Launched in May 2019, NXM is a decentralized insurance project built on the Ethereum blockchain. Through the use of Nexus native tokens, crypto users can ensure their smart contracts. Nexus can perform this through the draft of risk-sharing pools.
From the pools, NXM users can stake their tokens or cover their smart contract positions. This allows them to earn passive income continuously.
Through this article, we’ll give a full review of NXM, its token, operability, and what it has for the DeFi ecosystem.
What is NXM?
NXM is a decentralized finance protocol that offers its users a means to protect their transactions against smart contracts risks.
It’s a project that gives investors cover for specific activities within the DeFi ecosystem. It can be referred to as insurance, though it’s not permitted due to some legal implications.
When it comes to traditional insurance, the main focus for the providers is profits. This is because it takes profit for the insurance company to remain in business. Thus, their major emphasis lies outside the policy holders’ needs as they try first to satisfy their priority of getting profits.
Conversely, NXM aims to focus on profits by providing different insurance that supersedes those from the traditional aspect. The protocol employs blockchain technology to give protection to its users rather than seeking its profit.
NXM lives up to its name as a mutual project. For the protocol, the policyholders are its native NXM token holders. They stand as the blockchain owners and authorizes the running in the ecosystem. The token holders have the governance power in the blockchain and make decisions that concern the incentivization.
Historical Background of NXM
NXM is designed as a protocol operating with a discretionary mutual structure. This means that all insurance claims on the platform are taken care of by the Board (which comprises Nexus Mutual members). The protocol was launched in May 2019 to offer protection to crypto users against smart contracts vulnerabilities.
Through its operations, NXM has accrued an undisclosed amount from blockchain-based venture capital companies like KRI, Kinetic, 1kx, and MilliWatt.
NXM has a 10-member team led by Hugh Karp. He has been in the insurance industry with over 15 years of experience. Karp is the CFO of UK Life Operations.
Other prominent team members include Graeme Thurgood, a board member with 17 years of experience in mutual launching in the UK. Another member is Evan Van Ness, who is also a notable Ethereum community member.
Besides its financial backers and project members, NXM has a five-member advisor board. However, the advisory board remains the most debatable feature of the project. The reason is that the board has centralized control over the project. The board members are Hugh Karp, Graeme Thurgood, Nitika Arora, Rei Melbardis, and Nick Munoz-McDonald.
Need for DeFi Insurance
From the inception of digital assets through the first and prominent Bitcoin in 2009, crypto users have incurred several losses. Some of these losses occur either from theft, hackers, or private keys misplacement.
There are always challenges with crypto funds’ security, protection, and even recovery. The crypto industry functions differently from the traditional concept banking system, with insurance, which covers considerably.
Then comes the use of smart contracts from Ethereum’s launch in 2015 that magnified the problems for funds security. Most of the smart contracts are for value storage meant especially for Ether storage.
Unfortunately, these have some shortfalls and are more susceptible to hacking. An instance of such vulnerability is the 2016 DAO hack that lost over 3.6 million worth of Ether.
Though some users have solely stored their funds in private wallets, there is no protection for their holdings.
Furthermore, several DeFi smart contracts have no audits and so can pose security challenges for users. Therefore, there’s a need for strict measures to prevent cryptocurrency losses if digital assets continue to gain more adoption globally.
This narrows to the necessity for developing a decentralized insurance project to combat the losses in the DeFi ecosystem. Moreover, it will help protect the enormous total locked value (TVL) of the growing decentralized protocols and applications.
As the decentralized finance community may not frequently discuss insurance issues, they can in any way deny its necessity. It has all it takes to offer confidence and protection to crypto investors as they transact on DeFi smart contracts.
NXM has its native token, NXN, which signifies the membership rights in the mutual. Being built on the Ethereum blockchain, the NXM tokens are ERC-20 tokens. Thus, they can be stored in any ERC-20 compatible wallet.
Furthermore, the NXM token empowers its users to partake in the ecosystem. This means that they are included in the governance activities, claims assessment. and risk assessment. Also, there is no traditional ICO for NXM, and the protocol has no intention for listing on secondary exchanges.
NXM token model determines the two major factors that drive its price through the use of a bonding curve. The factors are:
- The amount of capital that the mutual has.
- The amount of capital the mutual requires in satisfying all claims for a given probability.
A bonding curve enables that buying of tokens always at variable prices. Also, this depends on two things.
- The amount of capital that is locked in the mutual.
- The amount of capital required to settle the covers in the system.
Also, the mutual members get rewards on any excess amount left after a claim is paid. Thus, when the capital is much in the mutual, the price of NXM will become higher.
NXM has a market cap of over $740 million. The price of NXM is $127.17 per token at the time of writing. The circulating supply of the NXM is 6,334,033. The protocol has no maximum supply at the time of writing.
How Does NXM Work?
Unlike most cryptocurrencies listed on other exchanges, the NXM token can only be purchased on the NXM platform. However, for interested traders who desire to speculate on NXM price, they can trade on wrapped NXM (WNXM).
The NXM is kept out of purchase from secondary exchanges due to the technicality in the protocol’s design. The token has its entire value viability of the NXM project. Though the price may be market-driven, its operation goes beyond the usual concept of demand and supply.
One of the price driving factors for NXM is the Minimum Capital Requirement (MCR). This determines the availability of capital on the mutual for the payment of all present claims. As the MCR increases, there’s a greater probability of paying all the claims. This invariably pushes the price of NXM higher.
Furthermore, a higher MCR is an indication that the Capital pool of the mutual has more funds. This will bring more success for the platform and benefits to the members who are also token holders. Moreover, an increase in the Capital pool positively impacts the NXM value held by the mutual members.
NXM Use Cases
Though NXM aims to provide insurance for its users, its operation has limitations. Unlike traditional insurance, the project can’t cover car accidents, natural disasters, health issues, and others. Though the future could bring brighter possibilities for the protocol, NXM, for now, protects against smart contracts vulnerabilities.
The protocol is used within the DeFi ecosystem and in its mutual as the prerequisite for membership. In addition, it offers the following services:
Purchasing Smart Contract Cover
For a user to become a member of the NXM, he will buy the cover in NXM, ETH, or DAI. Then will be an automatic conversion of the contributions to NXM if he pays in ETH or DAI. The cover usually has a fixed amount known as the cover amount.
This represents the payout amount that the user gets when his filed loss claim is approved via the assessment process. Thus, the payout amount may not be equivalent to the loss. Rather, it’s the cover amount that depends on the purchasing time and the magnitude of the stake.
A member must burn 90% of the cover price in NXM after buying the cover. The remaining 10% is kept and will be used for staking while making a claim.
For easy risk assessment on some covers, a user can stake his NXM. This is one of the means to express his comfortability with the security of the smart contract.
Usually, the price of a cover will reduce with more staking of NXM tokens from users. This shows that the mutual members believe in the safety of such cover. However, when a cover receives little staking, its price will be high. Thus, the mutual members consider the cover to be a huge risk.
Stakers receive NXM tokens once the cover is bought. However, where there is a valid claim within 250 days from buying the cover, the mutual will burn some portion of the staked token.
Claims assessment on NXM follows a completely different process from those in traditional insurance firms. The protocol will not just either accept or reject claims.
Instead, it takes voting to decide whether to pay or not for certain claims on NXM. The mutual members participate in the vote on claims assessment by staking their tokens. They are the protocol’s claims Assessors for claims that come to the platform from other members.
Since the members have the absolute right to deciding the claim payout, the protocol of control. It incentives the assessors that vote with the consensus outcome by rewarding them with NXM.
The assessors that vote against the consensus get punished as the protocol locks their token for an extended period. However, if a user voted fraudulently, his staked NXM is burned, and he’ll be evicted from the mutual.
Users can make claims within the period of the cover or 35 days the cover period. From the fixed cover amount, the claims assessment will indicate a ‘yes’ or ‘no.’ There is no consideration for the amount of loss that occurred. A cover claim needs to stake 5% of the locked NXM tokens at the period of purchasing a cover for him when submitting a claim.
If the locked value of the NXM token when purchasing the cover was 10%, the cover holder could make a double submission. This serves as a mitigating incentive against fraudulent claims. When the claim is successful through the mutual’s approval, the user receives back his stake. If there’s a denial, the user will forfeit his stake.
Though there is no short-term reward to mutual members for successful claims, its long-term benefits positively impact.
Where the mutual keeps denying claims or doesn’t pay any successful claims, users will lose confidence in the system. The resultant effect is that there will be no future participation from new members or capital providers.
The NXM is the governance token of NXM. The holding empowers a user as a member of the mutual and confers in him the governing privilege. Therefore, the voting weight on the platform depends on the NXM holdings. Also, for participating in the mutual governance voting, users can earn NXM.
The voting for governance decisions requires staking of NXM, which is locked for a certain period with transfer restrictions.
Protocol Concept and Backup Technology
NXM engages in a revolutionary insurance provision by returning the governing power to the people. For traditional insurance firms, the focus is on getting profits for themselves and relegate the policyholders. The story is different for NXM performance. The protocol focuses on the policyholders who are its token holders.
The project gives full governance to the mutual members. Interested customers can join the mutual via NXM holdings. By contributing ETH into the mutual pool, members will receive NXM tokens. The protocol operates on the Ethereum Mainnet through its mounted complex smart contract systems.
The protocol boasts a safe and secured platform for its operations. In addition, it has a collaboration with Somish Blockchain Labs, a security auditing firm. Through the partnership, Somish Blockchain Labs audits Nexus smart contracts to maintain its security.
Furthermore, Etherscan verifies the smart contracts. Also, the bank of England approvals the smart contracts. These outstanding security stances by NXM prove that the protocol is genuine and safe for users’ transactions.
Protocol Legal Background Check
Through UK’s guarantee, NXM operates as a limited company. Also, the project has approval from the Financial Conduct Authority (Bank of England) to include ‘Mutual’ in its name. This is an indication of the protection on the platform. Furthermore, being a member of the community makes the user a part-owner of the mutual. It’s the protocol’s native NXM tokens that represent membership rights on the project.
Market Dominance, Total Locked Amount, and Dynamics
NXM is one of the recent Ethereum based projects ranking high with its massive total value locked. The protocol has over $499 million TVL at the time of writing. Furthermore, the project keeps moving higher with its dominating poses in the crypto market.
You can only buy NXM tokens from the company’s official website. The NXM token has no listing in other crypto exchanges. However, there is the wrapped NXM for speculative purposes. You can purchase WNXM from Binance, Uniswap, Huobi, Poloniex, and others.
Protocols Pros and Cons
The major benefit of NXM is that it protects crypto users from the vulnerability of smart contracts in the DeFi ecosystem. Also, the members are incentivized.
Nevertheless, its disadvantage lies in the strict guidelines available for members in assessing claims. In addition, it can be a discouragement when there is actual loss from a user.
Conclusion of NXM Review
NXM stands as a fascinating protocol in the DeFi ecosystem with its great possibilities. The project keeps its focus on smart contracts cover for crypto users. The project team is consistently aligning the technological aspect to more success and future growth.
Though the platform is making some considerable heads, there are still some challenges for this insurance protocol. The challenge of coverage expansion and the right direction to move needs to be handled. By sticking to the protection of the smart contract for its users is a great move. However, if the protocol must sustain its vision, there’s a need for higher operability and technological strategies in the future.
The crypto industry is gaining more adoption and acceptance into several mainstreams. This widens the scope of its popularity and more involvement. Furthermore, there is a consistent expansion in decentralized finance, which depends on smart contracts. If NXM must keep up with the flow of digital coverage, it must be up for good.
As it seems, the founding team leader, Karp, proposes including real-time situations like injuries and disasters in their coverage. This will be a future milestone for the project that will extend its horizon.
Currently, we can say that NXM is living up to its vision. The protocol has put a good measure to maintain security with its platform. The NXM token features make it impossible to be listed on other secondary platforms. Also, the mutual holders are strictly the token holders. They have the governance power and make decisions for the protocol.