What is Nexus Mutual?
Nexus Mutual is a mutual insurance platform built on Ethereum. It aims to replace the modern-day insurance model which involves the insured party paying a premium to the insurer in exchange for the insurer’s promise to give compensation in the event of a covered loss. Their view is that the modern-day insurance model is flawed as it is heavily reliant on oversight from government institutions. They also have a distinct lack of transparency and has substantial room for cost savings (approximately 35% of insurance premiums are lost due to frictional costs, Nexus Mutual believe they can eliminate 18% of these costs). Nexus Mutual counters the current model by returning to a ‘risk-sharing pool’ basis. This is where communities will pool their resources together to protect individuals and when a relevant event occurs, the community will decide among themselves whether a valid claim is made.
Ownership of the Nexus Mutual token (“NXM”) will make the participant a part-owner of the mutual.
Nexus Mutual worked with Regis Mutual Management (“Regis”) in developing their offering. Regis is a market leader within the United Kingdom and have noted that the Covid-19 pandemic has shown an increasing trend towards the use of discretionary mutuals as opposed to conventional insurance products.
The blockchain based solution currently has one product, their Smart Contract Cover. The product will cover “unintended code usage” where someone has suffered a financial loss on the smart contract. Nexus Mutual’s whitepaper notes that this product would have covered the previous DAO hack and the two Parity multi-sig wallet issues. However, they further note that it is not intended to pay-out on loss from phishing, malware or exchange hacks.
There are valid concerns over gas fees that members will suffer when making large volume purchases or sales of NXM. However, these are actively being mitigated by Nexus Mutual who are simplifying token price calculations. Gas fees are also likely to be cut when Ethereum 2.0 is released.
Who is in Nexus Mutual's team?
Hugh Karp is the founder of Nexus Mutual and has over a decade’s experience in institutional finance and start-ups. Before Nexus Mutual, he was the CFO of Munich Re Group’s UK and Ireland division. Munich Re Group is a market leading reinsurance company generating €51.4bn in revenue in 2019. It is listed on multiple German stock exchanges.
Ricky Tan is the head of business development at Nexus Mutual. In his role, he seeks to attract partnerships for Nexus Mutual. Although he does not have any significant prior experiences in this role, he was the founder of TokenData.io, a cryptocurrency data and research company. This has given him significant knowledge of the cryptocurrency industry and the likely avenues of growth for Nexus Mutual.
Nexus Mutual has four developers within their team who have a cumulative twenty-seven years of experience in development including work at Facebook, Amazon and King.com.
Reinis Melbardis sits on the advisory board of Nexus Mutual (previously having worked at Nexus Mutual as a business development director). He currently works in the actuarial division of Aon, a global professional services firm who sells a range of risk-mitigation products (including reinsurance).
Nexus Mutual also benefits from having Graeme Thurgood on their advisory board. He has deep expertise within insurance having previously worked at RSA, Allianz and Aviva – three multinational insurance companies. He is also the CEO of InShare SMART Risk, an alternative insurance solution that allows companies to share, manage, reduce and transfer risk.
Steve Barker is an adviser to Nexus Mutual with over twenty-two years of experience in financial services and start-ups. As founder and CEO of Swapforex.com, he has created a platform that enables businesses to exchange currencies between themselves, providing a service that has a lower fee for customers as well as enabling customers to set their own exchange rate.
What is NXM required for?
The Nexus Mutual token (“NXM”) has four fundamental uses. These are:
- NXM can be used to purchase cover. In this instance, 90% of the cost of the cover is burned with the remaining 10% of tokens being locked for the cover period plus 35 days. These locked tokens are required to submit a claim;
- NXM can be used to assess claims that are logged on the platform. NXM is staked to vote on claims. Users benefit from actively participating in assessing claims as they will earn NXM by doing so. NXM has countered the incentive to deny claims (to increase the value of NXM) as voting against the consensus will lock the staked tokens for longer and should the Advisory Board view that there are fraudulent rejections being made, they are able to burn the locked tokens in its entirety;
- As ownership of the token directly correlates to ownership of the mutual, participators can contribute to the direction of Nexus Mutual and contribute to its governance. Doing so is beneficial as it earns the participators additional NXM; and
- 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.
Who has Nexus Mutual worked with to develop the platform?
There are very few integrations that Nexus Mutual has currently made, which is slightly concerning considering the fact that they are the oldest DeFi insurance platform in the space. They have recently integrated with Totle which means that in the event that Totle’s contracts encounter an unforeseen bug, your funds are covered by Nexus Mutual.
- Chainlink: Nexus Mutual is using Chainlink’s decentralised oracle networks to bring transparent and accurate on-chain valuations to its multi-currency capital pool;
- ChainSecurity: Nexus Mutual is working with ChainSecurity to provide their confidential expert security rating to any Nexus Mutual member at preferential rates;
- Incentivai: Nexus Mutual worked Incentivai to design an effective incentive system to ensure that individuals participate in claims assessment and governance activities; and
- Solidified: Nexus Mutual worked with Solidified to complete an audit of the codes surrounding their insurance smart contracts.
Nexus Mutual have also made a significant number of partnerships in the venture capital space such as 1Confirmation, Blockchain Capital and Semantic Ventures.
Where can you buy NXM?
Due to the relationship between ownership of the token and the mutual, it is primarily traded on the Nexus Mutual application. Consequently, only members of Nexus Mutual can hold NXM tokens.
The price of the NXM token is derived from a bonding curve which is a mathematical curve based on specific financial metrics. The price of the token is affected by the funding level of the capital pool and the minimum amount of capital required to support existing covers.
However, there are multiple exchanges that offer Wrapped NXM tokens (“WNXM”). A wrapped token is a cryptocurrency token pegged to the value of another crypto that enables it to be freely moved. Purchasing of the WNXM token on secondary markets can be unwrapped only be members of the mutual who have completed KYC.
The majority of WNXM is sold on BINANCE (WNXM/USDT & WNXM/BTC) and OKEx (WNXM/USDT). It is currently priced at ?47.43 per token with a market cap of ?290,478,796.
What does Nexus Mutual have in plan for the future?
Nexus Mutual have been ramping up their operations considerably over the last five months which has increased the total value locked from $4m to $100m. Total cover outstanding has also grown from $5m to an all time high of $322m on at the end of January.
- Creation of an investment’s platform. This will enable insurance premiums to be invested in a similar manner to which modern-day insurance companies do. Note that at this stage they are not able to make smart contract calls at this stage and therefore any investment will have to an ERC-20 token with sufficient liquidity on Uniswap; and
- Looking to obtain integrations to place cover purchases as close to the primary product purchase/interaction as possible. This requires the building out of their distribution networks.
Over time they are looking to integrate real world products such as earthquake cover and look to test the feasibility of partial claims.
Conclusions
Nexus Mutual has created a mutual insurance platform that treats all owners of the NXM token as owners of the platform. It was built on a solid foundation with the support of Regis Mutual Management - a leading UK mutual management company. By being the first mover in the insurance market, it has also given the NXM token strong growth with a 638.9% increase from the token's release in July 2020. They have a strong team who were able to impart their previous experience towards the movement away from modern-day insurance. The function of the token and the number of incentives surrounding it makes holding the NXM token on the platform quite beneficial for an individual.
However I have a number of concerns with the platform and note them below:
- Their progress in the sector is slightly concerning with only one real integration;
- They are currently restricted with their offerings with only the Smart Contract Cover;
- Being built on the Ethereum blockchain would mean they would be impacted by higher gas fees and require efficiencies in Ethereum to make the platform more cost effective;
- All community funds are congregated into a single pool which could present itself as a point of attack; and
- Although the platform gained popularity in the second half of 2020 peaking at 212k ETH locked on the platform in October 2020, the platform has plateaued and held at 162k ETH through December and January showing declining popularity. This will very likely continue to decrease if it is attempting to compete with newer platforms who offer a wider range of services.
My view is that although Nexus Mutual is currently the market leader (due to a lack of competition), I see this dwindling quite quickly and do not believe this is a wise investment for the long-term. Note that, I also do not believe that this is a good hold in the short-term as NXM is currently reaching and breaking ATH's.
Let me know what you think in the comments! Do you see this performing strongly in the long term? Do you think it can keep its crown as market leader?
Whitepaper: https://nexusmutual.io/assets/docs/nmx_white_paperv2_3.pdf
