The DeFi system offers a wide range of services in the financial network that triggers the development of a robust DeFi system. As business ventures started to invest in the DeFi system development, unlimited DeFi products began to gyrate in the market.
The DeFi insurance system is launched in the DeFi environment to protect investments in digital assets. The failure of smart contracts or any miscellaneous attacks in the smart contracts may lead to losing your money. If someone loses their money in DeFi, they cannot call their banker or any centralized assistance. So to involve sovereign investors in the DeFi system, some of the risks must be sorted out.
Nexus Mutual emerged as a replacement for the existing DeFi Insurance system to mitigate the risk in smart contracts and other services.
What is Nexus Mutual?
Nexus Mutual is a decentralized insurance protocol that mitigates the risk in smart contracts. With the power of the Ethereum blockchain, users can share the risk in a decentralized medium. Nexus Mutual validates each claim filed and reflects all decisions transparently on the blockchain.
The Members of Nexus Mutual take on a particular role in the insurance process and execute it for an incentive. Several functions are involved in a traditional insurance system, right from receiving insurance premiums from individual insurance-seekers to paying insurance to them for the liability. Nexus Mutual replaces these traditional roles and intermediaries with the use of NXM tokens.
What NXM offers?
Nexus Mutual token is an “internal incentive mechanism to bind the mutual together”, which is used to vote, stake, provide coverage, etc. These NXM tokens epitomize governance rights and allow members to take action in claims and Risk Assessment. Users can purchase these tokens like any other tokens which do not have any supply cap. The tokens can also be earned through participating in Insurance assessment.
The price of NXM tokens depends on the number of tokens locked in the protocol and existing claims. These tokens can be redeemed for ETH directly from the Nexus platform.
The tokens can be used as any currency to pay insurance premiums. The first product of Nexus Cover is the “Smart contract cover.”Users who intend to insure their smart contracts can use their tokens to purchase cover. The Insurance cover is intended to pay-out on events like The DAO hack and the two Parity multi-signature wallet issues.
The members intended to purchase smart contract cover can choose the amount to be covered. The coverage will be provided from the combination of the assessment processes, which will not match the loss in smart contract hacks.
Assessments allow gaining NXM tokens. Nexus mutual allows the following assessments for the claims.
- Risk assessment
- Claims assessment
- Governance assessment
The primary process of insurance is to identify the risk. If any risk is identified, the cost of the risk is calculated, and the Insurance company will determine the claims. The risks will be calculated mutually in the Nexus Mutual.
Users can assess their smart contracts’ potential risks. You can stake the NXM tokens for assessments if your smart contract is safe and prevented from the breach. Also, you can stake back the token if your smart contract is at high risk. Risk assessors are the members of Nexus mutual that acts like independent third party auditors for smart contracts. If a large number of tokens are staked with assessors for high risk, then individuals on the smart contract platform cannot enter into the contract.
Claims assessment calculates the amount that should be paid by the insurance provider to the Insurer for claims. A decentralized Insurance space is like Oracle is used for claims assessment. Oracle is a database that provides the data for the assessment of risk. The data provides information about the rainfall for crop insurance claims or the damage of the car for car insurance claims. In Nexus mutual, the assessments are done by humans who are the members of Nexus Mutual.
The individuals in the mutual can become claims assessors by staking their NXM tokens to a pool for a fixed period. The assessors have an incentive if the pool succeeds and a deterrent to acting fraudulently. The assessors are entitled to a share of the fees If the voted outcome is proved correct, and the tokens can be locked for a more extended period for incorrect votes. Once the claims are assessed in a transparent manner, the tokens are returned.
In the Nexus Mutual, governance is transparent and community-driven, which allows individuals within the mutual to take part in the governance of the model by fine-tuning various aspects of the process. The Advisory board is also created by Nexus Mutual for Internal governance.
Nexus Mutual board will be composed of individuals who have been educated in “insurance, mutual governance, and blockchain development” The board will govern decision-making with the individuals in the mutual. They also ensure that their functions are based on specific roles. Further, the board will also determine if any individual has acted in a fraudulent manner and burn tokens.
Contribution of Nexus Members :
Users will be provided 35 days to submit a claim after the incident. The payout is a fixed sum regardless of the damage or loss. Claims Assessors will assess the claim. The assessors should make 70% of the consensus for a successful claim. Accessors will vote for the claim, which requires a 50% possibility to finalize their claim’s payment.
The centralized functions are handled by the “mutual” or the insurance community in the Nexus. Individuals can take part in different insurance roles, risk assessment claims assessment, governance, or more, and can stake their claim through the NXM tokens. Their assessment has provided a great deal of information to those taking out insurance policies for their smart contracts.
DeFi insurance performs best to its ability and yet to be tested to mitigate risks. Nexus offers profitable insurance systems for the users in the DeFi platform that ensures the quality of the claims satisfies the beneficiaries with its community members. Nexus Mutual ensures its members in the DeFi ecosystem with an innovative solution that prevents users from smart contract failure.
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