Nexus Mutual, the DeFi coverage protocol, expanded the list of centralized exchanges eligible for incident protection. Users who use Binance, Kraken, Coinbase, and Gemini to trade can now purchase protection in the event of an exchange hack or prolonged withdrawal downtime.
The project announced the new integrations on Monday as part of their "custody cover" program. If the custodian is hacked and the user loses over 10% of the funds, the user who purchases the insurance will be eligible for compensation. Or, if the custodian suspends withdrawals for more than 90 days, the claim can be honored.
The program was launched at the end of 2020 and initially included centralized lenders such as BlockFi, Celsius, Nexo, Ledn and Hodlnaut. To apply for coverage, the user must be member of the Nexus mutual and undergo know-your-client verification.
As per current figures, coverage is quite expensive. For example, a Binance coverage claim for 10 Ether (ETH) lasting 365 days, requires paying a premium of over 3 ETH, or 30% of the coverage amount. However, these may only be temporary figures. For example, the annual coverage cost of BlockFi and Celsius is only slightly higher than 2%, while the cost of covering other providers is much higher. Taking into account the positive track record of these exchanges added today (except for intermittent outage issues), their coverage cost is likely to drop significantly over time.
It is worth noting that Nexus is not an insurance provider. The difference mainly comes from the fact that insurance has contract-defined terms that determine how and when the claim should be fulfilled. The decision to pay out claims in Nexus Mutual is entirely up to members and stakeholders. Although this may not be a problem in practice, edge cases may test the system.
Hugh Karp, the founder of Nexus Mutual, was recently hacked through a malicious MetaMask extension, with the attackers stealing most of his NXM tokens. Although KYC requires transactions with NXM, the attacker still seems to have used a forged identity for verification.