Insurance Alternative Nexus Mutual Follows DeFi Activity to Polkadot, Cosmos, Binance Smart Chain

Nexus Mutual, a community-backed alternative to traditional insurance where a yield-bearing pool of funds locked on a blockchain pays for claims, is expanding its coverage beyond Ethereum, the original locus of decentralized finance (DeFi). 

Announced Monday, Nexus is meeting DeFi’s growing demand with “Protocol Cover,” which means the decentralized mutual will now cover mishaps on other popular smart-contract networks such as Polkadot, Cosmos and Binance Smart Chain (BSC). 

Nexus is also expanding its repertoire of insurable events beyond smart-contract hacks to include attacks on oracles, the vital data feeds that trigger contracts, as well as things like governance failings, the company said. 

All told, the Nexus expansion is an interesting sign of DeFi’s growth – both on Ethereum and competing networks.

The Nexus expansion plan is blockchain-agnostic, so to speak, but lists particular projects. So SushiSwap, for example, runs on a few blockchains and those instances will all be covered by the mutual.

“We will add particular protocols as they come up,” Nexus CEO Hugh Karp said in an interview. “Some of them will already run on multiple chains, and so we'll upgrade so that if a project is running on Polkadot or Cosmos or Binance Smart Chain then we can start covering that.” 

Nexus uses the U.K.’s legal framework of a discretionary mutual, where members have no contractual obligations to pay claims. Instead, a pool of NXM token holders on the Ethereum blockchain stake assets against the likelihood of insurance claims, and earn rewards or make payments in the event a claim is approved.

“The DeFi space has massively expanded creating new risks, and we’ve updated the product to expand the coverage to suit everyone,” Karp said. “Compared to the regular insurance industry, DeFi has these fast feedback loops and cycles where everyone learns from experiments really quickly and then adjusts. It’s incredibly powerful.”

Growth at Nexus has tracked the explosion in the DeFi space over the past 12 months or so. The active cover being provided by the mutual currently stands at about $700 million while the size of the staking pool (which fluctuates with the price of NXM) stands at about $1 billion.

“I think lots of institutional capital is starting to enter the space or at least exploring it. This [insurance alternative] is one of those key tick boxes,” Karp said. “We're getting some strong interest from that side of things.”