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Where does the token value of DeFi insurance leader Nexus come from?



Many readers of Blue Fox Notes have been asking about DeFi insurance, especially how to look at the value capture of NXM. Today's topic is how to look at NXM and its value capture. NXM is the token of Nexus Mutual. To understand the value of NXM, first look at Nexus Mutual. Nexus Mutual currently mainly provides insurance services for the DeFi field, and provides community mutual assistance insurance against possible risks of smart contract vulnerabilities in DeFi protocols. It is the blockchain version of community mutual insurance. So, specifically, what is Nexus Mutual all about? It mainly consists of three parts: buying insurance, underwriting, and claiming. Purchasing insurance As of the writing of Blue Fox Notes, currently DeFi users have locked more than 6.7 billion US dollars in assets in DeFi agreements, and these agreements may have risks due to loopholes in smart contracts. In order to avoid the risk of major asset losses, users can go to Nexus Mutual to purchase insurance for related agreements. Currently, insurance for 41 DeFi projects can be purchased on Nexus Mutual, and smart contract insurance for almost most mainstream DeFi agreements can be purchased. . Almost all mainstream DeFi protocol insurance can be purchased on Nexus Mutual. If you want to purchase smart contract insurance for DeFi protocols, you must first be a member of the Nexus Mutual community. To become a community member, you need to pay a fee of 0.002ETH. After becoming a member, you can purchase insurance for the DeFi protocol. Also, it is important to note that users from 17 countries cannot become members due to compliance and regulatory reasons. At present, the insurable assets on Nexus Mutual mainly include ETH and DAI, and the insurable amount and premium of different agreements are also different. As of the writing of Blue Fox Notes, the total amount of active-ethexc ETH underwriting has reached 86,055ETH, the total amount of active-ethexc DAI underwriting has reached 7,619,141DAI, and the total number of insurances purchased by users has reached 715. Improbable Defense & National Security, a military metaverse company, will shut down this week: Dec. 12 news, Improbable subsidiary Improbable US Defense & National Security announced that it will officially shut down this week, Caitlin Dohrman, the company's president and general manager, confirmed on LinkedIn The matter added that the decision was heartbreaking. It is reported that Improbable US Defense & National Security mainly creates a military metaverse for the US defense department. The company's board members include former acting undersecretary of defense Christine Fox and former acting undersecretary of defense for research and engineering Michael Kratsios. According to the British "Financial Times", Improbable disclosed in September that it would raise US$100 million, but the bankruptcy of FTX put a lot of pressure on its financing transaction, prompting the company to decide to close its military metaverse subsidiary. (BreakingDefense) [2022/12/13 21:40:09] The total insurance value of Nexus Mutual reached 86209ETH From the above figure, we can see that the insurance premiums of different agreements are different. For the same number of days and amount of insurance, Bancor's premium is more expensive than Aave's. To purchase DeFi insurance, community members must first choose a specific protocol, and then choose the number of days of insurance and the amount of insurance. At present, the optional period of insurance is 30 days to 365 days, and users can set it freely; the insurance assets can choose ETH or DAI, and the amount has the largest underwriting capacity according to the amount in the underwriting pool. For example, as of the writing of Blue Fox Notes, the maximum amount of ETH that can be insured by Compound V2 is 14,409 ETH, and the insurable DAI is 5,602,438. The average decline of the DeFi concept sector today is 0.01%: Jinse Finance quotes show that the average decline of the DeFi concept sector today is 0.01%. Among the 47 currencies, 20 rose and 27 fell, among which the leading currencies were: WNXM (+29.30%), IDEX (+17.00%), LRC (+12.35%). The leading currencies are: TRB (-17.54%), SWFTC (-14.62%), NAS (-5.66%). [2021/11/15 6:52:19] The current Compound V2 insurance capacity on Nexus Mutual is up to 14409ETH and 5602438DAI underwriting On Nexus Mutual, DeFi users have purchased insurance, so where does the fund for insurance coverage come from? A pool of funds provided by users from the Nexus Mutual community. Like users who purchase insurance, users must first become members in order to participate in underwriting. Why are Nexus Mutual users willing to cover? Because you can get the benefits of underwriting. At present, the accumulated premiums exceed 774ETH, worth more than 300,000 US dollars, among which the Curve stable currency pool has the most premiums. Users will first choose a smart contract that they think is safe, and then decide to deposit the corresponding amount of tokens to earn premiums. Users can adjust their coverage at any time. At present, several DeFi protocols with the largest amount of tokens pledged by users: Compound V2, Curve All Pools, Synthetix, Aave, all have more than 300 pledgers, and more than 240,000 pledged NXM. According to the current price, these protocols Smart contract underwriting capital pools of more than $10 million. Ouyi OKEx DeFi broadcast: The total market value of DeFi is 53.32 billion US dollars, and Ouyi OKEx platform COVER leads the rise: According to Ouyi OKEx statistics, the current total market value of DeFi projects is 53.32 billion US dollars, and the total lock-up volume is 74.31 billion US dollars; In terms of market conditions, today DeFi tokens are generally rising; the top three DeFi currencies on the OKEx platform are COVER, TORN, and REN; as of 18:30, the popular DeFi currencies on the OKEx platform are as follows [2021/6/1 23:02:11] The DeFi agreements with the largest insured capital pools on Nexus Mutual all exceed US$10 million. Of course, because users earn benefits, they also need to bear obligations. If a successful claim event occurs, the corresponding funds in the fund pool will be paid to the user, ETH will be used to pay the user's claim, and the corresponding NXM will be destroyed at the same time. If a user withdraws from staking, a 90-day lockup period is required. Community users deposit NXM in Nexus Mutual's underwriting pool. So, how do users get NXM tokens? To obtain NXM, users need to use ETH to purchase after becoming a member. That is to say, it is equivalent to depositing ETH into the fund pool to obtain NXM. Therefore, NXM value support is also related to the rise and fall of ETH value. Claim assessment If a risk event occurs in a smart contract of a DeFi agreement, community users who purchase insurance for the agreement can file an insurance claim. Insurance claims are assessed by claims assessors. To become a claims appraiser also requires staking NXM. Claims assessors will also be rewarded accordingly. The number of claims filed now stands at 26, with 3 claims approved and 23 claims rejected. Among them, the successful claims were all compensation events in February 2020 due to a loophole in the bZx smart contract. The payout came to $34,304.16. Encrypted asset financial company executives: Bitcoin is the true definition of DeFi: On December 17th, Parker Lewis, director of business development at Unchained Capital, an encrypted financial services company, responded to "Real DeFi" published by Lightning Labs executive Ryan Gentry Bitcoin is the true definition of DeFi. [2020/12/17 15:30:08] There are 26 claims on Nexus Mutual, and 3 successfully passed NXM is the token of Nexus Mutual. So, what is its source of value? In essence, Nexus Mutual is also a liquidity pool model. Community members provide ETH funds to Nexus Mutual, and users get NXM tokens by depositing ETH. Partially similar to the Uniswap liquidity pool model, users will receive liquidity share tokens after providing liquidity. NXM is equivalent to the liquidity share token of the fund pool in Nexus Mutual, just as Uniswap's liquidity providers can obtain transaction fee income, and NXM holders also have the opportunity to capture premium income. From the official information of Nexus Mutual, NXM has a pricing formula: From this pricing formula, A and C are constants and will not change. Affecting the price of NXM are MCR (denominated in ETH) and MCR%. MCR is the Minimum Capital Requirement (minimum capital requirement), that is to say, the minimum capital requirement to pay all insurance claims in the fund pool can support 99.5% of the repayable within one year. MCR% refers to the ratio of all funds in the fund pool/MCR. When Blue Fox Notes was writing, the MCR of Nexus Mutual was 101,298ETH, and the MCR% was 161.62%. It can be calculated that the price of NXM is $50.5. FTX Launches DeFi Project DMG and VET Online Voting: Encrypted derivatives exchange FTX has now started the third round of DeFi project voting and online activities. The currency for this round of competition is DMG and VET. FTX will list the quarterly contracts, perpetual contracts and leveraged tokens of the winner. The poll will close at 11pm on July 8. According to the official rules, the voting weight of each user is calculated based on the FTT balance held by the user and the monthly trading volume. One week after the voting winner goes online, all users who voted for the winning currency, traded in any trading pair of the winning currency, and held no less than the FTT token assets at the time of voting will share a prize pool worth $5,000. It is reported that popular DeFi projects that FTX has launched include COMP, MKR, BAL and KNC. [2020/7/6] It can be seen from the price calculation formula of NXM that MCR% has the greatest impact on the short-term price of NXM, and the capture of its long-term value mainly depends on MCR, which is the minimum capital requirement. The increase in MCR (Minimum Capital Requirement) mainly depends on the increase in the amount of insurance purchased. From this perspective, the value of NXM mainly depends on the fundamentals of the scale of insurance demand. If DeFi as a whole continues to rise, so will the demand for smart contract insurance. In the short term, MCR% has a more significant impact on the price of NXM. In August, MCR% had two high points, one was on August 11, reaching 165.0339%, and the other was on August 21, reaching 170.6783%. The impact of MCR% on the price of NXM is obvious. As shown in the picture below: The small highs of NXM’s price on August 11 and 21 were also the small highs of MCR% at that time because MCR% was related to the growth of the underwriting fund pool and MCR. Then, the rise or fall of MCR% is related to the relative growth rate of the underwriting fund pool and MCR. When the MCR rises faster than the growth of the underwriting fund pool, the MCR% will drop, which will lead to a decline in the price of NXM in the short term. Therefore, when we pay attention to the price of NXM, we should observe the changes of MCR and MCR%. At the time of writing Blue Fox Notes, the MCR% was 161.62%. Since the MCR increases by 1% every four hours (instead of increasing by 1% every 24 hours before), unless the underwriting fund pool grows faster, this will lead to MCR% Decline. A decrease in MCR% will lead to a decrease in the price of NXM. Therefore, friends who invest in NXM cannot fully follow the logic of traditional token demand for investment, because with the decline of MCR%, the price of NXM will drop in the short term. When MCR% is lower than 130%, MCR stops increasing. At this time, as the capital pool continues to increase, MCR% may rise, and the price of NXM will also rise. Of course, if someone sells NXM, it will be another story. Overall, the support for NXM price rise mainly comes from the fundamentals of its business. If the amount of insurance purchased is rising, then MCR is also rising. A rise in MCR means a rise in the price of NXM. Of course, this also means that if the MCR falls, its price will also fall. From this perspective, investing in NXM, from a long-term perspective, mainly depends on the scale of its purchase insurance funds, that is, the demand for its business itself, and at the same time pays attention to the growth of its underwriting capital pool. The rise of MCR reflects the increase of users' demand for insurance, which is beneficial to the long-term value of NXM. In addition, the competition pattern must also be considered. If the Nexus Mutual insurance business is taken away by a new competitor, the price of NXM will also drop. Therefore, an important consideration for long-term investment in NXM is whether you are optimistic about the competitiveness of its insurance business. From this perspective, NXM also has certain uncertainties. If its insurance business is preempted by newcomers such as YFI, it may have an impact on its MCR and MCR%. Since MCR is denominated in ETH, to a certain extent, owning NXM is equivalent to owning ETH exposure. Let's look at the volatility of NXM USD pricing and ETH pricing, and there is a large correlation between the two. NXM USD price and ETH price trend Nexus Mutual has a first-mover advantage The current advantage of Nexus Mutual lies in its occupancy. It is one of the first projects to explore DeFi insurance. When we mention the track of DeFi insurance, Nexus Mutual is a project that cannot be ignored and cannot be bypassed. From the current overall data, as of the writing of Blue Fox Notes, the Nexus Mutual capital pool reached 158,961 ETH, worth 63,072,626 US dollars, and the total active-ethexc insurance reached 104,537 ETH, reaching about 65% of its capital pool capacity. No matter from the underwriting capital pool or insurance purchase demand, the development is relatively rapid.


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