Nexus Mutual introduces its custody cover to centralised exchanges

Written by: Jinia Shawdagor
January 13, 2021
  • This development allows Coinbase, Kraken, Binance, and Gemini to take covers against hacks.
  • Per Hugh Karp, Nexus made this move to meet the demands of centralised exchange users.
  • This move seeks to address the increasing number of hacking incidents in the crypto space.

Nexus Mutual, an Ethereum-based firm that provides a decentralised alternative to insurance for smart contract investors, has extended its services to leading centralised crypto exchanges. The organization unveiled this bullish news through a tweet on January 12, noting that it had expanded its custody cover to offer customers of Coinbase, Kraken, Binance, and Gemini staking services.

This move marks Nexus’ first offer to centralised crypto exchanges, seeing as it previously dealt with decentralised exchanges (DEXes) only. Before extending its services to the aforementioned exchanges, Nexus Mutual primarily focused on the DeFi sector, which is prone to hacks and losses. However, the firm identified that centralised exchanges are also susceptible to semi-regular hacks. Despite this fact, the sector still lacks sufficient insurance coverage and the traditional insurance firms that offer their services charge exorbitantly.

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Commenting on this development, Nexus Mutual’s founder, Hugh Karp said,

“We are expanding to provide coverage for centralized exchanges, starting with the big ones like Coinbase, Binance, Kraken, Gemini, which is a product we’ve had really strong demand for.”

Leveraging a discretionary cover

Unlike traditional insurance firms, Nexus Mutual uses a decentralised approach, which it calls a discretionary cover. This method involves using UK’s legal framework of a discretionary mutual, in which members do not have contractual compulsions to pay claims. The firm applies this protocol to a pool of NXM holders, which runs on the Ethereum blockchain. The pool tracks the proportional ownership of the fund and acts as a governance system to approve or reject payment claims.

Wooing potential customers, Karp said,

“You don’t have to rely on the insurance that the exchange may or may not be able to purchase themselves, you can come to Nexus separately and get covered, independently of the exchange. Hopefully, we can provide a community solution to the existing limited-capacity sore point in the industry.”

According to Karp, the end-users of centralised crypto exchanges find it difficult to gauge the protections that the exchanges have or how much money the exchanges have set aside for insurance. Explaining how Nexus’ centralised exchange cover would work, he noted that the company will pay a claim if an exchange is hacked and the user loses more than 10% of their funds, or if an exchange halts their withdrawals for more than 90 days.

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Hackers continue targeting the crypto space

This news comes after hackers targeted Karp’s account and made away with 370,000 NXM worth approximately £5.86 million. Reportedly, the attacker was also a Nexus Mutual member, who had completed the firm’s KYC requirements a few days before gaining remote access to the CEO’s computer and changed the MetaMask wallet extension. This modification tricked Karp into signing a transaction that sent the funds from his hardware wallet to the attacker’s address.