For a long time I split my DeFi investments across many projects. I tend to HODL and like to stay involved in the projects I invest in. About 5 weeks ago Badger Finance launched. I had been waiting for a day 0 project to get involved in, so I jumped and became super involved in the community. I'm now working a bit with the development team on some DevOps topics and am one of the key sources of knowledge in the community discord. During this time gas prices also skyrocketed, and I moved out of projects I had small investments in. Now, 90% of my crypto assets are in Badger, most of which are just staked curve tokens. I'm making big money, but I'm scared of getting way more than half-rekt.
Enter Nexus. Nexus Mutual is an insurance fund that allows you to both buy and stake to provide smart contract coverage. Note that Nexus does not cover rugpulls, but Badger has a named seed team with a solid reputation who I have come to trust. I'm more worried about the hack so this works for me. After Badger gave Nexus some tokens to incentivise new deposits, insurance for badger costs only 2.6% per year. It seems like one can provide coverage on some other protocols and make more than that. So here is the documentation of my quest to make money and get free insurance by distributing my risk across other DeFi projects.
Notes before we start
- Nexus allows you to insure in ETH but not BTC, so if a hack happens you will get paid out in ETH. You need to make some guess as to the ETH/BTC price that might exist when you get hacked to offer full coverage. I've been working with a ratio of 30/1.
- Nexus requires you to do a simple KYC process (Name, Email, Phone, DOB, photo of an ID and a selfie)
- This costs a few bucks in gas.
- You can only do this on one wallet, but the coverage on that wallet can be used to cover any wallet you can prove you own.
- Recommend starting a separate insurance broker wallet and KYCing/doing nexus stuff from there.
- Nexus operations use quite a bit of gas. If you're working with under 40-50k USD in capital be careful about gas fees or work at under 25 gwei.
- Doing this whole thing at 50 gwei (Badger + Nexus) will cost between 0.1 and 0.15 ETH in gas.
- Both Nexus and Badger have very active discords with strong communities. If you get stuck ask there. You can always point them to this post so they understand where you are.
The Steps Taken:
For the sake of this tutorial, we will assume that we are investing 1 BTC in the Badger crv:tbtc sett.
Put a bitcoin in Curve/Badger
(if you haven't already done this, get with the program! You're not paying attention).
Get 1 WBTC, RenBTC, SBTC or TBTC. Go to curve tbtc deposits and deposit the wrapped coin of your choice. After you are finished you should have a little less than 1 crv lp tbtc tokens. This will be worth more than 1 BTC when you cash it in at curve.
Gas costs: ??? @ ??? gwei.
APY provided: .3% - Source: LP fees on Curve
Now go to app.badger.finance and deposit your curve token into the tbtc sett (right now it's on the bottom right).
Gas costs: ??? @ ??? gwei.
APY Provided: 6.17% - Source: Reinvestment of emitted crv tokens into LP position.
We now have to stake our badger to get the 29% shown under badger rewards. Go to the staking page and follow the same process you did to deposit.
You can verify you have done everything right by looking at the staking page and verifying the info market in red in the image below.
Gas cost: A few bucks
APY Provided: 29.33% - Claimable on the badger dashboard every 2 hours
You made it. You're now earning around 36% interest on your bitcoin! Let's not get REKT!
Insuring your posistion with NXM
So. You took bitcoin, and put it the tBTC pool. The contents of that pool are shown here:
As you can see. You actually hold about 33% tBTC and about 66% sbtc. Curve operates like most market makers, so if one of these to tokens were to get hacked and loose it's value, you are at risk of quickly ending up with only that token. Curve has some emergency processes in place to try to prevent this, but if we want to be safe we should insure 100% of our value for Harvest and Curve, 66% for sBTC and 33% for tBTC.
The first step of using Nexus Mutual is to become a member and KYC(identify yourself). As stated in the notes above, you can do this on a separate wallet. Be careful because you can only KYC one wallet, and once you have coverage on that wallet you can not move the KYC to another wallet. If you use more then one wallet, I advise putting your insurance on it's own. When you click the become a member button, you will be asked to approve one reasonably cheap Etherium transaction. Then asked to provide your id details and upload a photo id and your picture. It can then take 2-4 hours to go though. You can ask on the Nexus Discord for KYC support if this is taking too long.
Gas Costs: ??? @ ??? gwei (not so much)
Once we have our membership, we can go shopping for insurance. Click Here. You will see lots of little tiles like this:
Like badger, the insurance cost of ren, curve and tbtc are also 2.6% each, however that curve and ren currently do not have coverage available because there are not enough stakers for all the policies:
Also, it costs quite a bit of gas to write a policy. Nexus says they will offer stacked policies later this month (buy all 4 policies at once). Curve, Synthetix and tBTC have all been around for quite a while, and there haven't been many hacks in the wrapped coin space. For now let's just buy badger cover, but remember we need to grab the other 3 (tbtc, ren, curve) later, and make sure we account for them
APY provided: 2.6*4 = -10.4% apy. I'm a bit less confident on tBTC as well. That will be the next cover I buy.
Pro Alpha Tip: Now comes the next opportunity to save. You can buy wrapped wNXM on a cex/dex and unwrap it 1/1 for NXM to save money. All coverage is paid for in NXM. Even if you choose to pay in ETH, it just wraps the ETH for you. You can see the rate of ETH/NXM when wrapping/paying in ETH here. You can unwrap wNXM to NXM 1 to 1, so you can buy wNXM for cheaper than the cost to mint it... Do so. Once you have wNXM and membership, you can unwrap your wNXM at this very sketchy looking link (check the FAQ in the Nexus Discord to verify).
Ok. So let's click on the badger tile and buy some insurance. We now have to decide how much and how long:
We've decided on a 30/1 eth/btc ratio so we know we need 30 eth in cover for my 1 btc. I'm not super sure I'll have all my money in badger forever, so I'll buy 90 days of cover now and assess later. Almost all of my DeFi moves use curve and coverage seems harder to get, so when I buy this it may be for a year or two. The extra cost of buying new coverage is only the gas (about 15 dollars at 30 gwei). So put in 30/90 and:
Pro tip: As of the time of writing this moment 1 wnxm = 0.028 eth. 0.028*5.03 nxm = 0.141 eth. We saved about 25%.
Go ahead and buy the cover.
Gas Costs: .03 eth @ 51 gwei
APY: -2.6 badger only/ -10.4 all involved smart contracts
Making our money back by insuring other projects:
Assuming we are insuring all 4 of our exposure points (Curve, tBTC(33%), sBTC*66%) and Badger) we need to pay a total of around 15NXM (.42 ETH) to insure our posistion for 90 days. The goal of this experiment is to deposit more NXM, use it for staking, and make enough money staking on other projects to cover our next insurance payment of around 5 - 15 NXM in 90 days.
Warning: I am a NXM newbie and just started this posistion on 6. January 2020. Beyond here is pure theory. I will verify it works in 90 days.
You can read more about NXM staking here, but as I understand it you can stake 20 or more nxm at a time against up to 10 projects. You then get the APY from each project you stake against. If any of the projects get hacked, some or all of your staked nxm will be burned.
We can also stake on the same platforms we are buying coverage on. It may seem silly at first, but this means that if curve get's hacked and we loose are our, we get 30 eth and only loose the part or all of our staked posistion in NXM. The point here is, it's ok to insure the projects we are also buying cover against. How the APY is computed on nexus is complicated, but basically you get your share 50% of the fees people pay when they buy coverage. Many pools show an APY of NA. This is either because they are new, or don't have enough users. The guys on the NXM discord advised me to look for pools that had a decent APY and a lot of issued coverage.
Let's go look at the APY's on these pools. You can find them here:
You can see info on pool utilisation here:
It would seem to me like if we can pick up at least 25% APY in APY here, and we need enough NXM in 90 days to buy our next insurance contract(s). If we can pick up a bit more we can cover our gas and even make some alpha. I went pretty degen on my insurance move, but here's an idea for a posistion:
RenVM(renbtc): 4.46% APY
Curve: 2.6% APY
Compound: 1.8% APY
Balancer: 1.55% APY
Synthetix(sbtc): 4.9% APY
Set 6.1% APY
Yearn: 3.8% APY (unclear if this covers all yearns mergers, if so, don't touch this, the exposure surface is too big)
We can pick up to 10, but by covering these 6 very well known stable protocols we get 21.3% APY. If we add in Yearn we're close to 25. We can still pick 3 or 4 more projects, including badger if we want to get some more badgers from shield mining. Let's just assume these 7 at 25%.
So we select them all on the UI, and then click continue. We end up on a page like this(note I already did this so it looks a bit different):
You need to type in how much NXM you want to deposit in total. You can then stake each nxm against up to 10 projects to win APY. Remember that we plan to spend around 5 nxm per quarter to cover badger alone. That's around 80 nxm at 25% APY. Note we would need 3x the NXM investment to also cover Curve, tBTC(33%) and sBTC(66%). 80 wNXM (badger only) currently costs about 2.4 eth, which is about .065 bitcoin or 6.5% of my total investment for badger only coverage.
I may have messed the math up, and APY's can change fast in the land of DeFi. I'll provide more updates once rewards start coming in and the newer projects I degen picked start showing some APY.
Gas Costs: .06 eth @ 54 gwei
APY: Variable, but remember that it is on the eth/nxm staked, not on the bitcoin.
The posistion I hope I am now in.
I have invested 1 bitcoin in badger, and about 2.4 ETH in Nexus. I have paid an additional .12 eth to insure badger the first 90 days. So let's say 2.5 ETH.
Assuming no one gets hacked:
- I get free insurance in 3 months for another 3 months, with the right staking moves I can maybe make some alpha here on top.
- I get 35% returns from Badger (+ access to digg and the digg airdrop) (35 % alpha)
So I am making around 35-40% APY on my 1.07ish BTC invested for the price of .12 ETH in initial insurance + gas about .15 ETH in gas. If I were super safe and covered all contracts, I'd be invested about 1.2 BTC in total including NXM and wBTC.
Note that all of the below hacked scenarios assume a worst case of loosing 100%. That's not actually normally what happens, so this is really worst worst case.
If Badger gets hacked:
I loose my 1 bitcoin + interest gained and my NXM coverage worth <0.15 eth and get 30 ETH from nexus as compensation. I may also loose my 80 NXM staked, if I stake them against badger. I had 1 Bitcoin, now i have 30 ETH + 2.5 ETH in NXM making 25% APY.
If another project I choose to stake for gets hacked:
I loose my 2.5 eth(80 nxm) in staked insurance, and will either have to pay .12 eth(5 nxm) in 90 days to buy more insurance, or have to restake my 80 nxm to ensure that returns are there to pay for future insurance. I still have my bitcoin in badger. I just lost 2.5 eth, I still have my bitcoin and my insurance.
If NXM gets hacked:
I loose my 2.5 eth staked in insurance + .25 eth in initial insurance or gas. I should now pull some of my assets out of badger to not have such a large, uncovered, single point of exposure. I just lost 2.5 ETH + my insurance.
If Curve or Tbtc or Synthetix get hacked:
I loose my btc, but still have 2.5 eth + earned APY in NXM. REKT!!!
I can cover all 3 of these (if coverage is available at 2.6%) for an additional .3 eth, which I can make by staking another 5 ETH in NXM against protocols. Then I had 1 bitcoin, now I have 30ETH + about 7.5 ETH in NXM making 25% APY.
It seems to me I am making 35-40% on my bitcoin, and it is very unlikely I would loose more than about 3 eth. NXM doesn't cover everything, and things can always go wrong. I'm also not covered on curve and the wrapped coins, but I've already grown to accept this level of exposure from those platforms and don't want to stake more into insurance right now. I may do something separate for a longer time to cover curve and the wraps. But that is todays pro DeFi move.
Help me make this article better:
I did all this and THEN wrote an article. If anyone goes through this, it would be awesome if you could capture gas costs (how much in ETH/USD at what gwei) for each step. Also any screenshots that are missing and/or notes about where you got stuck would also be helpful. You can post in comments here or find me as "Tritium - VLK" in the Badger Discord.
Reader comments:
If you're up for it, share your end posistion and your expected APY in the comment section.
Help with some Art:
I need a better cover photo. Would love any kind of a graphic/picture that shows a honey badger being invincible well. You must own the image and be able to grant me copy write.. Find me on discord if you want to collab.
Trying to make some crypto:
My goal is move my job/work towards helping the crypto and DeFi communities pull together and change the world. I want to make crypto for what I do, not just for the money I move. I have not written a lot of public material yet, and am still in the process of publishing a few first DevOps4DeFi projects on GitHub. That being said, when someone sends me a little crypto as thanks for my work, it makes me feel like I'm actually doing it and not just spending all my time geeking out on discord.
Donations/tips are greatly appreciated, it's more for my sense of self then my need to survive, but isn't that the way with crypto. With any luck in a few years I'll be writing articles about insuring 10 BTC :)
Send ETH or tokens to:
0x53D8EDF6a54239eB785eC72213919Fb6b6B73598
Send BTC to:
bc1qgpnmpxa8ayjum4uaupe8fmhzqmzqxa5xxq5y85
Always happy to collect tokens from new projects as well large cap coins.
