Decentralized Insurance Firm, Nexus Mutual, Maxes Out Coverage Due to DeFi Frenzy
Nexus Mutual, the insurance provider covering the risks associated with the decentralized finances (DeFi), has maxed out, especially after the boom in Yield farming.
The firm reported that they had received an overwhelming number of insurance requests for yield farming, given the lucrative potential of it; which can even cross 100% yield mark. Thus it’s natural for investors to look for insurance in case the smart contracts fail.
Hugh Karp, the founder of Nexus Mutual, commented on the sudden boom in yield farming and said:
“Our product has honestly seen massive interest since yield farming kicked off. With potential yields being so lucrative, many users are looking to protect themselves against the risk of smart contract failure.”
Nexus Mutual offers a way to hedge risks associated with smart contracts, where if the smart contracts fail in a given time frame, the insurance firm will pay out the insurer.
The firm made its first payout earlier this year after an attack on the fast loan provider protocol BZX, and its insurance pool has doubled in the first quarter itself. The firm said that the launch of Compound Finance’s governance token on June 15th has made their insurance demand go through the roof.
Nexus Mutual Covers Millions Worth of DeFi Protocols
Nexus Mutual revealed that they get most of the insurance requests from hedge funds as well as institutional investors for multi-million insurance providers. This has maxed out Nexus’s insurance cover capacity, and the protocols which have garnered the highest insurance covers include Curve with $695,000, followed by Compound at $651,000 and Balancer at $619,000. Karp said,
“In particular, there is big demand coming from hedge funds and more professional investors for our product; they want multi-millions of cover. As a result, we’ve hit our current capacity limits on the key yield-farming protocols such as Compound, Balancer, and Curve.”
Nexus set an insurance coverage limit of $630,000 per protocol, and the amount was decided based on how much the firm has on hand to payout. The firm currently has $5 million in hand and raised $1 million earlier this month. Karp advised,
“Yield farming is certainly attractive due to the outsized returns, but it does come with increased risk; leverage and smart contract risk can be dangerous, so be careful out there.”