Nexus Mutual Just Ran Out of DeFi Coverage, Here’s Why

Key Takeaways

  • Nexus Mutual insurance crossed the $200 million active coverage mark as the liquidity and demand for smart contract insurance kept growing.
  • A significant portion of the surge was led by the incentive for liquidity mining of SAFE tokens.
  • The lack of incentive after mining and a mistake by developers caused SAFE to dump 96%, which dragged the price of NXM down as well.
  • While the development of Yieldfarming.insure has suffered greatly, Nexus Mutual’s pursuit for providing smart contract insurance is still on.

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In less than a fortnight since the Sushiwap saga, recent revelations around the SAFE token liquidity mining and NXM collapse has left the DeFi Community reeling. Now, due to the latest yield farming venture, Nexus Mutual has run out of insurance.

Though the story appears complex at first glance, yield farming, greed, and poorly-aligned incentives played a crucial role in this latest episode.

NXM Develops Secondary Demand 

Nexus Mutual is a member-owned insurance mutual which provides coverage against catastrophe in the crypto space. The coverage is specifically focused on smart contract vulnerabilities. For instance, a full year’s cover of 10 ETH on a smart contract like yEarn’s Vaults products would cost around 1.2% or 0.123 ETH. 

NXM tokens, Nexus Mutual’s native asset, are used as liquidity for the coverage, which earns returns from the insurance profits.

The developers took firm measures to eliminate speculation on the price of the token, as its price is determined by a formula that gauges the performance of the mutual. 

It is measured by the amount of the claims made (causing a reduction in price) or coverage bought (which fuels a rise).NXM token is only available on Nexus Mutual platform for members after KYC verification. 

However, DeFi chefs soon got around that rule as well. Thanks to Andre Cronje, the founder and curator of yEarn Finance, interested parties can use yEarn’s yInsure platform to earn…

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