Let's Talk About DEFI COVERAGE / INSURANCE

sorry for ur loss soldier :confused: defi land is cold and lonely. $badgers stick together tho :fist:

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My understanding is COVER and NXM are covering claims against the entire protocol, so unless I’m missing something, a failure of a smart contract dedicated to DIGG on the Badger platform would be covered. However, a failure of the DIGG token itself might not be (hypothetically). This is one the reasons why contract-specific coverage makes sense to me.

I’m aware of the NEXUS hack, @ygclyde. One of the suggestions floated by others, which I agree with, is NEXUS and COVER being reinsurers onto each other.

On another note, not sure what’s been decided on Badger rewards allocation for COVER, @bajja. I don’t necessarily think it’s a good idea to remove rewards, as I think the goal of incentivizing insurance is even more important because of the exploit, we just need to think about how we can support our partners effectively in these situations. Perhaps its a governance matter that will be decided later.

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Thanks for the response @DeFiFry , and additional discussion @ygclyde and @bajja …and happy ny

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Hi, just went through the discussion and I wanted to clear some misconceptions!

It is really the easiest process. Just go on Nexus -> cover section. Enter the amount you wanna cover and for what protocol. You will get a quote. Then proceed if you’re happy with the price. And voila, you’re covered :slight_smile:

Actually with Nexus, coverage is ETH based. It will be possible to have coverage based on different assets in the future.

To mint $NXM you have to deposit ETH into the capital pool, so basically the same hack scenario would not be possible. Or the hacker would provide tons of ETH in the pool, making $NXM moon and all holders happy!

That’s only partially true. On Nexus, you provide coverage by staking $NXM, true. However, NXM is minted by providing ETH in the capital pool. It is the ETH capital pool that will be used to reimburse users if there is a hack. So effectively, insurance is based on ETH.

gov token

$NXM is not a gov token. It represents a share of the mutual.

False. Nexus’ CEO had his personnal computer hacked. Nexus protocol and Nexus contracts are really battle-tested and were never compromised.

Hope it helps clearing the misconceptions about Nexus! The Token model is one of the most elegant I know but is probably hard to understand also.
However, buying coverage with Nexus is really the smoothest!

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I appreciate the thoughtful reply! What are your thoughts on an autoinsured vault, say a wBTC / ETH vault with a protocol like NXM? Valuable? Practical?

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thanks for this, very helpful to get some insight from someone who has thorough knowledge of nexus. i look forward to a discussion that leads to more insight for all :face_with_monocle:

in theory $wnxm should never fall below the value of the locked $eth right?

how does $nxm compare to claim/no claim tokens? from what i read it sounds like nexus users utilize $eth to mint $nxm and then stake $nxm in the pool of the protocol they want to insure. thoughts?

so like badgerpriceperfullshare? or anything that is interest bearing? please correct me if incorrect

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Last poll results. Please vote again on new poll in original post.

I don’t know exactly what you mean? What role would NXM play in antoinsured vault?
If by autoinsured vault you mean divert some of the rewards to fund a pool that would serve as insurance. This is definitely possible. However, insurance to be capital efficient requires risk management and leverage. This is basically what Nexus provides and allows for cost-effective covers. When Shield Mining goes live on Monday, I think the cost of cover for Badger will be at the minimum floor of 2.6% annual cost. For Badger users, it would be really difficult to find cheaper cover, even with an auto-insured vault. Those that want maximum risk don’t buy cover and those that want smart contract risk covered just reduce their APY by 2.6% :slight_smile:

$wNXM is redeemable 1:1 for $NXM. As you can’t sell $NXM when (capital pool/Minimum Capital Requirement =100%), people that want to sell wrap their $NXM into $wNXM. At that point, the price of $wNXM is purely driven by supply and demand, just like any other asset tradable on an exchange. However, on a fundamental analysis basis, buying $wNXM below the value of the locked ETH is a great value trade! Market sentiment was kind of bad for $wNXM these past few weeks and I think it was (is) an incredible opportunity.
If we dissolve the mutual (not gonna happen), the locked $ETH would be distributed to members proportionnaly to the amount of $NXM they own. So effectively, there is a real floor value to $NXM.

The pricing mechanism for covers on Nexus works this way : If people think a protocol is secure (ie: Badger), they stake $NXM on it. They will earn 40% of the premiums. However, if there is a valid claims, their stake will be burnt proportionally.
The more people stake on a protocol -> the more a protocol is supposed secure -> the lower the cost of cover.
If you don’t think Badger is secure, you just don’t stake on it.

It’s not really that we “use” $ETH to mint $NXM ( it is the result). If you want to buy $NXM you have to swap it for $ETH. That $ETH will be deposited into the Capital Pool and $NXM will be minted.

I’m not familiar with badgerpriceperfullshare. But basically yes $NXM is interest bearing because of the revenues of the mutual that goes into the capital pool, increasing $NXM price. I didn’t mention it earlier but $NXM price is based on a bonding curve. The size of the capital pool is the main driver of $NXM price.

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nexus never paid out cover has already

That’s false. Nexus already paid out 3 valid claims for Bzx hack in early 2020.


https://defirate.com/nexus-mutual-first-payouts/#:~:text=Nexus%20Mutual%20Pays%20Out%20First%20Claims%20to%20bZx%20Vicitims&text=Nexus%20Mutual%20–%20a%20decentralized%20insurance,ever%20claims%20on%20Nexus%20Mutual!
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fair enough i still with cover tho thank for info

I appreciate your thorough responses.

The idea would be diverted protocol rewards for the purpose of paying for coverage through a provider, say COVER or NXM in this case.

I would presume a person’s position and time would matter, as a person who’s been in a contract 1 year before an exploit would pay more in premiums than a person who just deposited a few days before an exploit, so paying more coverage would equal a higher return of the loss.

The idea would be that after a certain period of time, your original stake is covered plus a percentage of your earned rewards. It would likely never reach 100%, but still much better than getting hacked and losing everything.

As for the purpose of autocovered vaults, this is essentially my reasoning:

We can’t argue DeFi insurance/coverage has value if we continue to presume responsibility for smart contract failures. If we make it easier for the adoption of DeFi coverage/insurance, we’re making a clear statement to our users that they are responsible for their own deposits and have the option of choosing insurance at a lower APY if they want protection. Debt from exploits drains community resources and kill projects. This is why we need to think about pushing insurance adoption and changing the way we think about risk in DeFi.

Now that so many protocols have been exploited in spite of their dedication to security, can we really expect continued innovation in this space if we keep holding developers responsible for user funds?

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Ok I see what you mean. That’s really a good idea and I would love to see that in the future. Unfortunately, for the moment Badger is too big with $500m TVL.
Nexus has the capacity to sell $500m of covers, but only ~13m for Badger. For risk management purposes. I don’t know for COVER but it is probably way less than $13m.
It will most likely increase but there’s a long way to go to be able to provide $500m for Badger.

100% agree with you.

I think you should come discuss in Nexus Discord / forum as you seem really interested in these matters. Your input would be very valuable!

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thank you for taking the time to provide specific feedback on each point. your input is appreciated by all of us here. onwards and upwards! @nedicto

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Yeah, let’s connect on Discord and talk more. Same username.

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The yearly cost is 28.55%? Am I seeing that right?
I thought the cost would be at the floor of 2.6% annually?

Can someone please confirm?

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i have asked several times about cover and $badger and now this guy @nedicto is saying $badger is being rewarded to nexus users? but @sifu is saying $badger isn’t being rewarded to $cover users?

can you guys give us some direction? @Spadaboom @jonto @DeFiFrog

Shield mining starts next week. The cost will decrease. Floor price is 2.6%. I think you can expect a yearly cost in the 5-15% range.

An allocation to Nexus has been voted by Badger users. Just like COVER had an allocation for the past few weeks.

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Please how can I link my wallet to the account

cover should still have an allocation of $badger too. idk why there is no one from the badger team giving a definitive answer. do you participate in $badger setts/staking? @nedicto