Want To Know The Next Big Thing In DeFi? We’ve Got You Covered.

Today We Unpack Nexus Mutual ($NXM), a Leader in the Burgeoning Smart Contract Insurance Sector. Worry Not, this one’s still got plenty of moon fuel left, along with passive yield.

Big Takeaways:

  • Nexus will benefit directly from Ethereum’s continued adoption because the Nexus capital pool is 100% comprised of $ETH.
  • Nexus provides exposure to $ETH as well as a hedge, all while offering yield.
  • Demand for DeFi insurance is strong and rapidly growing, while competition is thin. Nexus’s capital pool grows more robust every week, further solidifying its staying power.
  • Speculators can arbitrage price differences in $NXM and $wNXM by tracking the bonding curve.

Introducing Nexus Mutual:

We’ve got a real banger for this week.

“Nexus Mutual is a decentralized insurance protocol built on Ethereum that currently offers cover for smart contracts on the Ethereum blockchain, currently covering all the main DeFi protocols.” -CoinGecko

Nexus Mutual insures against smart contract failures, such as bugs in the smart contract code, hacks, and other exploits.

The $NXM governance token allows users to buy coverage, participate in governance, and have a say in Risk and Claims Assessments.

Why you should care:

Nexus Mutual is capital-efficient insurance in the DeFi sector. Nexus can leverage its capital pool by up to six times the amount of coverage that it extends to clients. This is possible due to the extreme unlikelihood that the majority of covered clients will be affected by an insurable event at the same time.

The Nexus bonding curve allows token purchases at different prices based on the capital locked in the mutual fund pool. These prices are also impacted by the amount of capital that users are required to pay for coverage within the system (Source: DeFi Rate and the Nexus Mutual Whitepaper, pages 4–5).

Members are entitled to a share of any capital in excess of what’s needed to pay the claims, similar to traditional insurance models. The more capital held in the mutual, the higher NXM’s price will be.

Delphi Digital has thoroughly researched Nexus Mutual over the past year, and we wanted to share what we’ve learned with our members. If you’re entirely new to DeFi insurance, I suggest reading this summary write-up before checking out Multi.io’s Nexus breakdown.

Strap in. You’re about to learn something new.

The Market Is Signaling Strong Validation

Covers on other sector projects have nearly maxed out (Balancer, MakerDAO, Ren, Compound, Yearn, Curve, and Uniswap). The intense demand for DeFi insurance is perhaps the strongest signal for Nexus’s future success.

Total Value Locked (USD) in DeFi (DeFi Pulse)
Total Value Locked (USD) in DeFi (DeFi Pulse)
Total Value Locked (USD) in DeFi (Source: DeFi Pulse)

Low Competition, Steep And Rapidly Rising Demand

Nexus is first-class in providing smart contract insurance products, and competitors are scarce. As Total Locked Value (TVL) grows in the sector, the demand for insurance coverage in the DeFi sector grows alongside it, meaning Nexus compliments rather than competes with the ecosystem.

Active Covers in Nexus Mutual (Source: Nexus Mutual)
Active Covers in Nexus Mutual (Source: Nexus Mutual)
Active Covers in Nexus Mutual (Source: Nexustracker.io)

Active Cover Amount reached an all-time high of more than $713M, an over 10x growth in covers since the beginning of 2021 ☝️

Total Premiums Paid in Nexus Mutual (Source: Nexustracker.io)
Total Premiums Paid in Nexus Mutual (Source: Nexustracker.io)
Total Premiums Paid in Nexus Mutual (Source: Nexustracker.io)

Total Premiums Paid ☝️

Strong Network Effects

Nexus will benefit from network effects. As more users contribute to the risk-sharing pools, it will allow for more coverage underwriting at lower costs.

Pass-through exposure to Ethereum

When you hold $NXM, you own a share of the Nexus Mutual capital pool, denominated in $ETH. In this way, holders of $NXM get indirect exposure to $ETH.

Compared to liquidity mining combined with token distribution, Nexus offers yield through their proxy asset while maintaining full exposure to $ETH. The earlier you enter the pool, the more you’ll earn in the long run.

While prices certainly fluctuate, the continued demand for DeFi insurance, rapidly rising TVL, and the recent explosive upward price of $ETH have contributed to $NXM skyrocketing 90% and $wNXM up 84% in a single month.

Hedge Your Bets

When $ETH rises in price, so will the price of $NXM. On the flip side, as long as the capital pool grows, Nexus’ bonding curve acts as a hedge against a price drop in $ETH.

Predictable Price Changes

$NXM’s price, issuance, and redemption follow a bonding curve. For this reason, $NXM parallels the growth and resilience of the mutual.

The Market is Under-pricing Nexus

NXM is enjoying persistent demand for its product, and it’s sitting on a war chest of excess capital. Further, the company is aggressively reinvesting into ongoing operations and new developments.

Alongside that, the Minimum Capital Requirement (MCR) is frozen, leaving no cap on the bonding curve price until active cover reaches 779,639 $ETH (it’s at roughly 414,992 $ETH as of February 6, 2021).

Therefore, we can look to $wNXM for market discovery prices, as it is traded on the open market, while $NXM remains suppressed.

In other words, the MCR guidance serves to artificially suppress $NXM prices while $wNXM gives us clues about future cover demand. If all this sounds confusing, I highly recommend reading from page four in the Nexus Mutual whitepaper and learn about wrapped assets here.

Rapidly Expanding Ecosystem

Insurance brokers and aggregators like Armor Protocol are building alongside Nexus, allowing for a wider liquidity pool, secured vaults, and non-KYC access to the underlying tokens.

Nexus also recently launched CeFi covers and investment earnings on yield-earning assets like Eth2 staking and DeFi lending platforms.

How To Invest

Only KYC-approved members of the mutual can buy and sell $NXM into the bonding curve.

However, you can purchase the non-KYC version of the token ($wNXM) on the open market and later redeem these for the underlying $NXM. The latter exposes you to the token but does not grant you access to arbitrage the bonding curve.

What Happens Next?

Ethereum continues to blast toward $2000+ on the back of increased institutional interest, DeFi tailwinds, and lock-in periods, reducing price volatility.

Meanwhile, TVL in DeFi continues to stack, and demand for insurance coverage in the sector outstrips supply. Projects with lucrative yields that also provide a hedge against market volatility, like Nexus, will likely continue to an upswing in the mid-term and the long run.

Are you adding $NXM to your watchlist? Join Alpha Trades and never miss an update on this exciting project.

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Information provided by Alpha Trades, LLC is not intended to be utilized in making any financial decisions and is not a solicitation nor recommendation to buy, hold, and/or sell a particular product, digital asset, or ICO.

The author of this article does not own or have an intention to purchase or otherwise open any position in $NXM or $wNXM within the next 72 hours.

The author and Alpha Trades have positions in $ETH, while some company members may open positions in $NXM and/or $wNXM within the next 72 hours.

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