Risks
Disclaimer and description of the risks involved with various roles within the mutual

Overview

By joining the mutual, members unlock a variety of benefits, which include the ability to:
  • Buy cover policies to protect assets deployed in DeFi and CeFi
  • Act as a Risk Assessor and earn NXM
  • Act as a Claims Assessor and earn NXM
  • Participate in governance votes
Some of these abilities carry a certain degree of risk, and those risks are outlined below.

Membership

When you join the mutual, you are able to buy NXM to represent their membership share. All members own a proportional share of the mutual based on the size of their NXM holdings. The bonding curve determines the price of the NXM token based on the amount of capital in the pool.
When successful claims are paid, there is less capital in the pool. When claim payouts impact the capital pool enough, the price of the NXM token is lowered based on the bonding curve mechanism. In this way, all mutual members share risk.

Risk Assessment

When members participate as Risk Assessors, they back protocols, custodians, and/or cover products that they believe are trustworthy and have bug-free code with staked NXM.
Acting as a Risk Assessor is one way for members to earn more NXM, but the capital Risk Assessors stake can be used if successful claims are paid out.
Risk Assessors staked against Protocol Cover and Custody Cover products can have up to 100% of their NXM burned to facilitate a successful claims payout.
Risk Assessors staked against Yield Token Cover products can have up to 20% of their NXM burned to facilitate a successful claims payout.

Claims Assessment

When a claim is filed with the mutual, members can stake NXM and act as Claims Assessors.
Claims Assessors must stake value, in the form of member tokens, before they are allowed to assess claims. Any NXM token holder can become a Claims Assessor. Assessing claims in line with the consensus outcome earns Claims Assessors additional NXM tokens, while voting against the consensus outcome results in the assessor’s tokens being staked for a longer period.
Claims Assessors who vote fraudulently or maliciously can have their staked NXM burned by the Advisory Board. There has been one example to date of a Claims Assessor voting fraudulently and having their NXM burned.

Nexus Mutual Protocol

While Nexus Mutual has regular audits conducted and security partnerships to ensure the protocol is secure, there is still the risk a flaw within the code could result in a loss of funds within the mutual.