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 deep 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.
Nexus Mutual is building a decentralised alternative to insurance. We’re using blockchain technology to build a mutual (a risk sharing pool) to return the power of insurance to the people. The platform will be built on the Ethereum public chain. It will allow 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.
Initially, we will launch 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.
We've launched Nexus Mutual Chat and would love to hear your thoughts and questions there.
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.
An overview of the Token Model can be found here.
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.
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.
We are not planning an initial coin offering (ICO). Instead, we will launch with a live, working product on main-net and make the platform immediately available for use by the community.
We will make the specifics of the token distribution public once it has been finalised.
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 highly bespoke.
Tokens will be redeemable directly from the platform for ETH, subject to some restrictions.
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.
When the platform is live, Cover will be available for purchase by members from the dApp interface using a Metamask account.
We're making the process as simple as possible:
Specify which smart contract address you want Cover for.
Specify the Cover Amount, currency (ETH or DAI) and Cover Period.
Generate a quote and make the transaction using Metamask.
You are now covered!
We use a combination of two price drivers:
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.
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.
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.
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.
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 (coming soon!).
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.
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.
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.
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.
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.
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, very secure ourselves.
Therefore, in addition to our ongoing checks and external reviews during the build phase, we will also conduct code audits from at least two of the top firms in the space, as well as a pre-launch bug bounty.
This is indeed a risk and it is why we will not only perform extensive internal testing, external audits and a bug bounty program but we will also launch 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.
Yes, absolutely. Please refer to our Use Cases page for further information.
Initially, we will 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.
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.