Protocol Cover

Overview

Nexus Mutual passed Proposal #131 through governance, which transitions Smart Contract Cover to Protocol Cover—a more comprehensive cover policy that protects members against additional events that cause a material loss. This transition took effect on 26 April 2021 9:00 UTC. Covers written after 21 October 2020 9:00 UTC are automatically covered for events outlined in the Protocol Cover wording effective 26 April 9:00 UTC.

Risks Covered

Protocol Cover protects against the following risks:
  • Code being used in an unintended way (e.g., exploits, hacks)
  • Economic design failure
  • Severe oracle failure
  • Governance Attacks
Protocol Cover also provides protection for assets:
  • On Layer 2 and scaling solutions
    • Assets within protocols on Polygon, Arbitrum, Optimism, etc.
  • Held in non-Ethereum smart contracts
    • Assets deployed within protocols on other L1s
  • Deployed within a protocol deployed across multiple chains
    • For example: Assets deposited on Aave V2 regardless of the chain Aave V2 is deployed on.

Cover Wording

You can read the full Protocol Cover wording here.
You can also review the Annotated Protocol Cover Wording below for a simplified explanation of the protections offered by a Protocol Cover policy.

Claims Process

After a hack happens, members need to wait 72 hours for the cool-down period to expire. The cool-down period only applies to Protocol Cover policies.
  1. 1.
    Members who hold a Protocol Cover policy at the time of the hack submit a claim with supporting evidence (i.e. proof of loss, etc.).
  2. 2.
    Members acting as Claims Assessors determine if certain things about the hack are true, such as if you are able to demonstrate material loss as a result of the hack.
  3. 3.
    If voting stakes of greater than 10x the cover amount have voted; or 72 hours have passed the vote closes.
  4. 4.
    If the claim is successful, then the payment is made to the member who submitted the claim.
  5. 5.
    If the claim is unsuccessful, then the claiming member has one more opportunity to submit a another claim.
Full details of the claims process, you can read the Claims Assessor Voting entry in the Claims Assessment section.

Risk Assessment Rewards

When staking on a protocol, Risk Assessors (members who stake) receive NXM rewards when cover is purchased. Every time a cover is purchased after a Risk Assessor stakes, 50% of that cover price is proportionally distributed to all of the stakers on that protocol.
The rewards for Risk Assessors are collected over the course of one week. Cover premiums flow into the capital pool, and on Mondays (9am UTC), NXM is minted according to the 50% share of cover premiums earned for that week.
The NXM is then distributed on a proportional basis among Risk Assessors who staked NXM against the protocols, custodians, and/or cover products that members purchased cover for throughout the week.

Claim Payouts (Burning Stakers)

When a successful claim is paid out, Risk Assessors staked against the protocol where the loss event occurred can have their stake burned on a proportional basis up to the claim amount (converted into NXM at the prevailing NXM price).