Structure of this article:
Structure of this article:
1. Investigate the incident of NXM paying YAM
The first step in the investigation, we go to Baidu
In the second step of the investigation, let's find Wan Hui
In the third step of the investigation, we look for the official website and ETH browser to get closer to the truth
The fourth step of investigating the case, find out the relevant cases, the data is shocking
2. Three disadvantages of traditional insurance
3. The truth about the rising price of NXM currency, can it still rise?
Compensation mechanism: using human nature to create a mixed pattern
The Two Cycles of Money: Principles of Economics
a. The first cycle
b. Second loop
secondary title
1. Investigate the incident of NXM paying YAM
I'm curious, the biggest thing that has happened in the DeFi world recently is YAM, which can be summed up in one sentence: one line of code, two lines of tears. Readers who are concerned about the DeFi market do not need me to repeat them here.
Related events can refer to: "The roar of leeks: two solutions to the collapse of Yam》
Didn't YAM buy insurance? Code loopholes lead to such a big incident, is it true that the project party has not insured? Are customers not insured? Let's find out today.
The first step in the investigation, we go to Baidu
I use rhetorical questions because I think that if NXM is the most famous decentralized insurance institution at present, it should be insured by both project parties and investors. So I start with the simplest Baidu search.
Sorry, except for a person named "Wan Hui", I didn't find any public reports on this.
Remarks: Who this girl Wanhui is is not important to us at all. I looked at many titles and reiterated that the encrypted world is a utopia of social experiments. There is no authority here. I believe in the power of information, logic and mathematics.
In the second step of the investigation, let's find Wan Hui
So, I went to find Wanhui
The girl said, YAM is insured, and I think NXM, a mutual insurance, will die at a loss? Why can't I find any signs of trouble on the Internet? Wan Hui made a mistake, or the YAM project party or investors just didn't take out insurance.
In the third step of the investigation, we look for the official website and ETH browser to get closer to the truth
image description
The picture above is the home page of the official website:https://nexusmutual.io/
Analysis: When you see two green boxes, you can either buy my insurance or buy my coins. If you want to buy my insurance, you need to buy my coins (NXM) first.
Mutual Aid Manual:https://nexusmutual.gitbook.io/docs/
Analysis: mutual means mutual aid disk, here is the operation manual to teach you how to play.
Analysis: Here are the staking situations of various currencies. The simplified understanding is that this is the fund pool. If the smart contract has any problems, it will be paid from here. Here I found YAM's theoretical compensation fund pool.
Related ETH transfer information:https://etherscan.io/address/0x0e2298E3B3390e3b945a5456fBf59eCc3f55DA16
Here YAM is the new compensation fund pool (1479NXM, the amount is too small). It has been two weeks since the incident happened. You can find out the transfer situation here by looking at the Ethereum browser. It is close to the truth. Continue to find out whether the compensation has been paid. No.
The fourth step of investigating the case, find out the relevant cases, the data is shocking
https://nexustracker.io/claims
Analysis: This website is the business situation of insurance claims, the key points
From August 6, 2019 to today, there are a total of 26 claims, and I did not find the claim information for YAM here. Therefore, there are several possibilities in theory: Ms. Wan Hui made a mistake, the YAM project party paid the compensation and the contract of MakerDAO and other platforms combined the compensation (unlikely), and YAM was not insured at all.
According to the data of the above 26 claims, it can be seen that only three cases have been accepted, 2654+1534+30630=34818 US dollars.
We don't need to look at any economic model for the time being, but let's see how much money is locked in this mutual insurance.
secondary title
2. Three disadvantages of traditional insurance
There are many disadvantages of centralized insurance (traditional insurance). Let’s look at the NXM project party’s understanding of traditional insurance.
First of all, the white paper mentioned two disadvantages of traditional insurance:
NXM white paper address:https://nexusmutual.io/
The agency determines what events are payable;
Transparency issues in centralized systems
It is mentioned that 35% of the funds were wasted due to various expenses such as transaction friction, and only 65% went to the customers who should pay.
The first and second points are mentioned in the white paper, and the third point is given in the text, which I summarize as the third point.
Perhaps the third point is that the project party is afraid that their financial knowledge is not solid, so they put it in the text statement, and insert multiple references to help prove their point of view.
The white paper states that "the NXM system can cut 18% of fees, which means 35%-18%=17%. Transaction friction is reduced by half." The so-called 17% is the profit obtained by NXM's overall economic model-in theory, yes, but if you look at the logic, you will know that it is not at all, this is just a gimmick.
Let me briefly describe the traditional insurance industry here: "Thousands of households protect one family" is the basic concept, which is the logic of mutual assistance. What does it mean? I insure my car for 10,000 yuan a year, and 1 million people buy car insurance from the People’s Insurance Company (for example), which is 10 billion yuan. If there is a car accident and the claim is settled, as long as it can cover (cover and bear) the expenses, the insurance company Funding continues to rise. Example: This year, a total of 50,000 traffic accidents were settled, and then 100,000 was paid, which means a total of 5 billion in compensation. Then, the 10 billion received before is now accompanied by 5 billion, and the remaining 5 billion is my own (theory above).
The business logic of the traditional insurance industry is as follows:
Traditional insurance does not want to settle too many claims: one less payment is a sum, and the rest is profit;
Market competition: The insurance industry in all countries in the world, regardless of the state-owned background or non-zf background, is facing market competition. If there are too few claims, it will face customer loss and lose market competitiveness.
The above competition can refer to the "Nash equilibrium" in game theory. It is deduced that the final compensation strategy converges.
secondary title
3. The real logic of the price rise of NXM
Users can use ETH to purchase NXM tokens and become risk assessors. It should be noted that the community members must pass KYC—that is, NXM tokens alone are not enough to become a member of Nexus Mutual, and they must pass KYC and be added to the whitelist before they can become risk assessors and participate in staking. For each specific insurance, NXM holders need to conduct a risk assessment and express their willingness to underwrite the insurance by staking the smart contract behind it.
It can be said that the staking mechanism is the core foundation of Nexus Mutual. The premise of a new insurance is that NXM holders are willing to stake it, and the amount of staking assets determines the purchase demand that a specific smart contract can meet.
Once community members become risk assessors, they can get benefits by participating in staking, which comes from the cost of purchasing insurance policies by users. As long as the smart contracts of each DeFi project participate in the insurance, they will generate insurance costs, of which 50% of the insurance premium income will be distributed to staking participants.
Regardless of whether it is rejected or passed, the consensus rate of each vote is as high as 99%.
Compensation mechanism: using human nature to create a mixed pattern
The above is a description of the NXM payment mechanism (https://www.8btc.com/media/625075). First of all, this decentralized insurance really needs KYC to participate in it. NXM alone cannot exercise voting rights, and the community governance mechanism must be decided by voting whether it is passed or not. That is to say, this article Of the 26 claim items mentioned in the first part, 3 were indeed passed. 23 of them failed to pass, and the consensus rate of each vote was 99%
do you understand?
If the traditional insurance industry still has the Nash equilibrium of market competition and the convergence of strategies, in relatively clear areas such as auto insurance and personal safety insurance, there is a high probability that compensation will still be paid.
And what about the NXM platform? The so-called decentralized governance organization with KYC, if you are a large NXM user, what strategy can make you make more money when paying insurance? No vote. I vote against it every time. Of course, there is a somewhat centralized whitelist mechanism. You don’t have to worry too much about being blocked, because your vote meets the collective interests of all voters. On the contrary, such a game state Under this circumstance, those who often vote in favor will be boycotted by the community-because you let everyone spend less money.
This is a game theory strategy, let's talk about another logic bug:
If you are a project party (or a large investor who has invested in this currency), you are worried that there will be loopholes in the smart contract, resulting in huge losses, how to get a stable claim?
Get power by yourself: You have to buy enough NXM to become a risk assessor, which is the power to vote;
Power rent-seeking: You know big people who hold a lot of NXM because they have a lot of voting power, give them benefits, and get claims.
insured. Simply applying for insurance does not guarantee that you will get 100% compensation.
If I spend a lot of money to become a shareholder of Ping An Insurance in order to get Ping An Insurance's claims, why should I buy Ping An Insurance's stock? What else do I need to claim.
If I spend a lot of money to hold NXM to obtain claims from this so-called decentralized platform, why should I buy NXM? What else do I need to claim.
So why should I buy Ping An's stock, and why should I buy NXM's currency? Because NXM will continue to rise, because Ping An stock will also rise.
Because NXM is essentially a mixed dealer structure, you don’t need to check the data, you can see the 99% consensus rate, even if all of them are retail investors, it is also a unique mixed dealer mechanism. Because the interest demands of different retail currency holders are the same, as long as it is not too much, do not pay, and when paying, as long as it is not too much, do not pay too much.
This is a mixed farm mechanism that takes advantage of human nature to seek profits.
The Two Cycles of Money: Principles of Economics
There is a positive cash flow cycle here. Still two loops.
First loop:
Apply for insurance, settle claims, and if the claim amount is small, the remaining part is sent to the staking user. The user makes a profit and continues to hold coins (or increase the position). As long as the claim is less than the insured amount, the user continues to make profits.
Second loop:
To buy insurance, you need to buy NXM, and if you want to get insurance benefits, you also need to buy NXM. At the same time, if you want to get insurance benefits, you need to lock NXM by staking, and the circulation disk is further compressed. Buying NXM is the demand side, and locking NXM to reduce liquidity is the supply side. With the development of DeFi, the insurance amount of smart contracts will also increase, the demand will continue to increase, and the circulation will further weaken. Supply and demand determine price - it's the most basic principle of economics.
According to the above logic, for the development of DeFi, smart contracts need insurance, so let’s go up and look at the changes in the locked-up amount since July 2020.
Let's look at the currency price:
This economic model has been explained clearly today. I did not write complicated formulas for you to seek the happiness of mathematics. I am just talking about logic and game theory. Here is the official explanation of the so-called economic model given by NXM:https://nexusmutual.io/token-model.html
secondary title
4. Will the currency price continue to rise?
Of course there are risks, which are the same for any insurance platform, that is, most customers do not come to insure. According to the content of the previous judgment, even if YAM had not been insured before, it now has an insurance fund pool. This is a game that has to be played. NXM has a first-mover advantage, and there is no other more famous insurance platform. This cake is very big. In the short term, as long as DeFi does not stop, the price of NXM will still rise.
I don't expect NXM to have a better community governance mechanism, because the structure that utilizes human nature is the best structure. The decentralized world also needs a competitive situation to achieve market equilibrium. At present, it is impossible or has not formed a competitive pattern in the insurance industry. The traditional insurance industry will not come in. There is no competition in the decentralized insurance industry, and the competition environment is almost vacuum .
The future competition pattern will even be even crazier: when the official project is announced, it will be said that we have used Paidun or SlowMist’s code audit, and we have bought NXM insurance at the same time. Don’t be afraid, investors, our smart contract It has been audited to be flawless and there is an insurance payout if there is a defect. Double safety blessing.
Once such a competitive situation emerges, the current currency price will appear too low.
The interesting thing about DeFi is that all the games are conspiracy.
Note: According to public information on the Internet, Hugh Karp is the founder of Nexus Mutual (NXM). Karp has more than 15 years of experience in the insurance industry and once served as the CFO of UK Life Operations. Board member Graeme Thurgood has 17 years of experience leading co-insurance projects in the UK, and the board also includes Evan Van Ness, a member of the Ethereum community. The company has raised undisclosed funding from a string of blockchain VCs including Kenetic, KR1, MilliWatt and 1kx.
