Thinking about 2021

2020 was a fantastic year for NXM and the DeFi space as a whole. I want to write some thoughts about where NXM is at right now, and where I think/hope it might go in 2021.


Price action is struggling—investors are struggling. WNXM price is $16.5 whereas NXM price per the bonding curve floor is $24.8. People are willing to take a 33% haircut to get out of NXM. As a corollary, few are willing to buy WNXM at a 33% discount and unwrap it.

Partly, this is the dark cloud of the DeFi bear market, now around 4 months old. While the few DeFi tokens like SNX and AAVE are near new highs, most are considerably off their highs (YFI -50%, UNI -60%, REN -60%), and a few like NXM are down 70%+.

Current active coverage is $57.4M.


As a rough measure of daily new coverage, current active coverage per day/365 = $57.4M/365 = $157K/day. Yes, I understand this is a meaningless measure since people buy coverage of different lengths of time and so forth. But it seems to jibe with what I see day-by-day: about $100K-$200K of new coverage is bought every day.

How does this translate into cash flow?

I’m going to assume a rough cost of one-year coverage of 4%. So one year cash flow is $57.4M * 4% = $2.3M in cash flow. As I understand it, half of this goes to the Mutual and half to stakers. So $1.15M to the Mutual members per year.

Current valuation is $190M—it does not appear justified, AT THE MOMENT, by cash flows.

However, WNXM is basically trading at book value based on the capital pool, and NXM is trading at 1.5x book value, which is dirt cheap. On the other hand, it means investors are valuing the actual insurance part of the business at essentially zero.

(I may have gotten some things wrong here—please let me know.)

Competitive Space

Four months ago, NXM was the only insurance provider in the space. Now, Cover is live, and other protocols like InsurAce and Armor are in the works.

Cover is a prediction market so it is fully collateralized: every seller of insurance covers only a single all-or-none contract. That makes it capital inefficient. In theory, prices for fully collateralized insurance on Cover should be much higher than on NXM. Indeed, the whole point of an insurance company is to have one pool of money cover as many risks as safely possible.

Long term I do not see Cover as a major competitor unless they build a way for the sell-side of the marketplace to be more capital efficient.

However, similar things were being said about Uniswap in relation to the centralized exchanges like Coinbase: that its prices would be too high. Yet Uniswap is thriving as many users care less about getting the lowest price and more about having access to liquidity. Uniswap benefited from the long tail of tokens that were not available on Coinbases of the world.

I wonder if something similar could happen wrt Cover and NXM?

NXM’s partly collateralized capital efficient model puts a cap on liquidity of the coverage available on highly sought after protocols. Indeed, one of the more embarrassing phenomena in the recent DeFi bull markets as a holder of NXM was when cover on popular protocols was maxed out. What good is cheap cover if none is actually available for purchase? Like Uniswap, better the product available at a high price than none available at all.


When I first bought NXM a few months ago, I thought it had a chance to be the DeFi insurance monopoly much like LINK is the DeFI oracle monopoly (for now). But that doesn’t seem to be where NXM is today, and perhaps, owing to the nature of the insurance business, no monopolies are possible as:

  • Network effects are limited for capital efficient entities like NXM by the amount of risk they wish to take on; better to have a horizontally diversified risk profile than taking every customer that comes your way leading to vertical concentration.
  • Network effects are limited for capital inefficient marketplaces like Cover protocol by high prices.

If there is to be no DeFi insurance monopoly, then where does that leave NXM?

NXM does not seem to be diving head-first into the deep end of the DeFi pool. It has a complex structure modeled after the brick-and-mortar insurance companies and requires KYC. It sits at the gray area between CeFi and DeFi. Indeed, it even started offering insurance for centralized entities like BlockFi and Celsius.

Where I see NXM evolving into a highly professional quasi-centralized entity catering to Wall Street institutions’ entry into DeFi. Wall Streeters aren’t going to ‘ape’ into anything—they want a reputable entity with a known founder with industry experience at the helm. They want the lowest price possible. Moreover, unlike ‘degenerates’, they’ll want insurance before putting millions of dollars at risk. They might even prefer the KYC.

This could be a very profitable niche. After all, Wall Street is where the big money is.

If so t might be worthwhile to hire a business development person full time to build relationships with Wall Street institutions with in-person meetings and so forth. Also, use whatever contacts investors in NXM might have to extend reach into Wall Street.

In other words, in-person sales to big institutions might be more important than top-of-funnel marketing, UI changes, and further diversification, though all of these are complementary.


Please give me feedback on this write-up. I wrote it to clarify my own thoughts.


Thanks for the write up, it was well reasoned. I agree that Nexus is well positioned to cater to institutions, but I disagree on directing any resources to this market right now. I used to work on Wall Street as an investment banker and have seen many times ideas get shut down by compliance. DeFi is not anywhere close to institutional grade – they are just starting to build out support for BTC (and very early in that process, for that matter). Most institutional grade crypto custodians don’t even have DeFi support yet… and that’s even within our industry. In order to serve institutions, I think Nexus needs to remain the insurance leader in ca. 2022-24. In order to do that, we should double down on the existing market so that we can get to the required scale as soon as possible. Hugh’s post on scaling Nexus is on the money: Scaling Nexus - December 2020

Firstly, thanks heaps for a very well thought out and comprehensive post. My response right now is going to be nowhere near as detailed! I’ll keep it to a couple of points:

Going after the long very risky tail of every new project is likely to lead to ruin for the mutual. It’s next to impossible to price this stuff quickly and the shared capital pool means risk isn’t isolated (its shared). Apes will ape anyway, and the mutual will only be selected against, when our pricing is too cheap.

However, that doesn’t mean we don’t cover an increasing range of protocols and risks within DeFi, it just means we come in once the really high risk zone has faded somewhat. Related to this, we are working hard on bringing out new products that cover risk more comprehensively and make it easier for the user. I fundamentally believe the product is super needed but we still haven’t really leveraged it from a UX perspective. It’s still clumsy to buy. This means massive upside in sales is possible, and our market is expanding really quickly as well.

So some enhanced products along with a very large focus in distribution is how we really put our capital pool to work over 2021 (and don’t forget investment earnings on the float as well). Note: is actually a distributor built on top of Nexus and not a competitor.

We’ll get to real world stuff, and to institutional players, but we need to scale within DeFi first. Trust is built over the longer term, and like all insurance companies all we are selling is a promise. DeFi swings up and down in days, weeks and months but we have to think in years if we’re going to be successful.