Nexus Mutual, a startup offering a decentralized alternative to insurance, is expanding its community-based offering to cover users of established cryptocurrency exchanges such as Coinbase, Binance, Kraken and Gemini.
So far, Nexus, which is using digital tokens to revamp the traditional idea of mutual coverage, has only focused on the world of decentralized exchanges (DEXs), particularly the explosion of decentralized finance (DeFi) which is prone to hacks and losses.
However, centralized exchanges are also regularly hacked, and traditional insurance coverage in the crypto industry remains skimpy and prohibitively expensive. In fact, for many major exchanges, the balance sheet is essentially the insurance funds, as noted by Kraken CEO Jesse Powell.
Nexus takes a different approach, providing coverage to users themselves instead of – or not – relying on an insurance policy held by the exchange.
“We are expanding to cover the central exchange, starting with the big ones like Coinbase, Binance, Kraken, Gemini, a product that we were very much in demand,” said Hugh Karp, founder of Nexus Mutual, in an interview.
None of the listed exchanges returned requests for comments.
How it works
Nexus Mutual takes a completely decentralized approach to what it calls “discretionary coverage”. The company uses the UK legal framework of a discretionary mutual company where members have no contractual obligations to pay claims. This applies to a pool of NXM digital token holders using Ethereum’s public blockchain to keep track of proportional ownership of the fund and a governance system to approve or deny payment of claims.
“You don’t have to rely on the insurance that the exchange may or may not take out itself. You can come to Nexus separately and be insured independently of the exchange,” said Karp. “Hopefully we can offer a community solution for the existing sore spot with limited capacity in the industry.”
Nexus’ centralized exchange coverage pays a claim if an exchange is hacked and the user loses more than 10% of their money or if withdrawals are stopped for more than 90 days, Karp explained.
“It is currently very difficult for end users to assess the protection of the centralized exchanges, such as how much emergency funds they are holding back or what proportion of the funds the exchange itself insures,” said Karp.
Nexus members can take on various roles, such as: B. Be a customer by buying cover, assessing claims through voting, or assessing risks by using NXM tokens against certain risks. (For example, if you want to support Compound, bet NXM against Compound. If you want to support Coinbase, bet against Coinbase.)
“When launching the new product, Nexus Mutual’s risk assessors must first decide whether they want to hedge the risks against them by using NXM tokens,” said Karp, a trained actuary and former British CFO at Munich Re. “The safer an exchange is perceived, the more likely it will be supported by risk assessors. Once sufficient stake is established, cover purchases go live and members of the mutual can buy cover. “
Nexus emerged sometime after the infamous DAO hack that rocked the Ethereum community in mid-2016. The need for additional coverage in the nascent DeFi area was underscored with an ironic twist last month when Nexus founder Karp’s personal account was compromised in a targeted attack, resulting in the loss of around $ 8 million worth of tokens .
Commenting on the attack, Karp said it was “pretty scary” how targeted it was.
“I think that raises the bar for self-government a lot higher than ever before. This attack vector was very specific to me, ”he said. “We are still very early in the ecosystem and in the decentralized world we have to have an FDIC-insured wallet equivalent.”