Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley), Author: Mika Honkasalo, translation: Liam, reproduced by Odaily with authorization.
Summary
Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)
Crypto Valley Live (ID: cryptovalley)
, Author: Mika Honkasalo, translation: Liam, reproduced by Odaily with authorization.
Summary
Launched in May 2019, Nexus Mutual is a member-owned pool that provides insurance against smart contract failures.
The growth of Nexus Mutual is driven by the insurance needs of liquidity miners. Today, total coverage is $9.1 million.
Nexus Mutual's insurance model is capital efficient compared to insurance using options, but requires more active governance by token holders.
Over the past month, the total value locked in decentralized finance has grown from $1.03 billion to $2.29 billion. In 2020 alone, 10 attacks resulted in users losing funds from smart contracts. Rapid growth, coupled with lingering security concerns from users, has brought attention to the need for reliable insurance products in decentralized finance.
Opyn is a mortgage option agreement, which mainly introduces insurance for protective put options. Option sellers deposit ETH and define the basic parameters of the option, such as strike price, expiration date, and assets, etc. to mint oTokens, which are basically insurance versions of other ERC20 tokens (e.g. oDAI protects DAI from downside price fluctuations ). Users can then freely trade these tokens on decentralized exchanges.
Source: The Block Research A major difference between Nexus Mutual and Opyn these days is how decentralized each project is — compared to almost all the popular projects considered part of the decentralized finance scene, Nexus Mutual is on the more centralized end. The on-chain Nexus Mutual organization is linked to a UK firm that has been approved by the Financial Conduct Authority (Bank of England) to operate as a mutual. Users must pass KYC checks to purchase insurance, or join the organization as NXM token holders. In contrast, Opyn is relatively decentralized for a protocol that has only been running for 5 months. Anyone can issue oTokens and sell those tokens on the open market - although in practice so far, it's the Opyn team that has been responsible for creating all meaningful liquidity options. The Opyn team has an admin key that allows them to set specific parameters like the minimum collateralization ratio, but does not allow access to users' funds or whitelist oTokens. The ultimate plan is for Opyn to be fully decentralized and community governed. image description Source: The Block Research This changes the different distribution of risk for insurance providers (NXM token holders and Opyn option sellers) between markets managed by the same protocol. NXM token holders share the risk of all insurance currently offered to each other, and claims may require all token holders to participate in insurance payouts. Risk assessment, and knowing which contracts to provide insurance, is done by each NXM holder who stakes tokens on a smart contract. Active NXM stakers receive additional rewards, but are also the first capital to be used for insurance payouts. Recently, the reward of the staking contract was updated from 20% of the security deposit to 50% to incentivize more active stakers to participate. Opyn's model is relatively simple. Every market has its own buyers and sellers, and option sellers who provide collateral ensure solvency. Opyn’s market is overcollateralized, typically 140% of the option value, which means at least $1.4 is locked in for every $1 insured. If option sellers' collateral falls below 140%, they are liquidated while insurance buyers remain covered. image description Source: DeFi Pulse Source: Nexus Tracker Another benefit of Nexus Mutual's shared pool is that it makes it easier to channel liquidity. Users and Nexus Mutual can interact in a point-to-point contract mode. If enough NXM stakers are willing to undertake the smart contract, users only need to purchase insurance from the fund pool. Recently Nexus Mutual was updated to a shared staking model where NXM holders can use their tokens to simultaneously insure up to 10 different smart contracts."The peer-to-peer contract model has been successful in channeling liquidity for automated market makers (AMMs) such as Uniswap, and is often a more successful model than direct peer-to-peer markets (as in lending protocols)."image description Source: DeFi Pulse On the other hand, since Opyn options are financial products with formal parameters, Opyn can provide users with a level of clarity that Nexus Mutual cannot. Options are not subjective, and it is clear to a user holding a protective put option when to switch to exercising the option. A direct consequence of smart contract code being used in an unintended way . All insurance is discretionary and NXM token holders have the final say on whether an insurance claim will be approved. Nexus Mutual's definition of a smart contract attack does not include the common scenario where many users could lose funds. For example, Nexus Mutual will not cover the case where the DAI stablecoin becomes undercollateralized and pegged away from the $1 target, as this can happen while the smart contract still works as intended. Whereas in Opyn, users can simply buy oDAI tokens and then redeem them when that happens. Nexus Mutual's mode can cause some confusion for users. The bZx flash loan attack in February resulted in a loss of $320,000, but initially the insurance did not cover the claim because it seemed that the bZx smart contract was operating normally. But when more information came out, it became clear that one of the smart contracts had in fact failed, so insurance related to the attack was later covered.
