NMPIP | Bridge Nexus Mutual’s Capital to Traditional Markets
Note: I’m transitioning Hugh’s [RFC] Building on Trust: The Future of Nexus Mutual and the Evolving Onchain Insurance Landscape to the NMPIP stage on Hugh’s behalf. The RFC was open for review from 15 July 2025 until 20 August, with supportive feedback from members.
This proposal will be split into three (3) separate NMPIP votes:
- NMPIP | Reform the Claims Mechanism to Build Trust & Part Upgrade Governance to Formally Use an Optimistic Model
- NMPIP | Bridge Nexus Mutual’s Capital to Traditional Markets
- NMPIP | Redirect RAMM Value to Stakers to Increase NXM Staking and TVL
Summary
Since its inception, Nexus Mutual has firmly established itself as the original, leading decentralized insurance alternative protocol serving the crypto-native community. As we look toward the future, it’s essential to reflect on the foundation we’ve built, the impact we’ve had, and the bold steps ahead to scale and evolve.
Before diving into Hugh’s proposal for the next wave of protocol enhancements, let’s review the rationale for the proposed changes:
Rationale
A Proven Track Record in Crypto-Native Risk Protection
Nexus Mutual was created to provide meaningful protection against risks inherent in decentralized systems. Over the years, we’ve successfully delivered cover against smart contract vulnerabilities, slashing events, depeg scenarios, and custodial failures. Our track record and transparent claims process have made us the go-to insurance alternative for top-tier participants in the space.
Trusted by DeFi’s Elite
Nexus Mutual has built deep trust within the industry. Some of the most respected and well-capitalized DeFi allocators rely on Nexus Mutual to protect their portfolios. Their ongoing support is a testament to our resilience, reputation, and the value proposition of a fully onchain mutual. This established trust places Nexus Mutual in a very advantageous strategic position, as the next wave of capital into DeFi is not only going to be much larger but it will be more risk averse. New entrants will be looking for assurances across all aspects of investing and coverage will be a key part of that. If we execute well, this will have a multiplier effect as larger waves of risk averse capital seek coverage.
Traditional Insurance Markets
Several regulated entities are slowly entering the crypto space, but the capacity available for larger players is still very difficult to access. As with any insurance markets where capital is in short supply, collaboration rather than competition is going to be required. In general, traditional insurance markets are short on capital to provide capacity, while Nexus Mutual can actively deploy more capacity into the market and be more capital efficient. A big theme over the coming 1-2 years is going to be bridging Nexus Mutual’s capital into regulated insurance markets.
Proposed Next Steps for the Protocol (Specification)
To maintain momentum and amplify our impact, Hugh is proposing the following key next steps on behalf of the Nexus Mutual teams:
Bridge Nexus Mutual’s Capital to Traditional Markets
Traditional insurance markets are huge but at the moment Nexus Mutual operates in its own silo as we cannot participate due to regulatory barriers. The core barrier is that regulators won’t give any credit to traditional insurance companies for cover purchased on Nexus Mutual as it doesn’t have the same regulatory guarantees that other insurance companies have. This means it is very capital inefficient for regulated insurance companies to offload risk onto Nexus Mutual and that means our access to traditional insurance markets is very limited. In addition, some customers simply prefer a regulated insurance contract instead of discretionary cover.
There are various ways to overcome the regulatory barriers and the Nexus Mutual core team has spent considerable effort developing a strong understanding of the pros and cons of each. Up until now, regulators have been unwilling to make meaningful concessions but recently there have been changes and different companies have been allowed to take credit for crypto assets in their regulatory capital calculations.
Now is the right time to seek regulatory approval for licensing that would allow staking pools the option to become regulated themselves, without regulating the entire Nexus Mutual protocol. This would also require protocol changes to support legally shifting some of the capital pool assets into an insurance entity, all the while still keeping them in the wider Nexus Mutual protocol (and remaining fully transparent onchain).
Hugh proposes proceeding to seek regulatory approval for such a structure as well as developing the protocol upgrades required to enable regulated staking pools.
- Rationale: While it’s very hard to place numbers on the growth potential it could easily enable 10x growth over a few years and has the potential to set Nexus Mutual up as a global platform to launch insurance entities.
More detailed specifications will be made available once we have clear indications of the regulators requirements.
If members vote to accept Hugh’s proposal, the AB would be granted the authority to formalise this change and bridge Nexus Mutual’s capital to traditional markets once the Mutual has clear indications of the regulators requirements.
Conclusion
DeFi is becoming much more acceptable throughout the world and is about to experience material inflows from traditional markets as the regulatory barriers come down. While Nexus Mutual is already very well positioned to take advantage of this, the proposed changes will make sure we capture as much growth as possible.
Proposal Status
This NMPIP will be open for review and comment from 21 August 2025 until 4 September 2025. After that time, this NMPIP can be put onchain for a full-member vote.