DeFi coverage protocol Nexus Mutual has expanded the list of central switches that are eligible for incident protection. Users trading with Binance, Kraken, Coinbase and Gemini can now purchase protection in the event of an Exchange hack or extended downtime with withdrawals.
The project announced the new integrations on Monday as part of their “Custody Cover” initiative. Users who buy cover are entitled to compensation if the custodian is hacked and the user loses more than 10% of their money. Alternatively, the claim may be recognized if the custodian suspends withdrawals for more than 90 days.
The program started in late 2020 and initially included centralized lenders such as BlockFi, Celsius, Nexo, Ledn and Hodlnaut. To apply for coverage, users must become members of the Nexus mutual and undergo a review from your client.
According to current figures, the cover is quite expensive. For example, a Binance Coverage Claim for 10 Ethers (ETH) that lasts 365 days requires the payment of a premium greater than 3 ETH or 30% of the Coverage Amount. However, these can be temporary numbers. For example, the annual coverage costs for BlockFi and Celsius are just over 2%, while coverage from other providers is much more expensive. Given the overall positive track record of the exchanges added today – barring intermittent default issues – it is likely that their cost of coverage will drop significantly over time.
It’s also worth noting that Nexus is not an insurer. The difference is largely due to the fact that the insurance has contractually stipulated clauses that specify how and when a claim should be recognized. The decision about the payment of entitlements in Nexus Mutual is entirely at the discretion of the members and stakers. While this may not be a problem in practice, edge cases can put the system to the test.
Nexus Mutual founder Hugh Karp was recently hacked via a malicious MetaMask extension, with the attackers stealing a significant portion of his NXM tokens. Despite KYC’s request to trade with NXM, the attacker appears to have used a fake identity for verification.