Nexus Mutual, a startup that provides a decentralized alternative to the concept of insurance, is extending its offering to established cryptocurrency exchange users such as Coinbase, Binance, Kraken, Bitcoin Revolution and Gemini.
An insurance that protects users of exchanges
Until now Nexus, which uses digital tokens to innovate the traditional idea of mutual hedging, has only focused on the world of decentralized exchanges (DEX), specifically to meet the explosion of decentralized finance (DeFi), which is susceptible of hacks and leaks.
However, centralized exchanges are also hacked on an almost regular basis, and traditional insurance coverage within the cryptocurrency industry remains meager and prohibitively expensive.
In fact, for many large exchanges, the balance sheet is basically the insurance fund, as Kraken CEO Jesse Powell noted. Nexus takes a different approach, offering coverage to users themselves, rather than relying on an insurance policy held by the exchange - or not, as the case may be.
“We are expanding to provide coverage for centralized exchanges, starting with larger ones like Coinbase, Binance, Kraken, Gemini. It's a service that we've had a lot of demand for, ”Nexus Mutual founder Hugh Karp said in an interview.
How it works
Nexus Mutual takes a fully decentralized approach to what it calls “discretionary coverage”. The company uses the UK legal framework of a discretionary mutuality, in which members have no contractual obligations to pay claims.
This applies to a pool of digital NXM token holders, which use the Ethereum public blockchain to track proportional ownership of the fund and a governance system to approve or deny payment for requests.
“You don't have to rely on the assurance that an exchange may or may not be able to buy on its own, you can get coverage separately from Nexus, regardless of the exchange,” Karp said.
Nexus insurance will pay a refund if an exchange is hacked and the user has lost more than 10% of their funds, or if withdrawals are interrupted for more than 90 days, Karp explained.
“Currently, end users find it very difficult to assess the protections that centralized exchanges have in place, such as how many emergency funds they hold or what percentage of funds the exchange has their own insurance on,” Karp said.
Nexus members can perform various actions, including rating or assessing risks by targeting NXM tokens against specific risks. Nexus was born sometime after the infamous DAO hack that rocked the Ethereum community in mid-2016.
The need for additional coverage in the nascent DeFi space was ironically emphasized last month when Nexus founder Karp's personal account was compromised in a targeted attack that resulted in the loss of approximately $ 8 million in tokens.
Commenting on the attack, Karp said "We are still in the early stages of the ecosystem and we need to get to the point of having an equivalent FDIC insured portfolio in the decentralized world."
