Insurance Possibilities Expand Amid Ethereum Transaction Fee Spike
The Intelligent Insurer #3 – Insurance Possibilities Expand
Insurance possibilities are expanding. During the week, Ethereum-based Nexus Mutual announced coverage offerings for some of the biggest centralized cryptocurrency exchanges. Despite this announcement, much of the value in the digital asset space remains uncovered. The nature of Nexus Mutual means that those securing coverage can only be insured by the amount that others have staked against the asset. There are also several categories of digital assets that still have no coverage solutions.
In the latest Intelligent Insurer, we detail how the Insured Finance marketplace makes it possible for the majority of digital asset value to be insured. Moreover, a recent $8M hack against Nexus Mutual CEO has raised concerns about the security of the Nexus Mutual liquidity pool. We also highlight how the vulnerabilities present in the security of Nexus Mutual are addressed by the Insured Finance design.
Nexus Mutual to Provide Coverage for Centralized Exchanges
Until recently, Nexus Mutual users have only been able to secure coverage for smart contracts. While this has enabled various DeFi assets to be covered, it has left an enormous pool of capital on exchanges vulnerable to attack.
This has recently changed as Nexus Mutual expanded its offering in early December to include coverage possibilities for custody solutions. Insurance possibilities launched for custodians including Nexo, BlockFi, and Celsius Network.
This was further expanded during the week when Nexus Mutual announced that they will provide insurance options for some of the biggest centralized exchanges. Insurance coverage for Kraken, Gemini, Coinbase, and Binance will soon be possible through the Nexus Mutual liquidity pool.
Insurance Solution Blindspots
While the expansion of Nexus Mutual offerings is a welcome development, much of the DeFi and digital asset space still remains uncovered. Nexus Mutual provides coverage for less than 1% of the total value locked in DeFi protocols.
The Percentage of DeFi Total Value Locked that is Covered (Source: Nexustracker.io)
One of the shortcomings of Nexus Mutual is that users can only secure insurance for assets that have a significant amount of value staked against them. The centralized exchange insurance products are currently not live as Nexus Mutual token holders must initially stake against the asset to provide the collateral for claims. As noted by the Nexus Mutual CEO Hugh Karp, “Once sufficient staking has been established, cover purchases will go live and members of the mutual will be able to purchase coverage”.
Moreover, there is still an enormous amount of digital asset value that is not covered by incumbent insurance solutions like Nexus Mutual. Stablecoins currently have a combined market capitalization of over $30 billion but current blockchain-based insurance solutions fail to provide coverage capabilities for this category of digital assets. This will change as new solutions emerge to provide more comprehensive coverage solutions.
Insured Finance – A Next-Generation Insurance Solution
Insured Finance is an upcoming insurance solution that will allow its users to secure comprehensive coverage on their digital asset holdings. Built on the Polkadot blockchain, Insured Finance provides a marketplace where token holders can request customized insurance for their unique digital asset portfolio.
Holdings on centralized exchanges can be insured against hacks. Stablecoins can be covered against failure. And the wide variety of risks present in the DeFi ecosystem can be minimized. Anyone who holds the Insured Finance Token (INFI) can submit such insurance requests and access a diverse and competitive insurance marketplace. Polkadot is leapfrogging the current insurance offerings and proposing a comprehensive solution that makes it possible to cover the majority of value in the digital asset space with low fees.
Moreover, questions have surfaced about the security of Nexus Mutual after the insurance project’s CEO was subject of a targeted attack. Hugh Karp had $8 million drained from an Ethereum wallet after a fellow Nexus Mutual member uncovered how to exploit his address. While Nexus Mutual was not the subject of the attack, the event did raise questions about whether the collateralization funds behind Nexus Mutual claims could be attacked.
One area which may be concerning to users is the concentration of funds in the Nexus Mutual liquidity pool. When Nexus Mutual members stake against an asset to provide collateral for claims, these funds are gathered in the Nexus Mutual liquidity pool. With liquidity concentrated in one location, the risk of failure is high. Insured Finance addresses potential security risks in their platform by storing the collateralization for each claim in a separate contract. By distributing liquidity, this approach brings the risk of failure close to zero and protects the collateralization behind claims.
About Insured Finance
Insured Finance is a decentralized, peer-to-peer insurance marketplace. Built on the Polkadot blockchain, Insured Finance users can request customized insurance on a wide variety of digital assets. Those that fulfill requests earn premiums and can earn a competitive return on their capital. Claims are fully collateralized and settled instantly.
Learn more:
https://insured.finance/
https://t.me/insuredfinance
https://twitter.com/InsuredFin