosystem, it accelerated its own code update progress.
Figure 2-2 reflects the submissions made by the people at Nexus Mutual. According to the information on Github, most of Nexus Mutuals codes are contributed by Indian company Somish, including the above-mentioned Ish Goel, Nitika Arora and Suraj Rawat who are not listed on the official website.
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2.4 Products
Nexus Mutual is a decentralized mutual insurance.
2.4.1 Smart contract insurance
Nexus Mutuals first product is Smart Contract Cover.
The subject of insurance for this product is a smart contract, and the insurance liability is: unintended uses of code, specifically: 1) The specified smart contract address, or the directly related smart contract address in the smart contract system , was hacked during the insurance period, which is a direct consequence of the accidental use of smart contract code; Addresses not managed by the original owner, or permanent loss of funds.
The policyholder needs to make a claim within the insurance period, or within 35 days after the end of the insurance period.
Definitions of the above terms:
Insurance amount: the amount specified by the policyholder when purchasing smart contract insurance.
Loss of Money: The total loss of money due to hacking, not the loss of individual policyholders.
Significant: It far exceeds the gas-related costs involved in the contract, and the total fund loss exceeds 20% of the insured amount.
Insurance period: Calculated by day, selected by the policyholder when applying for insurance, greater than 30 days and less than 1 year. Smart contract system: refers to a single smart contract running on Ethereum, or a group of directly related smart contracts, excluding systems that interact with it, such as oracles, miners, the Ethereum network, or individuals or organizations that interact with the system.
Due to the complexity of todays smart contract systems, the purpose of smart contract insurance is to allow users to insure only one master contract, which represents the entire smart contract system. Figure 2-3 shows two currently popular smart contract systems. Users can only insure the Master and Factory, which is equivalent to insuring the entire smart contract system.
Disclaimer:
1) Loss of funds due to phishing, private key security breach, malware, exchange theft, or any other activity where the smart contract still functions as intended;
2) If the deployment of the smart contract or smart contract system is mainly for the purpose of claiming on this policy, rather than any claim for actual use by the customer;
3) Before the insurance period, the smart contract system has been hacked, or the bug has been publicly disclosed;
4) The bugs that appeared within 250 days of smart contract logic changes were attacked by hackers. The specific situation is: when the main contract of the smart contract is not changed, the sub-contract is updated or replaced, that is, in Figure 2-3, the Master and Factory contracts have not changed, but the contracts such as F(x) or Child(x) have been changed. change. This liability exemption is to protect risk assessors from unforeseen changes; (the exemption clause has been removed on June 16)
5) Any input outside the smart contract works in an unintended way, while the smart contract still works in the expected way. Inputs include, but are not limited to: oracles, governance systems, incentive systems, miner behavior, and network congestion.
Circumstances when insurance ends:
1) When the policy is claimed;
2) The insurance period expires.
2.4.2 Insurance application process
Only by becoming a member of Nexus Mutual can you purchase NXM and then purchase smart contract insurance. Membership involves KYC and a membership fee of 0.002ETH. KYC does not currently support regions such as mainland China. Users who become members can only bind one address, and only this address can make purchases.
After becoming a member, the process of purchasing smart contract insurance for the first time is as follows:
1) Select the smart contract you want to insure on the purchase insurance page, or enter the smart contract address;
2) Enter the insurance amount, which can be denominated in DAI or Ether;
3) Enter the insurance period;
4) Obtain a quotation, and the upper limit of the quotation is subject to the solvency limit in 2.5.2;
There are only 16 smart contracts that can be purchased on the purchase insurance page, but there are actually 26 smart contracts that are supported. See Table 2-1. For real-time inquiries, please go to the general channel of Discord.
2.4.3 Claims process
Insurance users can file a claim during the insurance period and within 35 days after expiration. Since claims assessment is a simple yes and no vote, the actual loss suffered by the insurance user will not be assessed.
When the user submits a claim, he needs to pledge NXM, which is 5% of the premium in Figure 2-4. If the claim fails, he will have another chance to claim. When the user does not claim or the first claim is successful, 10% of the premium NXM can be taken away. When the user fails the first claim and the second claim is successful, 5% of the NXM can be taken away.
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2.5 Detailed Business Explanation
2.5.1 Insurance costs
On June 23, the new premium pricing model passed a community vote.
Because of the new risk assessment model, Nexus needed a new simplified premium pricing framework that satisfies the following: 1) Simplicity - pushes complexity off-chain to risk assessors (according to their own risk model evaluation); 2) Decentralization - simple enough, and only rely on on-chain information, can run completely on the chain (compared to the current off-chain quotation engine); 3) Flexibility - not only Pricing the scope of a smart contract can also price any type of risk, so the Nexus team can launch new products.
The cost of a smart contract insurance is determined by three factors: 1) the risk pledge amount of a single smart contract; 2) the insurance amount; 3) the insurance period.
The first step in determining the pledge value of a smart contract is to calculate the risk cost (Risk Cost), which is the amount of insurance that Nexus Mutual is expected to pay each year, see Formula 1. The second step is to calculate the insurance cost, which is the quotation in 2.4.2, see formula 2.
When the risk pledge amount of a single smart contract exceeds 200,000 NXM, the insurance fee is the lowest. The risk quality of the smart contracts of the 6 projects in Figure 3-8 all exceeds 200,000 NXM, so their insurance premiums are the lowest. Regardless of the amount of insurance and the duration of insurance, the minimum premium is equal to an annualized rate of 1.3%. The relationship between the annualized premium rate and the risk pledge amount of a single project smart contract is shown in Figure 2-6:
2.5.2 Capital Model
Capital Pool refers to the amount of funds held by Nexus Mutual, all of which come from the ETH and DAI used by members to purchase NXM.
The capital model determines the minimum amount of capital required for Nexus Mutual to maintain operations, namely the minimum capital requirement MCR (Minimum Capital Requirement in ETH terms).
MCR consists of two parts: 1) BEL (Best Estimate Liability, best debt prediction) refers to the expected payment of each insurance, which is determined by the risk cost of all existing insurance policies (see formula 1); 2) buffer (buffer) refers to The pool of funds used to prevent black swan events is calculated by the Solvency II framework of the European insurance industry.
The ratio of capital pool to MCR is MCR%, and Nexus Mutual will always maintain MCR% greater than 1. When MCR%≤1, NXM can no longer redeem ETH or DAI.
The capital model is too complex to run on-chain, so it must be run off-chain and the results notarized on-chain every 4 hours. The capital model code will be open-sourced so that anyone can run and verify the results independently.
2.5.3 Solvency Limits (Capacity Limits)
Solvency limitation means that Nexus Mutual limits the repayment amount of a specific risk to protect the entire insurance fund. There are two main types of constraints: specific risk constraints and global capability constraints.
Special risk limit: The upper limit of the insurance amount of a smart contract is equal to the amount pledged in the smart contract. If there is no pledge, Nexus will not provide any insurance for the smart contract. For pledge related information, see 2.5.5 Risk Assessment.
Global capacity limitation: No matter how much NXM is pledged in a single specific smart contract, it can only pay up to 20% of MCR (eth), see formula 3:
2.5.4 Investment management (not yet in progress)
In any traditional insurance model, insurance companies invest premiums to make a profit. This is an important part of the profitability of any insurance company. The investment strategy of an insurance company is usually conservative, investing where it does not jeopardize the solvency of the fund.
Nexus Mutual has two types of assets: currency assets (Currency Assets, CAx) and investment assets (Investing Assets).
Currency assets refer to all ETH and DAI received in the system, sources include sales of smart contract insurance products, and sales of NXM tokens. These assets are liabilities of Nexus Mutual, and they must remain liquid in response to claims and redemptions by NXM.
Investment assets refer to other ERC20 tokens. In the future, members of Nexus Mutual can vote for other ERC20 tokens to enter the insurance system through the governance system.
Nexus Mutuals investment strategy plan is that currency assets will be pledged on ETH 2.0, and investment assets will be market-making on Uniswap.
2.5.5 Risk Assessment
Risk assessment means that members will pledge NXM tokens to get rewards for the smart contracts they think are safe, and the corresponding risk is that the pledged NXM will be used for claims.
The process of user participation in risk assessment is as follows:
1) Li Lei first deposits a sum of NXM, which can be any amount (such as 1000 NXM)
2) Li Lei chooses up to 10 smart contracts that he wants to pledge, which can be any contract, not limited to Table 2-1. (such as Curve)
3) The amount pledged by each smart contract needs to be greater than 20 NXM and less than the amount deposited by Li Lei (1000 NXM).
4) If a member purchases Curves insurance, 50% of the premium will be distributed to all users (including Li Lei) who pledged in the smart contract.
5) If the claim of the member who purchased the smart contract is successful, the NXM pledged in the smart contract will be paid to the member, and Li Leicuns NXM will suffer a loss.
6) If Li Lei chooses to withdraw from the pledge, he will face a 90-day lock-up period, during which Li Lei will still receive premium income and face repayment risks.
2.5.6 Claim Assessment
Once a claim is submitted, it will be assessed by Claims Assessors.
2.5.6.1 Claims Assessor Vote
Any member who holds NXM can become a claim assessor, and has voting rights after staking NXM. Pledging NXM has an initial staking period of 30 days. After the evaluators vote, an extension period of 7 days will be generated. If the evaluators vote agrees with the consensus, then this staking extension period will be cancelled. If not, then the stake extension remains in effect. The voting period is at least 36 hours and at most 72 hours. If the total amount of voting pledged exceeds 10 times the claim insurance amount, the voting will end early. After the voting results come out, the fee pool (Fee Pool) rewards will be distributed proportionally to the claim assessors who participated in the voting. Claims assessors can only vote on one claim every 6 hours.
The claim evaluator voting session must meet two conditions: a. The NXM pledge amount of the evaluator participating in each claim must exceed 5 times the insurance amount of the claim; b. More than 70% of the votes are unanimous (whether agree or not) agree to claim). If the above two conditions cannot be met, it will enter the voting process of all members.
2.5.6.2 All members vote
All NXM holders vote without staking NXM. All NXM of voting participants will be locked for two days, and correspondingly, participants will receive fee pool rewards. The voting period for the full vote is the same as the previous stage.
One condition must be met in the voting session of all members: the locked amount of NXM participating must exceed 5 times the claimed amount. If the above conditions are not met, the claim assessor voting stage will be entered again, and the two conditions of the first stage will be cancelled.
The claim reviewer votes to approve the claim, then the insurance amount will be sent to the policyholders address, and at the same time, the policy will be terminated and the policyholders security deposit will be returned. If the compensation is refused, the policyholders security deposit will be destroyed, but the policy is still valid, and the policyholder can also submit a second claim application.
However, the result of the vote of all members is final, and the insured who failed to claim cannot claim again.
The asset of the fee pool is 20% of the insurance fee, minted by the system. When the voting is over, all voters will receive rewards from the fee pool, and the distribution ratio is based on the number of votes.
2.5.7 Governance
Nexus Mutual’s DAO governance is deployed on the GovBlock platform, which is produced by Somish, the company to which team members Nitika Arora and Ish Goel belong.
Nexus Mutual has an Advisory Board consisting of five members: Nitika Arora, Renis Melbardis, Graeme Thurgood, Nick Munoz-McDonald and Ish Goel (see 2.1).
Typically, the governance process is as follows:
1) Members make proposals;
2) Accepted by the Advisory Committee, add the proposal to the whitelist, and set voting rewards;
3) The Advisory Committee votes and gives governance recommendations to all members;
4) All members must vote more than 15%.
5) The team executes the proposal.
The product of Nexus Mutual is smart contract insurance, the subject matter of the product is smart contract, and the insurance liability is: unintended uses of code. Users who become members through their KYC can purchase the product. When the designated smart contract is attacked by hackers, the insured member can make a claim to recover the loss. Members can stake NXM, participate in claim assessment, and get some premium rewards. In addition, the newly updated risk assessment module allows members to pledge each smart contract according to their own risk control standards, and contribute capital to the Nexus Mutual system while receiving premium rewards. The entire insurance business framework of Nexus is rigorously designed, and every link is combined with the blockchain.
3. Development
Under the current scale of insurance business, the new pledge model can provide very limited annualized rate of return, and pledgers also need to bear the risk of principal loss, so this model still cannot attract enough risk assessors to pledge NXM. New products based on this model have the risk of being unable to conduct business due to insufficient risk pledges.
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3. Development
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3.1 History
3.1.1 bZx events
The community discussion of bZx is shown in Table 3-2:
3.2 Status
3.1.2 MakerDAO Liquidation Event
During the 3.12 period, due to the problem of MakerDAOs liquidation mechanism, Maker suffered a loss of 4.5 million US dollars. For unintended use of code, there are many discussions in the community. Ultimately, all 16 claims were rejected, with 99.96% (USD 2.22 million pledged) voting to reject the claims.
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3.2 Status
3.2.1 Insurance amount
Figure 3-1 shows that the cumulative insured amount of active policies increased rapidly after July 2020. This stems from the fact that the liquidity mining started by COMP tokens has brought a lot of liquidity to the DeFi market since mid-June, and it has also brought a huge demand for capital insurance. As of Aug. 3, there were 560 policies totaling $17.23 million.
Figure 3-2 shows that the five contracts with the largest cumulative insured amount are: Curve, Yearn, Balancer, Compound, and Maker. The huge amount of insurance for Curve and Yearn comes from the YFI token mining that started in mid-July. The huge annualized rate of return for a week has attracted a large number of liquidity providers and formed a large number of insurance policies.
3.2.2 Claims
Figure 3-3 shows the claims since Nexus started. Among the 25 claims, the blue ones are successful claims, and the orange ones are unsuccessful claims. Claims 1-5 were all submitted in the bZx incident, of which 2, 3, and 5 were paid, and it is also the only incident in which the claim policy was successful so far (see 3.1.1 for details).
3.2.3 Funding
Figure 3-4 shows that the capital pool of Nexus has increased rapidly since July, reaching USD 19.82 million as of August 3. The reason is the growth of DeFi caused by liquidity mining, which in turn triggers the demand for insurance.
The MCR in Figure 3-5 began to grow rapidly in mid-July. The initial value of MCR (ETH) is 7000 ETH. Starting from November 11, 2019, when the MCR% is greater than 130%, the MCR (ETH) value will be adjusted once a day, with a maximum increase of 1% each time, and the adjustment will stop when the MCR% is equal to 130%. Starting from July 11, 2020, the adjustment interval will be shortened to once every 4 hours, and each time will be 1%, which means that MCR (ETH) will increase by up to 6% every day. When the MCR increases to 100,000 ETH, the adjustment interval will be adjusted back to once a day. As of August 3, MCR (ETH) has reached 40,000 ETH.
Figure 3-6 reflects the change of MCR%. MCR% is the ratio of capital pool size to MCR. The former is the result of business growth, and the latter needs to be adjusted according to the former to ensure that MCR% is within a reasonable value range. The current setting of the team is to maintain the MCR% at 130%, so there are the above two MCR (ETH) adjustments: the adjustment threshold of 130% and the adjustment rate every 4 hours. As of August 3, the MCR% has been adjusted back to 130%.
3.2.4 Risk pledge
In Figure 3-8, the five contracts with the largest pledge amount of NXM are Compound, Curve, Uniswap, Synthetix and Aave. Because when the smart contract is attacked, the pledged tokens of the risk assessor will be used as compensation, thereby losing the principal, so the pledge amount of each smart contract in Figure 3-8 reflects the security judgment of the risk assessor on the smart contract. Compound is the project that people feel is the safest.
3.3 Future
Compared with Figure 3-2, yearn has a relatively small risk pledge amount, but the insurance amount is the second largest, which shows that people have a demand for insurance due to the uncertainty of yearn, a popular project in mid-July.
Table 3-3 shows the top 10 yields of NXM risk pledge for each smart contract. Based on the current rate of return and the risk of losing all the pledged principal, these expected annualized rates of return are obviously not attractive.
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3.3 Future
The broader vision of Nexus is to support various types of risks, not just smart contract risks, but also oracle machine risks, and even risks other than cryptocurrencies such as earthquakes and typhoons.
1, 2, 2a, and 2b in Figure 3-4 have all been completed, which are the new risk assessment model (see 2.5.5), increasing the return of risk assessors (see 3.2.4), and removing the upgrade in the exemption clause Part (see 2.4.1), simplification of insurance premium pricing (see 2.5.1).
Nexus removed the exemption clause for upgrade contracts in the hope that more members would feel able to purchase frequently upgraded smart contracts, thereby providing them with greater risk protection. The change was passed in a community vote on June 16.
Recently, the development of Nexus Mutual will focus on three aspects: product, capital expansion and decentralization. Specifically, there are the following items:
1) Link the claim to the actual loss: Current insurance is related to the total loss of the smart contract, without evaluating the actual loss of the policyholder of the claim. In the future, the direction of Nexus is to measure the actual loss of policyholders, which may involve providing signed messages from the address directly affected by the hack before the claim can be accepted.
3) Partial claim payout: This is a key feature needed to unlock many future product options. The result of the vote is not a simple yes or no, but how much?. This allows the product to more closely compensate for actual losses.
5) Major oracle failure: A specific product that will pay out the entire loss if there is a major oracle failure.
Summary: The development of Nexus is relatively smooth, and the business development is on the rise. The bZx event is the only event in which NXM has passed the claim settlement. It shows that: 1) Nexus can indeed protect the smart contract risks of members; 2) the liability scope of the insurance is clear, and token price fluctuations are not protected. Nexus uses a new risk assessment system, and the risk assessment is handed over to the assessors themselves. Such a change will make it easier to add new insurance products in the future. Several key directions on Nexus near-term roadmap have practical needs.
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4. Token
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4.1 Model
4.1.1 Price
Besides ETH, NXM price is only determined by two factors: 1) the size of the capital pool; 2) MCR (ETH). The formula is as follows:
for example:
The design principle of formula 1: 1) A low MCR% value means a lower amount of funds, because insurance needs funds to cover the insured amount, and a lower price is required to attract funds to enter the market; 2) Conversely, a higher MCR% It means a higher amount of funds, and the price can increase at this time; 2) When the MCR (ETH) is higher, it means business growth, and the token price should be positively correlated with it.
When the capital pool is 0, that is, on the first day, the price of NXM is 0.01028 ETH. According to the ETH price at that time is 268 US dollars, the initial NXM price is 2.755 US dollars.
The current capital pool size is 52,000 ETH, the MCR size is 40,000 ETH (see Figure 3-5), and the price of NXM is 0.02998 ETH.
for example:
1) When a sum of funds, say 520 ETH, enters the Nexus Mutual system and purchases NXM. At this time, the capital pool size of the entire system has increased by 520 ETH. Since the adjustment interval of MCR is 4 hours, if MCR remains unchanged at this time, the price of NXM will rise, and the price of NXM will become 0.03078 ETH.
3) Because the MCR% has dropped to 130% again, the MCR will no longer be adjusted. Therefore, the price of NXM will first increase and then decrease due to the newly added ETH in the system, and the final price will be slightly higher than the initial price.
The two arrows in Table 4-1 illustrate the price movement of NXM in the example above. If the Nexus system works smoothly, the price of NXM will always be as shown in Table 4-1, spiraling from green to blue, and then to green.
Please note that when a large number of people leave the market, the size of the capital pool will decrease, but it will not be lower than the amount of MCR (the system does not allow NXM to be exchanged for ETH). The worst case for the size of the capital pool in the short term is equal to MCR. At this time, MCR%<130%, close to or equal to 1. The price of NXM will be shown in red in Table 4-1.
Figure 4-1 shows the price of NXM denominated in ETH. It can be seen that the change of NXM is spiraling upwards as mentioned above. It can be compared with Figure 3-4, Figure 3-5 and Figure 3-6.
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4.2 Supply and demand
4.2.1 Supply
NXM has the following 5 casting methods:
1) Initial tokens: When the contract is deployed, 3 million NXM tokens will be generated and distributed to founders and early contributors.
2) Purchase through the token price model: Any member can purchase through the price model at any point in time.
3) Reward for claim assessment: 20% of the premium, rewarding members who participate in claim assessment.
4) Risk assessment reward: 50% of the premium, rewarding members who participate in risk pledge.
5) Governance rewards: usually 100 NXM, used to reward members who participate in governance.
Figure 4-2 reflects the gradual increase in the supply of NXM. Due to the insurance demand generated by liquidity mining, the number of NXM increased rapidly in July. As of August 4th, the supply of NXM is 5.51 million.
4.2.2 Requirements
NXM has the following 4 uses:
1) Obtain insurance: NXM can obtain insurance through destruction. 90% of the tokens will be burnt and 10% will be locked for claim submission. The number of lock-up days is the number of insurance days plus 35 days.
2) Claim evaluation pledge: Users who participate in claim evaluation and earn result rewards must pledge NXM.
3) Risk assessment pledge: Participating in risk assessment also requires staking NXM.
4) Redemption: Under certain conditions, users can burn NXM and replace it with ETH. The conditions are as follows:
a. The fund pool is larger than MCR (ETH), that is, MCR%>100%.
Summary: NXMs price model is very clear, and it is only affected by ETH price and business growth in the long run. If you put aside the factor of ETH price: In the short term, MCR will grow according to the growth of the capital pool, so that MCR% will remain at 130%, resulting in a zigzag rise in the price of NXM.
5. Competition
5.1 Industry Overview
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5. Competition
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5.1 Industry Overview
Nexus Mutual is a mutual insurance project built on the Ethereum network.
Insurance means that the policyholder pays insurance premiums to the insurer according to the contract, and the insurer is responsible for indemnity for property losses caused by accidents that may occur as agreed in the contract, or when the insured dies, becomes disabled , disease, or commercial insurance that assumes the responsibility to pay insurance benefits when the age and time limit agreed in the contract are reached [1].
Nexus Mutual uses the term cover to refer to the act of reducing an investors risk exposure.
In the circle of cryptocurrency, investors often face several risks: 1) market risk, that is, the risk of cryptocurrency price fluctuations; 2) credit risk, that is, the risk of deliberate fraud by the token issuer, or the final dissolution of the team; 3) Technical risk, that is, the risk of being attacked or stolen by hackers when tokens are stored in wallets or smart contracts.
Market risk can be hedged in financial ways, such as buying futures and options. Credit risk can be covered by adequate research on the project. As for technical risks, for users who have not learned the code, they can only be solved by purchasing insurance.
Nexus Mutual is currently the only project in the blockchain ecosystem that provides smart contract insurance products.
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The status quo in two aspects has led to the demand for smart contract insurance: 1) risk transfer caused by the expansion of the DeFi ecosystem; 2) frequent hacker attacks.
In recent months, the scale of the DeFi ecosystem has expanded rapidly. From June, COMP started the prelude to liquidity mining. Compound, Maker, Aave, Balancer, Curve, Yearn and other leading DeFi projects related to mining have seen their locked positions rise rapidly, as shown in Figure 5-1. The original funds in the centralized exchange have been transferred to various DeFi projects, so the risk of running away from the centralized exchange has been transferred to the decentralized smart contract.
In February bZx was attacked by flash loans, in April dForce funds were stolen, in June Balancer’s STA fund pool was attacked, and in July Bancor v0.6 had a security hole. These are some of the hacks that have occurred in the DeFi ecosystem in the past six months event. They increase users strong demand for insurance.
Summary: Blockchain insurance is a product with strong demand. Technical risks can only be resolved through insurance, and Nexus Mutual is currently the only project that provides smart contract insurance, so its competitive advantage is very obvious.
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6. Investment Advice
Investment is risky. The opening price data provided below are investment decisions based on the authors own knowledge and understanding of the project. They are only used as a demonstration reference and not as a basis for users to make investment decisions. Users need to base their own understanding of the project on the basis of Cognition makes investment decisions, and the first-class warehouse and the author of the article are not responsible for the profits and losses generated by the users own investment decisions.
The price of NXM is determined by a formula. For details, see 4.1.1 Price. The product design is based on ETH as the pricing unit, and the trading pair is NXM/ETH.
NXM pricing formula:
The disassembly of NXMs price formula shows that the currency price depends on the amount of Ethereum in the Capital Pool and the MCR.
The change of the fund pool is real-time. When the following situations occur, the fund pool will change.
1) When users purchase insurance, 50% of the premium will be deposited into the fund pool. 2) Newly added members buy NXM, and the amount of ETH in the fund pool increases. 3) After the claim is passed, the claim will be settled for the user, reducing the amount of ETH in the fund pool. 4) Members cancel, sell NXM, and the amount of ETH in the fund pool decreases.
The change of MCR is relatively lagging, and it is adjusted 6 times a day. When the following situations occur, MCR will change.
