Nexus Mutual, the decentralized alternative to traditional insurance geared towards risks involving digital assets, is widening its distribution capabilities by backing a dedicated crypto insurance broker called Native.
Native goes live with $2.6 million of seed funding led by Nexus Mutual, and the two firms are offering $20 million on-chain cover per risk, according to a press release on Tuesday. Nexus Mutual currently has a capital pool of about $200 million, mostly denominated in ETH, the token of the Ethereum blockchain, meaning the mutual will be able to write multiple coverage lines per risk from day one, Nexus Mutual said.
There has always been a dire shortage of insurance capacity within the crypto industry. At a rough estimate, about 1% of crypto assets are insured today, compared with the traditional world where a general rule of thumb is that about 7% of GDP is insured.
“Native’s role is to help solve this chronic under insurance problem,” said Native co-founder and CEO Ben Davies in an interview. “No industry can grow without a liquid insurance market and so we have built a commercial insurance broker on-chain, which is what the market has really been missing.”
The aim is to increase capacity by connecting businesses with Nexus’s capital pools, while giving clients the ability to pay in crypto, or be paid in crypto if there is a claim, said the broker’s other co-founder Dan Ross. In addition, Native will go beyond mere distribution by running a capital pool on Nexus, he said. It means the firm will also be involved in underwriting in the form of a managing general agent (MGA) positioned on top of Nexus Mutual.
Since starting out in 2019, Nexus Mutual has underwritten about $5 billion of crypto assets and paid out $18 million in claims. This has involving various risks associated with decentralized finance (DeFi), for instance, that conventional insurers might struggle to meet.
The protocol also allows its members to deploy assets into syndicates, in a way similar to how the Lloyd’s of London market operates, for which they receive NXM tokens, which can be used to back certain risks. Like being a Lloyd’s investor, or “Name,” there is a risk attached to this, but yields can reach around 25%, according to Nexus Mutual founder Hugh Karp.
“We understand crypto native risks better than anyone else and we’ve got a large amount of capacity that’s specifically looking to deploy into crypto risks and crypto businesses,” Karp said in an interview. “We aren’t like some big insurance company that’s trialing this out as a proof of concept for a few years and then it disappears.”
Base DeFi Pass
Nexus Mutual’s insurance alternative is also available to users of many of the main protocols on Coinbase’s layer 2 network, Base, via a product called Base DeFi Pass, created by crypto insurance startup OpenCover.
Base DeFi Pass covers a clutch of high profile protocols on Base including the likes of Uniswap, Compound and Morpho, and is designed to be a “set and forget” option where one set of cover is all that’s needed across a range of applications, according to OpenCover CEO Jeremiah Smith.
The type of risks covered include smart contract code bugs, exploits and hacks, while things like phishing attacks are excluded, as are losses related to market price movements of assets used or relied upon by the covered protocol.
“Base Pass is another innovation being catalyzed by Nexus Mutual,” Smith said in an interview. “You purchase one lot of cover and you’re covered on most of the leading protocols on Base, rather than having to come to Nexus and OpenCover each time and have to rebalance everything.”
In order to bring lots of people on-chain, Base needs to make those users feel confident about interacting with DeFi, said Base creator Jesse Pollak.
“OpenCover’s Base DeFi pass adds an extra safety net, so people can feel more secure and protected when they participate in the open DeFi ecosystem on Base,” Pollak said via email.