_{Nexus Mutual Graphics Source}

What is Decentralized Finance

Decentralized Finance is a new use-case for cryptocurrency and blockchain. It was the crypto space’s way to stay away from financial systems that we already became accustomed to, such as traditional banking, insurance, fiat money, etc.

The difference between these usual financial services and decentralize financed is the lack of central authorities and middlemen on the latter’s part. It is an umbrella term for different financial applications that are running on cryptocurrencies or on the blockchain. They call this DeFi for short. It has been designed to stay away from traditional financial systems that still require central authorities and intermediaries.

_{DeFi Ecosystem and Projects Directory website screenshot Source}

Decentralized Insurance Platforms

Insurance is defined as a practice or by which compensation is provided by insuring companies for specified loss, damage, illness, or death. All the consumers need to do is pay the set premium for said compensation.

In general, insurance in DeFi acts as safety nets for users. There are different variations of DeFi insurance, from wallet insurance, over to contract insurances. The same with traditional insurance, DeFi insurance provides peace of mind to investors and users with the knowledge that their assets are safe.

There have been numerous incidents in the crypto space where people have lost access to their digital assets because they lost their private keys or because an exchange has been hacked. Although most blockchain agreements are handled by smart contracts, they are still prone to hacks through bugs and loopholes that criminal minds might exploit.

Insurance is one ecosystem that has a big potential in providing crypto investors protection and confidence that their assets are safe. Through the transparency of the blockchain, DeFi insurance can compete with traditional insurance.

A Decentralized Insurance Project

There are some DeFi insurance projects like Cover protocol, Opium Insurance, and Nexus Mutual. We will discuss about Nexus Mutual today.

_{Nexus Mutual website screenshot Source}

What is Nexus Mutual?

Nexus Mutual is a DeFi alternative for traditional insurance. This is built on the Ethereum blockchain. Nexus created a mutual risk-sharing pool through the use of blockchain technology. It allows users to become members and buy cover.
Nexus challenges traditional insurance because of its decentralization, meaning it is owned by its members and not by one single company.

Members are also incentivized economically for being part of risk assessment, claims assessment, and platform governance.

_{Nexus Mutual Graphics Source}

What kind of cover Nexus Mutual provides

At first, they launched Smart Contract Cover. This is to provide the Ethereum blockchain an option to protect against hacks on smart contracts. They launched another cover knows as Custody Cover that provides protection when custodians get hacked and users lose more than 10% of their money or custodians halt withdrawals for 90 days and up.

You can read more info from their papers for Smart Contract Cover here: Link; and for Custody Cover here: link.

They also have plans to take on more mainstream products, e.g earthquake risks cover.

The token

Traditional insurance policy owners are either provided with membership rights or stocks in the company (when they have demutualized). For Nexus, membership rights are represented by NXM tokens.

_{Graph for token price as it relates to the mutual's funds. Source}

It runs on a bonding curve that defines NXM token’s price based on specific financial metrics: how much capital the mutual has and how much capital it needs to meet claims.

The token can only be bought and sold through the Nexus Mutual application. The only people who can hold NXM tokens are only the members of Nexus Mutual.

These tokens can be used to buy cover. They are also used to take part in claims assessments, risk assessments, and platform governance. The funds that will be raised from purchases of NXM tokens will belong to members.

_{Nexus Mutual App for getting quotes. Source}

NXM Token Uses

Here are the main uses of the token in detail as mentioned above.

1) Used to Purchase Cover

• The platform burns 90% of NXM used to purchase cover.
• The 10% that’s left is retained by members and may be used as a deposit when submitting claims.

2) Platform Governance

• The voting weight in platform governance is the NXM token.
• Tokens can be earned by participating in voting.
• Voting locks tokens from being redeemed and being transferred for a set time period.

3) Claims Assessments

• NXM staking can be used to vote on claims.
• Tokens can be earned through voting with the consensus.
• Voting against the consensus will lock the stake for longer periods of time.
• The platform can burn stakes if fraudulent voting has been proven.

4) Risk Assessments

• NXM staking may be used against a smart contract to lower the cover’s price.
• Tokens can be earned when cover is purchased.
• The platform also burns some stake should a valid claim occur within 250 days.

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Closing Thoughts

I have also handled insurance in my profession. It's for life insurance and mutual funds. So, that's why I chose this topic. The current DeFi offerings for insurance are mostly non-life, however, it looks like these existing companies are eyeing their way into providing more mainstream insurance options as well, so I'm looking forward to those.

I know how important insurance is, both for life and non-life (for your assets - like car insurance or house insurance, esp for investment insurance), that's why I'm amazed to discover that there are DeFi offerings for it. Thanks to Professor @gbenga for choosing this topic, I was able to research on it and widen my knowledge quite well.

Gracias!

Thanks to @gbenga for this homework task. Shoutout to @steemitblog, @steemcurator02, and @steemcurator01 for this chance too.

I have enjoyed this learning experience, I'm already looking forward to @gbenga's and all the professor's future tasks.