Text | PANews Contributing Author Weibo: Distributed Finance DeFi
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user flow
In the NXM system, the "claim evaluator" is the key to deciding whether to pay or not. If a claim occurs, the decline in the fund pool will reduce the value of NXM. In Cover, community voting is used to avoid the situation of deliberately rejecting reasonable claims.
1.1 Nexus Mutual user process
There are three main user roles in the business process of Nexus Mutual, namely risk assessor, insurance buyer and claim assessor.
The risk assessor (also an insurance provider) will pledge the funds in the form of NXM after evaluating the security of a certain contract. When someone else purchases the contract insurance, the corresponding premium income can be obtained; and when a claim occurs, the pledged NXM will be used to pay the corresponding insurance amount.
Insurance buyers need to choose the insurance contract, currency, amount and date, and then use NXM to pay the premium (if the user pays with Ethereum currency ETH or stable currency DAI, the system will automatically help the user purchase NXM). If a risk event occurs, the user needs to submit a claim application, which will be reviewed by the claim evaluator, and compensation can only be obtained after passing the claim.
Claim evaluators participate in the evaluation of claims by staking NXM, and need to reach a "consistency" judgment of >70%. If the evaluator's evaluation result is the same as everyone's "consistency" judgment, then the evaluator will get a certain incentive; otherwise, the penalty received is that the pledged NXM will be locked for a longer period of time. If everyone's evaluation results do not meet the 70% consistency requirement or the number of votes does not meet the minimum requirement, then it will be upgraded to all members (including non-claims evaluators) to vote.
1.2 Cover user process
Cover business process mainly has three user roles, insurance provider, insurance buyer and market maker.
If the insurance provider judges that the security of a certain contract is better, deposit the collateral DAI into the NOCLAIM / CLAIM token that minted the contract (the number of tokens is the same as DAI, for example, depositing 100 DAI will generate 100 NOCLAIM and 100 CLAIM tokens, 1 CLAIM + 1 NONCLAIM is worth approximately 1DAI), and sell its CLAIM tokens in the market (currently CLAIM and NOCLAIM are traded on Balance Exchange). If no claim occurs, the final value of 1 CLAIM is 0, and the value of 1 NOCLAIM is 1DAI; if a claim occurs, the final value of 1 CLAIM is 1DAI, and the value of 1 NOCLAIM is 0.
Insurance buyers go directly to the Balance Exchange to purchase CLAIM tokens corresponding to the contract. After a risk event occurs, they can initiate a claim application on the Cover official website. After the application is approved, they can obtain DAI with the same amount of CLAIM.
The liquidity provider deposits the collateral DAI into the NOCLAIM / CLAIM token of the minted contract, and then adds additional DAI to add NOCLAIM / DAI and CLAIM / DAI to the liquidity pool in Balance.
1.3 User Process Comparison
Compared with Nexus Mutual, Cover does not have the role of claim evaluator, because Cover uses community voting. Compared with the vote of the claim evaluator, the community vote is more inclined to proceed from the long-term interests of the project and avoid deliberately rejecting reasonable claims, because the value of Cover has nothing to do with whether the compensation occurs; while the value of NXM held by the claim evaluator and The fund pool is related (detailed in the next chapter). After the compensation occurs, the fund pool will drop, and the value of NXM will drop, so there is a certain motivation to refuse to pay reasonable claims.
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Token model
The NXM token basically undertakes all the value realization of the Nexus Mutual project, and its price is determined by the project fund pool; while the COVER token is mainly used for project governance, and its price is related to market supply and demand.
2.1 Nexus Mutual Token
As can be seen from the above process, Nexus Mutal users use NXM in the process of risk assessment, insurance purchase, and claim assessment, including community governance, and users are also implemented through NXM. NXM basically undertakes all value realization of the Nexus Mutual project.
NXM uses the Continuous Token Model. Users purchase and redeem NXM on the official website, and the price is calculated from the project's funding situation.
The above figure shows that as the project capital increases, the price of NXM will also increase. For detailed calculation formulas and explanations, you can refer to the project white paper [1].
After adopting the continuous pass model, the price of NXM is no longer determined by supply and demand (except for the case where the project capital is lower than the minimum required capital), but mainly determined by the fundamentals of the project, which is conducive to stabilizing the price of NXM.
2.2 Cover Token Model
The main purpose of COVER, the token of the Cover project, is project governance. Users use DAI when purchasing insurance and staking. The price of COVER is not directly related to the funding status of the project, and is mainly determined by the supply and demand prices in the market. The Token supply of COVER is 90,000 in the first year, 10,000 in the second year, and halved every year thereafter.
The figure above shows the release plan of COVER in the next three years
In addition to the COVER token, the Cover project also has CLAIM and NONCLAIM tokens. Different contracts have different tokens, and these tokens can be freely traded in Balance. The prices of CLAIM and NONCLAIM are determined by market transactions, which reflect the degree of risk of the contract. If the market thinks that the risk of a certain contract increases, the price of CLAIM of this contract will increase, and the price of NONCLAIM will decrease; otherwise, the price of CLAIM of this contract will increase. The price will drop, and the price of NONCLAIM will rise.
2.3 Token Model Comparison
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Insurance Pricing and Fund Pooling Model
The fund pool in Nexus Mutual is essentially shared by all insured contracts; the claims of different contracts in the Cover system will not affect each other.
3.1 Nexus Mutual Pricing and Fund Pool Model
Nexus Mutual's contract insurance pricing is determined by a special calculation formula [1], which mainly has the following determinants: the amount of NXM pledged by the contract, the insurance amount, and the insurance time. If the more NXM is pledged, the less the insurance amount is, and the shorter the insurance period is, the cheaper the premium will be.
The source of funds for the insurance fund pool is mainly NXM pledged by users. When compensation occurs in a certain contract, the NXM pledged in the contract is first destroyed to pay the compensation. If the pledged NXM cannot fully pay the compensation, then other funds in the fund pool will be used for compensation. Therefore, although users pledge NXM for different contracts, the insurance fund pool is essentially shared by all contracts.
3.2 Cover's pricing and fund pool model
Cover's insurance pricing is reflected in the price of the CLAIM token, the lower the price, the lower the premium, and the price of CLAIM is determined by market supply and demand.
There is no concept of a fund pool in COVER, but a game between users to determine the premium. At the same time, since the CLAIM/NONCLAIM token of each contract is different, the claims of different contracts will not affect each other.
3.3 Comparison of Pricing and Fund Pool Models
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compliance framework
Nexus Mutual follows the relevant regulations of the British Financial Mutual Association and is carried out in a compliant manner. Users need to do KYC to use it. Cover does not restrict countries and regions, nor does it collect user identifiable information.
4.1 Nexus Mutual Compliance Framework
Nexus Mutual is registered in the United Kingdom as a discretionary mutual, and each member has the relevant proportion of ownership of the mutual and the obligation to provide guarantees in accordance with the law. Liberty Mutual Society is not an insurance company in the UK, but an organization whose members provide guarantees to each other, so it does not need to comply with all UK insurance regulatory policies. At present, Nexus Mutual only follows the relevant regulations of the Association of Financial Mutuals (Association of Financial Mutuals), and considers becoming its official member.
According to relevant British laws, Nexus Mutual can provide services to users in other countries around the world, but other countries also have some local compliance restrictions. After studying the laws of different countries and regions, Nexus Mutual is currently only developed for some countries and regions, and KYC is required for members.
4.2 Cover Compliance Framework
The information on Cover’s official website does not show that Cover is registered as an insurance mutual or similar institution, so there is no KYC requirement for members.
4.3 Comparison of compliance frameworks
business data
business data
The following table summarizes the current business data of Nexus Mutual and Cover (as of December 19, 2020)
Summarize
Summarize
Nexus Mutual can be regarded as the blockchainization of traditional insurance, while Cover can be regarded as a reconstruction of insurance on the blockchain.
The advantages of Cover over Nexus Mutual mainly include
- Project scalability: Cover does not use the premium calculation model and fund pool model of traditional insurance, but allows market supply and demand to determine premiums, so that project development is not limited by the size of the fund pool
- Policy liquidity: Cover insurance policies can be traded freely, and liquidity market makers have been introduced
- Token scientificity: Cover is only a lightweight governance currency, and its price is not tied to the project’s funding status, which reduces the motivation of users to vote to deliberately reject claims
Of course, as an innovative thing, Cover will also face some problems, such as complex mining process, relatively large fluctuations in currency prices, and relatively few coverage agreements. I believe that with the development of the project, Cover will gradually solve these problems.
In general, Nexus Mutual can be regarded as the blockchainization of traditional insurance, while Cover can be regarded as a reconstruction of insurance on the blockchain. From the perspective of business disruption and innovation, Cover is even better.
references
references
1. https://nexusmutual.io/assets/docs/nmx_white_paperv2_3.pdf
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