FAQ

A list of the most common questions we get.

Basics

Why have you built this?

The concept of insurance comes from communities in the past who pooled their resources to protect each other from the risks they all faced. It works better the more people are in the pool as the numbers become more reliable. But this method isn’t scalable because it is a trust-based system and the network of individuals trusted by everyone in the pool only extends so far. Hence traditional insurance companies emerged.

When Ethereum and smart contracts came along we realised we could apply our insurance industry knowledge to our passion for decentralised technology. We realised we could build a mutual on a platform where individuals only need to trust the system, not everyone in it.

Specifically, we could see a solution to the problem of agency - where an insurer looks after customers' money on their behalf. We also saw the opportunity to make significant cost savings compared to the traditional insurance model. Furthermore, as we’re already in the UK, we have the perfect base to build out this concept due to the existing law around mutuality.

The aim is to provide our members with more simple, transparent, accessible and cheaper financial protection against their risks.

What is Nexus Mutual?

Nexus Mutual is a decentralised alternative to insurance. We’ve used blockchain technology to create a mutual (a risk sharing pool) to return the power of insurance to the people. The platform is built on the Ethereum public chain. It allows anyone to become a member and buy cover. It replaces the idea of a traditional insurance company, because it is wholly owned by the members. The model encourages engagement as members will get economic incentives for participating in Risk Assessment, Claims Assessment and Governance.

What kind of cover does Nexus Mutual provide?

Initially, we have launched with only one product; Smart Contract Cover. The purpose is to provide the Ethereum community with protection against hacks in the value-storing applications (known as smart contracts).

Down the line, we intend to move into more mainstream products. We started building the platform on the premise of providing cover against earthquake risks.

Where is your community?

We've launched Nexus Mutual Chat and would love to hear your thoughts and questions there.

You can also find us on Twitter or subscribe to the newsletter on our website.

What is your corporate structure?

We're established as a company limited by guarantee in the UK and have received approval by the Financial Conduct Authority (Bank of England) to use the protected word "mutual" in our company name.

By becoming a member, each participant in the mutual becomes a part-owner of the mutual, with membership rights represented by NXM tokens. This structure has no shares or equity by definition, it is a company run solely by members for the members.

Token Model

An overview of the Token Model can be found here.

Why do you need a token?

A token is needed in order to bind together the internal economics of the mutual, so that the platform can;

  • dynamically react to the prevailing conditions and capitalisation levels; and

  • reward active members for participating in the day-to-day operations of the mutual.

How is the token price determined?

Nexus Mutual uses a token bonding curve (also known as a continuous token model), with the price in ETH driven by two main factors:

  • How much capital the mutual has.

  • How much capital the mutual needs to meet all claims with a certain probability.

For more details see our Token Model page.

Is there a Token Generation Event planned?

No. We have launched with a live, working product on main-net and the platform is immediately available for use by the community. Tokens can be purchased directly from the platform for use in buying cover, Risk Assessment, Claims Assessment and Governance.

When are you live?

Now! Check out the application.

Will you be listed on exchanges?

We currently don't have plans to be listed on exchanges and don't expect to be in the near future. Due to the nature of the token model and the requirement for tokens to belong to members only, any exchange listing would have to be bespoke.

Tokens will be redeemable directly from the platform for ETH, subject to some restrictions.

Can I transfer the tokens?

Yes, as long as the address being transferred to is also a Nexus Mutual member - the transaction will fail if this is not the case.

Smart Contract Cover

How would I purchase Cover?

Cover is available for purchase by members from the application interface using a Metamask account.

We're making the process as simple as possible:

  1. Specify which smart contract address you want Cover for.

  2. Specify the Cover Amount, currency (ETH or DAI) and Cover Period.

  3. Generate a quote and make the transaction using Metamask.

  4. You are now covered!

How do you price Smart Contract Cover?

We use a combination of two price drivers:

  1. Parameters relating to the smart contract, including:

    • amount of time the contract has been live,

    • amount of value held on the contract (30-day average),

    • how complicated the code is (based on initial gas cost), and

    • how many transactions the contract has experienced.

  2. Risk Assessors staking NXM to vouch for the security of the contract and hence lower the price.

You can find the full pricing algorithm here.

What smart contracts can be covered?

All smart contract addresses on the Ethereum blockchain that are verified on Etherscan can be covered by the platform.

However, the quote may return an un-coverable price for some smart contracts. These contracts have not been battle-tested or have sufficient value staked against them by Risk Assessors. In particular, newly deployed contracts are likely to require Risk Assessors to firstly stake value against them before the price drops into a coverable range.

How are Risk Assessors involved?

Risk Assessors for the Smart Contract Cover product are likely to be those with smart contract audit expertise or capital providers relying on auditors' judgement.

They can stake value in the form of NXM, thus vouching for the security of the contract and dropping the price of cover. This stake gets gradually released back to the Risk Assessor over a period of 250 days.

If a Cover is then subsequently sold on that contract, the first Risk Assessor to have staked value on it gets a reward of 20% of the price of cover, up to a maximum of 50% of their stake, at which point the next assessor begins earning rewards and so on.

If there is an accepted claim on this contract, the Risk Assessors' stake up to the Cover Amount is burnt.

For more detail, please see our Risk Assessor docs page.

What events exactly are covered?

Smart Contract Cover is intended to provide protection against material loss of value resulting from "unintended uses" of smart contact code. In practice, this means that a vulnerability in smart contract code has been exploited and a material amount of value has been drained or made permanently irrecoverable.

All other security events (for example, loss of private keys or centralised exchange hacks) are not covered.

The precise cover wording is contained in the Product Document.

Importantly, there are several areas in the definition where human judgement is required. The idea is to pay claims where a genuine loss has occurred but not pay claims where members are trying to game the system. This can never be fully captured by words and must be interpreted by the membership base as a collective group.

How do you decide whether a claim is real?

Members will act as judges, with each claim subject to a yes/no vote by members who have chosen to stake a portion of their tokens to act as Claims Assessors.

The Claims Assessors earn rewards for voting with the consensus outcome. If anyone is deemed to have voted fraudulently, their stake may be burned via the Governance process.

More detail is available in the Claims Assessment docs page.

Why would claims be paid? Isn’t there an incentive for the Claims Assessors (as Members who own the pool) to decline claims?

If the platform begins denying legitimate claims, failing in the core purpose it is set up for, then no new users would come to the platform and make contributions to it. While it's true that claims would lower the value of the pool and hence the value of the NXM tokens the Claims Assessors hold and earn in the short- term, Claims Assessors are also financially incentivised to take a longer-term view as they are required to lock up a stake.

This stake can be burned if there is deemed to be clear fraudulent voting activity by Claims Assessors (see Advisory Board section for details). The threat of losing their stake is a significant deterrent to voting fraudulently.

We acknowledge this is a complicated and important aspect to what Nexus Mutual offers. That is why we have tested the design with our partners, Incentivai, who use machine learning algorithms in order to model the behaviour of economically incentivised AI agents.

Using Incentivai's AI and machine learning tools we have identified a combination of parameters which give us confidence that close to 100% of genuine claims will be paid and close to 0% of non-genuine claims will be paid.

Do I need to pre-purchase NXM to buy cover?

No.

At present, cover can be bought in ETH, DAI or NXM. If paying in ETH or DAI, the system will convert the contribution to NXM in the background, then immediately use that NXM to purchase cover.

Are you planning to step out of Smart Contract Cover and into more conventional insurance products?

Yes, definitely. We actually started development with a product to cover earthquake risks, but shifted direction in late 2017.

There are still challenges regarding public blockchains, with scalability (in terms of transaction throughput) and user-friendliness being the key ones which make mainstream products quite difficult at this time. However, there are a large number of talented people working on solutions to these problems so we are optimistic that they will be solved within the next few years.

In the meantime, we're focusing on a market that has already adopted this technology.

Can you cover Nexus Mutual yourselves?

No. However, we fully understand that due to being a smart contract that protects the community against hacks in other smart contracts, we need to be very secure ourselves.

Therefore, in addition to our ongoing checks and external reviews during the build phase we have had our code reviewed by three independent experts through an audit with Solidified. See the audit report.

What if there is a bug in Nexus Mutual's smart contracts?

This is indeed a risk and it is why we have not only performed extensive internal testing and external audits but we have also launched with some emergency functionality (that is intended to be removed once the contracts have become more battle-tested).

From a cover holder perspective, by purchasing cover with Nexus Mutual you still get significant peace of mind from an additional safety net. As an example, say there is a 1% chance that the chosen smart contract has a bug and also a 1% chance that Nexus Mutual has a bug. By purchasing cover only one contract needs to be secure for you to either suffer no issue or receive a claim payment. Overall, you've increased your safety margin from 1 in 100 to 1 in 10,000.

Participation and Governance

Can I get involved and participate in the more advanced features of the mutual?

Yes, absolutely. Please refer to our Use Cases page for further information.

What is the governance model?

Initially, we have a member token-voting process overseen by an advisory board (comprised of experts from the worlds of insurance, mutual management and smart contract security). Note that any member can replace an Advisory Board member via a vote at any time.

Any member may delegate their vote to any other member with rewards available for participating in governance actions.

For more information see our blog post on DAO Governance​.

How decentralised is Nexus Mutual?

We believe that pragmatic trade-offs are OK to start with. Therefore, in the interest of launching a viable product - as well as ensuring the security of the smart contracts - Nexus Mutual will launch with some aspects which are not fully decentralised. These will be reduced over time as the system becomes battle-tested and gains scale.

Nexus Mutual for Smart Contract Auditors

How can Nexus Mutual be used by smart contract auditors?

If you want to offer a premium service to your clients and/or earn more from audit work you have already completed, Nexus Mutual can be used to achieve this.

If your client wants to purchase Smart Contract Cover with Nexus Mutual you can earn rewards by staking against that contract.

How it works:

  1. You audit your client’s contracts as usual.

  2. You stake on Nexus Mutual against your client's smart contracts.

  3. When your client purchases cover, you earn rewards.

Benefits for You:

  • You earn additional rewards on the Nexus Mutual platform.

  • You differentiate yourselves from the competition by putting your money where your mouth is.

Benefits for Your Client

  • They have greater confidence in the security of their contracts.

  • They or their users can buy cover from Nexus Mutual at reduced prices.

  • They can market the extra steps taken to their community.

Your clients can also show they have skin in the game by taking out smart contract cover to prove their confidence in the security of their own smart contracts.

Want to learn more about Risk Assessment with Nexus Mutual?

If you think a smart contract is secure, you can stake NXM tokens against it. Simply choose a specific smart contract address, stake any number of NXM tokens and become a Risk Assessor. Your stake will be released gradually over 250 days.

When cover is purchased, that contract’s Risk Assessor/s earn commission equal to 20% of the cover price. The maximum commission you can earn is 50% of your stake.

If a contract already has a stake against it, you join the back of the queue for that contract. First in line earns all the commission until either their max is earned or their 250-day stake period expires. Once this happens, the next Risk Assessor in line begins earning rewards.

Become a member now to get started: https://app.nexusmutual.io/#/Membership