AMA - Hugh Karp of Nexus Mutual

Transcript

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twice in about a week's period of time we had a fantastic podcast conversation with you that came out on monday this conversation is really for the bankless community so to ask you questions we do these amas twice a month so the second thursday and the fourth thursday of the month they are broadcast live on youtube so you can ask questions on youtube of course if you are a member of the bankless inner circle in discord we will prioritize the questions you ask there as well but this is our opportunity really as a community to to come to you and other protocol builders and interesting people in crypto and ask the questions that no one else asks of

them so this isn't ask me anything there are there are no rules no questions you can't ask we will do our best to to filter and moderate and uh get the best ones into hue in an order and we do have about an hour time slot so this will probably end about five minutes or so after the hour we'll check in with you um every so often with uh with a time update um okay those are the ground rules hugh you ready for this go ahead let's go all right first question i thought this was an interesting one to start with so this came from a bankless community member wants to know how you feel about the current yield farming craze yeah yeah good one um

i mean to me it's um it's temporary um but um well i like there's some good stuff underlying it but it's obviously a bit too crazy in some sections for my for my liking i mean what's the good stuff and what's the bad stuff yeah like it's hard to draw that line that's the problem i think i think i think fundamentally it it's cool because that there's some experimentation going on and especially about bootstrapping communities and giving ownership to communities and stuff like that i think that's really cool so there's fundamentally some good stuff there but i also think it's obviously going too far in in some places and you know there's obviously potential for scams and red pools and all that type of stuff which everyone has to keep an eye out on

um so you know fundamental experimentation's really cool um i think it will lead to some value but it's obviously getting a bit too exuberant and crazy in some places and i i guess i'm more from a fundamental um economic perspective and so um and so you know it kind of jars a bit in some places with me but i i do acknowledge that there's some there is some really cool experimentation going on underneath so in my mind that this whole yield farming craze is kind of like it taps into that same energy of the ico mania right but it's like a new new and improved upgraded ico 2.0 which i know is like maybe maybe that hits the wrong way because icos the ico industry or ico

phenomenon kind of has this bad rap but as an as an upgrade to the primitive of the ico how do you feel about it i mean it's definitely a lot better but i still you know is is that any good because icos were pretty rubbish um so um so you know you're making something that was not so great better okay cool but um then look i mean i do think there's fundamentally some really cool stuff bootstrapping communities and giving ownership to communities and i think if we can learn from it and take the best out of that then great um let's just not go too far and too crazy and i think it's up to everyone that um who's kind of in this community for the longer term to help point out

where it's hopefully going a bit too far or you know to try and help people avoid some of the worst um stuff of it so yeah um anyway that's that's my view how to draw a line exactly i think some of it has value some of it doesn't so here the same community member asked a follow-up question about how you feel about shield mining so i actually didn't recognize the term shield mining i guess you know unless that's a misspelling of yield um do you know what shield mining is and if you do could you tell us about it yeah so well i guess there's a few things going on and maybe there's a few um stuff bits and pieces happening um nexus is actually releasing something quite soon um next week um where basically other

protocols can provide um additional bonuses to nexus stakers that stake on their projects um contracts so basically to bootstrap cover for a new project or something like that um so like the keep network with tbtc is going to probably be one of the the first ones to watch with that which is really great um so that's kind of you said keep with tbtc yeah that's right so um we're really looking forward to that so basically the idea is that nexus stakers that stake on the tcptc contracts will be able to earn some bonus keep um rewards and so we think that's really kind of um fundamentally like it's actually doing something for the protocol rather

than just hear stake some tokens and earn some random other governance token that you dump on the market and maybe it has some value at a future point in time you know um which is kind of a lot of what the farming stuff is um not all but some of it um and so anyway so that's our version of um shield mining i guess it may be confused with some of the like safe or cover stuff that's going on at the moment which um i'm not as close to um exactly what's going on but um but yeah that's also that's also a thing um so yeah it can be a bit confusing but um the shield mining stuff um we're launching we're actually really looking forward to coming out soon all right so i just want to make sure i understand

what shield mining is then so basically it's where uh nexus would work with another protocol to provide uh some protocol rewards to incentivize insurance being taken out on on those specific protocols so with with keep shield what shield mining is doing is it's incenting additional uh coverage cover for the keep tptc protocol is that right yeah that's right so like when there's a new protocol um that launches like we can add it on nexus but to kind of bootstrap cover or some capacity to start within a decent price people have to stake against it and so this is kind of a good way of kind of constructing that initial staking so that

provides some additional incentives from the project team um which will open up some cover and allow people to buy some cover at reasonable prices and then that helps the project because hopefully that it gives them more users because more users are happy to do it if they can buy cover or nexus so we think it's a very symbiotic way of working together and it's a to me it's there's actually a fundamental um it's actually doing something to help the actual projects rather than just oh here's another token that could be worth it yeah for sure so this seems like a mechanism to help projects like keep to really solve the problem of like the fact that no one kind of wants to be the first through the door right like especially

with tokenized bitcoin and especially with keep which had some problems like getting out the gate previously right and like and you know tip of the hat to the keep team they're the reason why they've they've you know started and stopped and started and stopped and had trouble like really getting that engine going is because of how conservative they are with their ethos with their ethos and with their principles right like they're trying to retain as much bitcoin maximalist culture as possible in the code of keep right and so that and bitcoiners are very conservative and probably don't really want to be ready to jump out the gate with getting their bitcoin on to ethereum with tbtc but it seems like this new incentive mechanism which is a a cross protocol collaboration between um between nexus

and the keep project really allows to have more security for people who are willing to like be ventures right who are really to go and and go westward first ahead of everyone else and nexus alfred is offering this early insurance this early cover uh to to people that are are doing that right which can really help tbtc get a lot of tbtc onto ethereum quickly which is really kind of what they need right like especially projects in their early days they really need that um that early success to generate that flywheel effect right am i getting everything right here yeah exactly i mean a lot of new projects will need early liquidity whether that's your early users in terms of tpc or maybe you need a liquidity pool in whatever d5 protocol you're

building and so to help attract that it's often helpful to have some cover on with nexus but you have to bootstrap that cover to start with so it's kind of a good way of um symbiotically working well with everything else so um hopefully we're i'm hoping for some decent success out of that on the nexus protocol but also helping define more widely i guess throughout this i want to ask another question this one's coming in from dab lion and this is maybe more of fundamentals type question but the question to you hugh is is nexus mutual fully solvent so if all the claims are claimed at the same time can the system respond uh i bet you'll have a good answer for that and kind of clarify how nexus works

and how insurance works in general what what what's your take um so the answer is no um and otherwise you're effectively running a fully collateralized prediction market and um and so basically that doesn't work from an economic perspective insurance companies work because they massively under collateralize and they basically rely on the law of large numbers that not everything's going to claim at once so the probability of lots of low probability events happening at the same time is very small um and so the idea being that um i mean the example i kind of always give is if you have an event which has a one percent probability of happening if you fully collateralize that

the most the person on the other side of the bet can make is one percent and the most i can lose a hundred and so they it's very hard to make that so you can only do that um make it work economically if you under collateralize spread the risk get diversification and and essentially nexus is operating on that on that basis so um right now we've um we are under collateralized um and that may sound bad but i actually think it's cool because it's actually how insurance is supposed to work okay a question from um gabber is um about the the theoretical risk okay so let me let me make sure i get this question right so he's asking about the theoretical risk that someone or a group purchases a sufficient amount of nxm

that's the nexus token of course to approve unreasonable claims for the benefit for their benefit is there anything nexus is doing against that did you understand the question you put put to yours um in insiders kind of purchase nxm in order to start approving unreasonable claims yeah yeah no we've um that's a definite attack factor we've considered a lot um so so right now that's one of the the way we're handling that is one of the more more centralized aspects of the system and though we have ways to actually decentralize this um so so right now they're um to actually vote in claims you have to lock or stake and extend um to vote and so what they're

saying here is you can just buy a chunk of the nxm and then approve any claim you want to attack the system um and so the way we're dealing with that is there's actually um uh five members of the mutual called the advisory board members and they have the power to slash the the claims assessor's bonds um and so they can get in there and slash the bonds before um claim payouts or enough clean powers will be made um and so that's that's the um the prevention the reason um but that just to be clear those advisory board members don't decide on claim payments but they decide on the punishments of they can't decide on the punishments of the the claims assessors and the idea here is to prevent malicious attacks the i the real idea is that they don't actually ever have to do

this but there's a threat and that threat is good enough to deter it um that attack from happening um we we're working on ways that we can actually decentralize that into a large group of people um but we just have to work our way through that and it's kind of a which i think you go back and and tell us with that specific attack what does the attacker benefit from that like what's the incentive to do it yeah so essentially the the idea here is that you um you buy some i guess you buy some cover then you um systemic claims even though nothing's happened um and then you buy enough tokens and excel tokens to kind of approve the claims and the perhaps prove trying to prove a lot of them um

and then and then essentially you just take money out of existence but isn't that going to isn't that going to affect the value of your nxm would you say like yes if you have nxm you own a whole bunch of it and then you're mucking up the system in in a pretty severe way you'd have to think that a lot of that nxm would get sold and you know decrease the the value of your holdings right yeah exactly right so you is you're essentially sacrificing those like adding some tokens so you have to get to the point where you have to think that the cover that you've taken and that you can approve is going to be greater than the nxm tokens so then maybe you also short you also short the nxm simultaneously or something to make that at a time yeah i'm not thinking of

doing that attack don't worry i i just i was just wondering how it works we do require like many multiples of claim value in staked excel tokens to actually improve the claim so it is actually we've we've kind of got we did a lot of work on this one um because it's it's clearly it's a good question it needs to be dealt with so that's how the system actually works um but yeah i don't think this is any different from like many many protocols have this same sort of like security assurance where like the because you own the tokens you're incentivized to not attack the system right and so like this is mainly a proof of stake type system and ethereum and proof of stake 2.0 has kind of the same security assurances

where like you know you could attack the system but the only way that you attack the system is you have a lot of capital locked up in the system that you're trying to attack right so this isn't this isn't unique to nexus right yeah that's correct and i guess yeah one of the things that you have to be aware of is that derivative attack where you you don't care because you're taking out a short position right um and sorry like that's that's the thing we have to be be careful of and we there's the slashing mechanism and um there are numerous other ways that we believe we've moved up with that i mean you know it has to be battle tested i'm not saying it's perfect we have to work through it over time and we're willing to adjust it if we need to so here here's an attack vector that

i've been thinking about so like what happens when you know inevitably some contract is going to have a bug because like if if that didn't then like you guys wouldn't need to exist so like we're running on the assumption that there will be contracts that nexus provides cover for that there will be bugs right so like say someone sees this bug and then they see that nexus covers it and then they buy a boatload of cover for that bug and then they go and exploit that bug right like have you guys thought about this um yeah yeah we have um i'm sorry [Laughter] so right now it is actually possible um we like especially the cover that nexus

provides is like a credit default swap right now like you don't actually have to have interest in the underlying to buy the cover um so it's kind of like a prediction michael created the false couples um so that that attack is um is possible we do have kyc so that does provide some soft level benefit um right but are they even doing anything bad well no like not necessarily they're not necessarily doing anything bad um i guess from my point of view and this is one of the things we're discussing as a community right now is where we're looking to introduce like a proof of loss requirement into the um the claims so that would mean that you have to kind of here show that you

control an account or um that has actually lost money as a result of this um and then that takes away the potential um attack and i generally i think i've always thought that we needed some type of structure like that to make it a sustainable product in the long term but we definitely release with something simpler just because you know going to get out there got to test the market see how it works and then you can adjust from there well so you seem if you do that where like the user has to prove that they actually lost something in the exploit you're kind of taking away what i think is a pretty interesting feature where you don't actually need to have loss in order to express an opinion about uh a the security of a particular contract so

it is what i'm hearing from you just like okay well we have these two products and and like one is the the fact that you don't need to have loss and then the other one is like well we also need to make sure that we're safe from exploitation and attack and you're just choosing one over the other is that right yeah so there's definitely a balance i mean if you don't have this proof of loss then it definitely should be priced higher um in my mind so um there's definitely a balance between um like what what are we trying to achieve which customer are you really aiming for here um and so in my mind it tends to make more sense to offer a lower price product and be able to make it more useful for people but um but you know that's definitely something that the

community is still discussing so um it could go either way all right the bank list community just keeps firing away awesome questions this one is from joseph it um about how is the risk of loss the assessment calculated so for something like death liability he says they use actuary tables and that sort of thing it's it's very well known it's a you know actuarial science uh how about the risk of loss on a smart contract how do you even figure that out um how are the stakers calculating that at the moment that's a good question i'm not sure how they're calculated we're basic we're that's that's i guess that's one of the things we're doing quite differently where we're basically

saying look put your money where your mouth is this is prediction market-esque type of approach um you can use whatever tools or analysis that you want to do to analyze how secure or not something is and then you can stake against it and so i think i think that's been done like pretty roughly right now but if we are seeing like more that some con the more secure contracts or the contracts that you may think be more secure are actually attracting most lately so yeah so okay so this is so fascinating right so the the the actuarial risk assessment is not really part of the nexus protocol itself right you provide the incentive layer to make that risk assessment actually happen but

the risk assessment itself is completely decentralized and that's such a fascinating answer that question like you're like i don't know how it happens that's not up to nexus or the protocol that's up to the stakers which is super fascinating so first i want to just dive in on there does that ever happen in traditional insurance companies like all of traditional insurance companies from the limited knowledge that i have um my my dad used to be a programmer at one of them like a state farm in the u.s and they have you know offices uh full of actuarial scientists and you know data tracking like car insurance every type of insurance imaginable to like a very precise degree but it's all

internal they don't outsource that to a decentralized community of like stakers um yeah maybe can you comment on that yeah i think it's one of the fascinating things i used to be i am an actor i used to do that stuff myself for life insurance um and stuff so you know um i don't feel well how it's kind of done but i think the yeah that's that is one of the fundamental differences of what we're doing we're kind of saying look here's a protocol here's an incentive layer do whatever analysis you want to do we'll just take we'll just follow the money about how much to state um and i that that has um i mean it's to be proven how well that actually works that's for sure um but um it seems to be worth getting in the right direction

right now the the benefit the big benefit that it has is you can actually enter new markets really really quickly right so each insurance companies will often wait until oh hold on we need we need multiple use of data to do this thing you know i want i want a time series i want um statistically significant information i want to like over many years and then and then we'll enter um but here we can go we don't know but we'll just put it out there and if there's not enough staking then there's no cover off it but um but it allows the market to kind of get an early injury indication and into new markets really quickly so i think that's a massive benefit that we have over um over a traditional insurance approach so does

that mean there's a world where there's these independent actuaries who essentially like quit their job at you know state farm but they're really good at life insurance and they come and they start staking and make money via nexus i mean yeah i actually see it happening more like um it's what's called mgas or managing general agents they're kind of like um there's a group that's an expert in a particular risk type whether that's crypto or whether that's um something else you know it doesn't really matter and they apply their expertise and they have their models and then they they kind of their own little business that they sell that particular um product they distribute it but they also price

it and they can use the nexus platform um to provide the risk um like the risk capital um and so essentially what you end up with is a back end of nexus which is like this um capital coordination layer risk underwriting coordination layer and you have multiple businesses on top that distribute and price their own products and so that's kind of how it works so kind of like a lloyds or something like that and then and then back to that question so first of all that's fascinating i wanted to dive deeper on that i didn't even think we we fully dove into that in our initial podcast so that's just another just fast fascinating point about nexus but but going back to like how smart contract risk is actually

um is actually calculated do you have any other insight into that hue right so like if i were to just use my you know model i feel better about something like make your dow right um because it's been formally verified because it's protecting a large amount of money because it's been out in the wild for a while then i do something like bzx which has had like you know a couple of hacks right um so like how how are these things calculated is it primarily lindy effect really like you know amount of value in and duration and then maybe there's some side things but the bulk of it is just it's just simply that

yeah i mean we've we had a bit more of a complicated formula to kind of take account of those types of things in our pricing but we actually just shifted it all together staking that's what we care about wow um and because i mean there are a few technical challenges with the formula but um sometimes it didn't quite work properly but the point being that now that we have faking we don't care like effectively all of those factors are kind of condensed and analyzed just pulled into one number um and and so if if you actually have a look at our pricing right now you will see something like make it ours kind of at the minimum price but something like bcx is a lot higher than that um and so you know it intuitively it's it's kind of working um how you might think

it should work right now so speaking of bzx uh we have a a listener asking about uh the most recent bzx attack was did claims go through for that were there any claims outstanding on that is that a governance decision that's pending any update um no so um i personally think we would have paid a claim but there was no one with any cover um over that period so um yeah there was actually two covers taken out three hours or so after the attack happened um so but they wouldn't have you know different kind of periods so they weren't there during the attack so um so basically no no claims for that one just because no one had come

people buying cover after it was hacked did they just not understand the system they were trying to like sneak sneak some cover in yeah maybe i don't know but that's yeah that's yeah no no one had cover for the period of the attack so we haven't unpaid any claims so what tell us more about like the timing on that like what if somebody had bought cover like five minutes before the attack well i mean in theory that should be paid i mean there's always it's always going to come down to people deciding uh what the if it's a legitimate claim or not but i guess one of the beauties of the blockchain world is you can just look at the chain and go when when did this happen um but the couple was brought here the attack happened here um i mean i covered the regular insurance

world and there's there's there's many cases where oh this person um really sadly committed suicide five minutes or before or after their policy expired like and like you know so what do you do like and you had to work out like did it actually happen then or did it happen before or after and there's like it goes to real legal cases and stuff like that so you know this stuff um now we have actual data to really determine exactly what happened that's that's a really powerful position to be so with nexus is it maybe there isn't any formalized rules because it's up to the nxm holders to determine this but like is it and maybe in your opinion is it like okay you've purchased insurance on this block therefore the next block

that insurance is therefore activated is that kind of how you think it works yeah i mean look if the covers purchased before the attack or event started happening and before the bug disclosure was made um then um then it should be it should be legit that's that's kind of nice because i recently had to buy healthcare and uh i bought it at like noon and it didn't activate until like 12 p.m that night 12 hours later so i had like 12 hours where i was like well i'm gonna be real drive real slow on my way home anyways a little bit of a little bit of tangent here glad you kept safety yeah it is not fun to be with a hospital bill um when you don't have health insurance

in the us that is for sure um okay so question coming in hugh from above average joe so he's asking when will the current expansion phase start to wrap up when do you expect the nxm price appreciation to start growing faster than the network size i i'm not going to comment on price i have no idea um i don't really know but going back to the underlying question i guess we we do have this um like floor value on our what's got our mcr minimum capital requirement which is kind of like an arbitrary somewhat arbitrary like expansion phase that we're kind of driving to get more cover and stuff like that and quite recently we shifted

um a bit earlier than we were thinking would happen um into kind of like the full long-term growth phase where the actual cover amounts that we're driving uh that we're writing drive the the mcl valley and so um i definitely think um that probably happened i know six months earlier than i was expecting to happen um so um we've had kind of quite a lot of growth recently and i think that's definitely a point that we're talking about in the community and working out how we um transition into that longer term um so we're kind of we're kind of moving out of the artificial bootstrapping phase and into the more longer term phase and you know it's definitely a spectrum of um ways to go there and there's like like clear answer about this is definitely

true it's definitely a judgment call and so i think um we're definitely in the process of working out what what the best approach there is but for now um we have both artificial scaling and the cover driven calculation going at the same time we just pick whichever one's the biggest one um so they're kind of both going right now and you know unless that unless the community decides we should change that very good okay um we are at the halfway point here so you you've hung with us so far doing a great job um we've got more questions for you and this one might be related this is from matt7 so when will the current oh no i just asked that one um i've heard the gearing factor has replaced the one percent

daily increase in the mcr calculation for some people you might have to explain what that means uh gearing factor um what is the trigger for the change yeah so so basically the gearing factor is kind of what i was just saying before it really is cover amount divided by gearing factor the green factor's 4.8 so basically our minimum capital requirement is the maximum of either this floor value which is increasing at one percent per day or a cover amount divided by 4.8 and so we just picked the biggest number and so right now both of those numbers are really close and the gearing factor was ahead and i think yesterday the floor value was ahead and so they're really quite close right now um and so um what

we want to be in the long term is having the gearing factor driving everything um but it's actually useful to have this floor value in there in the short term so we can keep selling cover on um protocols that are there where there's a lot of demand like iron or a compound or balancer etc so um so if there's kind of the i guess that's what i was alluding to before is kind of have to work out how to we should be switching the mcr floor increment off at some point but do we do that now or do we do it in three months time or when do we do it um and so that's definitely the discussion to have okay here is a question coming in from our discord room from emozilla

and this is i think a question that um is being asked in the context of other staking protocols particularly in if 2.0 uh it's sort of similar the question is how is the mutual planning to further incentivize staking on contracts the comment is it seems in the current yield farming craze it's hard to track capital with such a long lock-up time 60 days if i recall correctly this is also a question i think people have asked about youth tube staking basically with all of the attractive other ways to leverage eth outside of the core ethereum protocol are we going to have enough eth to actually launch

eve to is is kind of the question so um i guess what's your answer for for nexus and nxm how are you planning to incent staking yeah so i think um shorter term the um the shield mining thing i think is uh is a big change um and i think that that would help a lot um i we do hear the um the feedback on this stuff um we're taking it on board that's for sure um we are um actually looking at potentially changing some of the design um and hopefully um with the goal of hopefully removing the long lockup um so it is currently 90 days which is we recognize is an age in d5

um yeah i think i think uh yield farming is barely like 90 days old yeah yeah exactly so you know i mean the challenge is you need staking for someone that buys a cover for a year so you need to kind of um but if you have to have the staking disappear and the cover sits there for a long period of time then you kind of got this mismatch but so we have to work out a way of allowing more fluidity into the staking process um but also dealing with what the mutual needs from an economic perspective in terms of backing the risk um and so working out those two things is going to be um the challenge and i think we definitely can get there and i think we can um we can remove that 90-day lookup and provide more flexibility with with things like tokenizing

positions and other stuff so look we're definitely um looking at it um and we're good considering options so you know we're definitely taking that pragmatic iterate learn and change it if we need to and release again that's that's the approach we're taking this is another in the weeds question hugh coming from someone um but i think it is uh pretty thoughtful um i don't i don't know if this is kind of the fall on your own sword option here but the question goes like this since nxm insurance is discretionary and paying claims uh hypothetical would nxm holders ever vote for their own insolvency so if there was ever a large magnitude claim or multiple claims on different

protocols would they ever vote to burn their own nxm stake to maintain the credibility of the system interesting thought exercise there yeah it is it is interesting i've um so discretionary mutuals in the real world have done this um and so they i know of facts where that you know they've got um they come in and all of a sudden they've just got massive claims and so what what do they do and they sit and and the key here is you have a strong community that is aligned with each other and you can work out you have to work out the best solution it's not a good situation to be in but you have to work out the best solution for the community and and so often that may be a trade-off of things

like maybe you don't pay the absolute full claim value or maybe you look at other other options or what you need to do in in the future but but basically it's about the community coming together and working out the best way forward so look i mean there's definitely a selfish option i'm just going no we're not going to pay the claims we're just going to dissolve the whole thing and just split the money between the existing holders that would be a terrible outcome in my opinion but it could it could be done um i actually think that if that were to happen um nexus would have by paying the claims in that situation texas would have built a massive amount of trust for the long term like insurance companies essentially there

when everything that she hits the fan right that's that's when you want them to be there you want them to be and that you you you build that trust and it will pay the whole mutual back like tenfold in the in the coming um period so that's i i would hope that that's um what the members would come to to agree on obviously i'm just one member um but that's i think we have to design the incentive mechanisms so that that is their favorable option um and that's what we'd be aiming for there's a there's a reference to moloch here where and maybe a lot of the listeners aren't familiar with the the meditations on moloch piece but like if you keep on listening to bank list you

will be uh moloch is the god of human coordination failure right and so like if nexus mutual decided to like defect and say like you know what effort we're not paying the uh we're not paying the the claims we're just taking our treasury and we're running because we can't do this right and then you know maybe that's a rational thing to do at least in the short term game but here what you're saying is like well you could take that short term hit but like the signal to the community would pay dividends down the line right so law if the commit if the nexus if the nxm holding community can think long-term and not defect from each other well then the the value over the long term is what you think is is that will be just orders

of magnitude larger than like the short-term game of saying like f8 well let's take the treasury and run exactly and like if you actually get into the details of nexus every single mechanism is designed to push alignment of interest over the long term because that's the only way this whole thing works um and so just because basically it never makes any sense to pay any claim if you just focus on the short term you might have to you have to you have to align interest long term and like it's all going to be about um trading off short-term pain for long-term benefit and that's really what um this is actually about so um yeah if you have a look at if you get into the details of the mechanisms it's all pushing a alignment of interest

long-term and if you know it's still up for debate if we've got that right but that's that's definitely what we're trying to do so we got a question from yuan from from the youtube are there plans to implement easy insurance contracts in popular defy projects like uniswap or zapper um and set wants as thinking of a simple button or warning when adding liquidity for example and so what i think he means is like you're on the ave site or you're on like the zapper site you're on the you know swap site and like you have the option to like deposit assets and then there's another option saying like deposit insured assets right and like that i think what he's saying is buy you buy cover uh insurance from nexus when you are also doing that action right and so

rather than and it's a little bit cumbersome when you like go to ave and then you deposit your assets and then you go to nexus to buy cover so like maybe you guys are you guys working on like a business development team or some sort of like way to like just have the nexus insure with nexus button like everywhere across v5 yeah exactly that's what we're doing basically we want no one to buy cover on our application that's our goal that everyone basically everyone's buying cover on our app right now um but that's not where we want to be long term so um we haven't we haven't um prioritized that right now because um we're in this situation where we've got massive demand and not quite enough supply um so it's not like the top um requirement but um but that's definitely

where we're uh where we're moving longer term yeah basically you know flight insurance click the button at the bottom that's that's the type of thing we're aiming for is that easier to do in in like on ethereum and d5 because everything is you know composable money legos as we've called them yeah exactly it's you know it's really simple compared to um compared to the traditional world so yeah i mean obviously you need to get the people running the partner sites to add it on but um but it's definitely a lot easier there's a very strong protocol sync thesis comment in there somewhere right like just make nexus invisible but still ensuring all of d5 right yep that's exactly it we don't we don't

know we're insurance or nexus nexus isn't insurance um i've said that a few times um but um yeah but basically it's always a secondary purchase you want to do something else and then you like you you know have a car you get it insured you know it's always always doing it for something else so we want to be there um all the time but we're not the lead sale we're definitely security purchase that kind of solves your um problem of you know selling cover to people that aren't actually like uh have loss available to them right and so like if you are only able to purchase cover when you are doing something on ave or doing something on maker then like you kind of get it's a little bit easier to ensure that you

know everyone who's purchasing cover it always ha also has lost a loss event yeah exactly i mean if you want to take that one step further i mean that's just a simple it's like an integration like just a point of purchase right but what we really want to get to is like bundled products um so like here's an interest-bearing token that's natively covered um and so you just you just buy that token instead and then you've got it bundled up um so that's the type i mean obviously there's a bit to do to get to that point but um but the whole thing is that you that's what composability really gives you um that's that's the real benefit of zero nice so so with all these interest bearing tokens out there there's the

possibility of like the nexus version of that which bears a little bit less interest but you know is natively insured so like when you buy this token on uniswap like you don't have to worry about like is the do i you know do i now need to go to nexus and get insurance because like you're buying buying it pre-bundled just making it super easy for it for the consumer that's fantastic yeah that's that's where we want to get you yeah i think everything that you guys were talking about about nexus being sort of in a a long-term um game essentially with multiple iterations right david you were talking about like um slaying moloch it just occurs to me like so much of what we depend on for human civilization are these institutions that

we trust right the court system is an institution the government is an institution um what what we can start to do with ethereum and some of these these money legos as we've called them is uh create new institutions that are less centralized and less dependent on a company and a set of like say shareholders um in a big corporate office to to kind of set the institutional boundaries so the idea of nexus becoming an institution for um i guess safety and risk mitigation across d5 protocols is super appealing um i want to ask a question that comes from that's coming from lucas and this is about i think riff and riff off the idea of

everything that we're talking about all the advantages of of composability hue are i think pretty clear to people who are watching this but there are some disadvantages too right so for example lucas is asking the question insuring one we will i use the word insurance his words right so we know what you're really doing not insurance but ensuring one single contract is simple you've already proven that out but what if something happens that affects many different protocols simultaneously because again they're all woven together so something like affecting ave compound urine all the same time maybe because they all have one single point of failure maybe there's a chain link oracle problem um

chain link great in everything it's doing and you price feed it across all these protocols but almost the over saturation of chain link creates a single point of failure for d d5 is this kind of scary so what do you do if there's kind of a single point of failure cascading event like this how does nexus react yeah i mean there's obviously two sides to this nexus has to manage its own risk itself like which risks it takes on and make sure it doesn't accumulate too much in one spot because diversification is what um will make it work the best but obviously it wants to cover as much risk as possible to provide safety to the wider d5 space so i think um with oracle failure and stuff i think you can we can we can segment it

and stuff like that um obviously within limits the probably the biggest risk that nexus is probably also exposed to itself is like a salinity compiler bug that that no one knows about yet that basically hits multiple contracts at once um and then maybe nexus goes down as well um and so you know that's kind of um defy extinct extinction level event i think yeah i don't know um yeah it's it's kind of like those words but like i mean it's theoretically impossible right and i i guess from from my perspective i think nexus is taking on that risk anyway because it's actually building on ethereum so unfortunately we have to kind of just

assume that that doesn't happen um the the the best mittigan i'm going to be completely open and honest here the best mitigate for that type of thing is actually having its entirely different protocol if it's traditional insurance totally outside the system because you can't cover something within the system that's like at the base level um so that's that's the challenge that um like we are exposed to that risk so you're exposed to all of the systemic kind of risk that's inherent in ethereum inherent across d5 right you can't get away from that without escaping to a different system but i want to ask you about that extinction level event right so because i think this is somewhat of an interesting topic maybe david was about to do that i see no i'm just shivering from the words extinction level

all right so um you know it's interesting because for a system like bitcoin or even ethereum the backstop to an extinction level bug is actually the social layer underneath it right so like for bitcoin bitcoiners will constantly argue we'll always argue that hey even if there was some sort of zero-day bug uncovered in bitcoin that allowed somebody to inflate another 10 million bitcoin above the 21 million for instance the community would adhere to the social contract and fork that out and you know they wouldn't gain enough support to actually be a critical threat to bitcoin an extinction level event to ethereum i would think would still be backstopped by this social layer where

it's all essentially the money protocols all of the users all of the the validators all of the miners uh all of the core devs everyone with a vested interest would essentially say oh oops that was not the intent of the social contract of ethereum yeah there might be a contingent who wants to pump this this you know pre-fork but it would essentially be a dow type scenario where you can recover from such an event i just wanted you to put your wrist hat on for a minute and maybe talk about that because uh extinction level event is kind of a um a scary thing to say but could the social layer be a backstop yeah i think we've thought about this a fair bit i mean the way we're designing nexus is

we want i mean it's it's not going to work in absolutely all circumstances but the i the idea is that if something is big enough that it hits multiple multiple protocols at once that takes down nexus that's at least in hard fork discussion territory like um so basically if something's big enough to take down nexus as a whole we hopefully we're designing the system so that there is a decent chance that the social contracts um kicks in and and makes everything whole again i guess do you mean do you mean for nexus or do you mean for ethereum like i made for myself okay yeah so so i guess what i'm saying is anything that's big enough to take down nexus in one go

um we should we should be managing nexus from a risk perspective so that if there's anything that's big enough an event that's big enough to take down nexus from a like multiple claims happening at once then that should be a um an event which ethereum as a whole should consider heart forking um can i raise the controversial phrase too big to fail because that's what kind of comes to mind and maybe not in a bad way right some things like some failures would cascade it across the system that the failure of a core system may be like nexus gets to that level i've often wondered if if maker or die is at that level right now where contracts core contracts become too big to fail is that you do you think there's a possibility

there yeah i mean i don't um i think it's going to be interesting like if one of the really big ones that make her or something goes down um if it was just one i i don't think that's going to be a hard fork for my my personal point of view but you know obviously there's a bunch of other different opinions out there um but i think if multiples go down at once then it's likely that it's due to some lower level bug um and therefore to me that there's a there should be an active discussion about oh hold on here this this seems this doesn't seem right maybe we should be hard forking this um so you know obviously there's no guarantees on any of that stuff at all um but the idea with nexus is to um to manage our risks

so that um if the the occasion where we failed due to that it's at least a discussion that the hard fork might happen yeah we're starting to get into pretty existential in conversation territory and it's a good conversation to have and hopefully hopefully it remains existential um so we have a question from from gonzalo on on youtube uh are there any plans to insure investors in crypto funds like managers running a fund could steal like abscond with the funds so investors in that fund would benefit from having insurance covering that event uh any thoughts on this um yes i mean to be honest we've built the protocol to be able to cover any type of risk so as long as we can design a

product that one you can like reasonably determine when a claim should be paid um it's not gameable um but by someone else you know they can just clearly go oh we have full control over this so we'll just um make a claim um so as long as you have a couple of things like that then yeah we can we can design um to design a product that works and so we've had quite a few people coming to us on on different products related to that um it's a little bit different um but um but those types of things we're definitely considering who who does that work here to expand into a new market is that um somehow governance or is that you know kind of nexus as a as an entity itself that's kind of a entity

yeah so i mean essentially it's governance um the idea being that someone has to come up with the terms and conditions like this is when a claim will be paid and then it's up to the stakers to stake on it it's basically how it works um and so it's it's really um relatively simple like that so it should like ideally we're not quite there yet but ideally we get to a point where adding a new product should be as easy as adding a new pool on uni swap you go here's a new product now just add it bootstrap some cover you know add some liquidity kind of that's the comparison um and so that's the idea where we want to get to but you know there is obviously a bit more work in coming up with the terms and conditions document than actually just providing a new pool a new spot but

conceptually that's what we're aiming for so this is another i think great question from joseph it he says first great answers uh thanks you for that um one of the core components of nexus right now is this dispute resolution mechanism right which claim should we cover which claim should we not have you ever looked at alternative dispute resolution mechanisms like aragon experts or celeros these kind of dao type court systems is there any appeal to those are they too early your general thoughts there yeah i mean we have to we have to be able to have a scalable solution for um for claims on an ongoing basis so you don't want to be pushing all claims to

an arrow on cord or a claros or something like that um but there could be potential um options for like having a like a higher level up dispute resolution um in the process there somewhere we haven't done that now um for various reasons um one of the important things is that the members have discretion over which claims are paid rather than than outsourcing it outside the mutual um that is one very important aspect um doesn't mean we can't do it but it is it is an important conceptual thing um so yeah look there are various options the core the core claims should happen within the mutual but we could do higher level disputes outside so a question came in about um memes and

this is crypto so we can't get away from memes so synthetics has their spartans link has their marines uh apparently nexus has mutants is can you confirm or deny that no we do um we've had it for a little while so that's that's kind of growing um yeah it's pretty it's organic and it's pretty fun actually so it's um i love it how did that come about oh community members just get in there okay so what is the music i think i think it's i think it's like i think it's coming from teenage mutant ninja turtles right for the turtle right yeah yeah so we're not talking like x-men we're not talking about style no it's mainly it's mainly um well i think it's it's opening up obviously you know

these things change and morph all the time right um so you know but i think that's where it's coming from the turtle things great um so what you have have you seen is are there some good memes we should look up after after this ama here should i move nexus mutants into twitter anything fun that you've seen oh yeah there was a few of me floating around which you know oh boy kind of kind of amusing but i mean like you know it's a thing i guess but um i think the one thing that is cool is that it it kind of um it's the long-term focus and they're kind of in there with uh it fits very well with the nature of what we're trying to do and so yeah it's a bit of

fun obviously but it is pretty cool okay so i think we've got about three or four more minutes uh until the conclusion of this ama i want to ask you while we're talking about the community um are you like did you think the community would grow in the way that it did are you are you are you proud of it is there anything you would you would change uh and how do you think it's going to grow into the future yeah it's a it's a good good question um like it's definitely going faster than we thought it was going to grow um and you know kind of all happened all of a sudden especially over the last few months with with things going um i'm surprised by the memes i'm surprised by just how people just get stuck in and have so much passion for things like you

know we've clearly got a bunch of really solid community members like you know getting another discord answering questions they're clearly experts what's going on and it's like it's i don't know it's really amazing to see that you know i've personally spent so much time building this thing and designing something um building in the dark for a while and then and then putting it out there in the community and letting them take control of it i i yeah i find it amazing to be honest so yeah really happy with it um i think our challenge is always going to be we're a relatively complex system and because of this long-term nature and trade-offs and stuff like that we have to attract the right type of people and so being able to design incentive mechanisms and also foster our community in the right ways is going to be an interesting challenge

um especially as we grow but yeah that's that's it's definitely um cool i'm looking forward to it very cool all right we've got time for i think one last question here and so this is maybe hearkening back to uh the podcast that we just had you on where you talked about uh surviving the bear market and that's really where where i think both david and i learned that um you guys were kind of on the brink you know of of saying like this thing's not going to work back in 2018 2019 we have just had a 40 drawdown in uh d5 tokens after an exceptional uh summer of growth right you've you've been a bear market builder are we headed back to the bear market are are you feeling the bear market

again or is this just you know we dust our shoulders off and this is this is just a mere scratch [Laughter] i have no idea don't ask me about that stuff i i really don't know i i i hope that um honestly the best case for us is just stability and just steady growth but obviously that's not how crypto markets work we just have to have to go with the extremes in both directions so um managing that's um the biggest challenge from a from you know a prodigal team's point of view and you know we i guess we've done it before so we're confident we can do it again awesome all right uh i said that was the last question but this is the real last question so hugh uh where are you from in the world

um yeah i'm australian um but i've been in london and for about eight nine years now so in in when you go home to australia do they talk about you having sort of an english accent and when you're obviously in london i'm sure they they hear an australian one yeah i'm somewhere in the middle now um on who i talk to that is awesome well hugh it has been a pleasure thank you so much for being on the hot seat with the bankless nation for this ask me anything david how is youtube looking uh did we get all the questions answered we got all the questions answered and there's a fun comment from alex uh i'm gonna read uh alex says uh keep it up i love how people are imagining things and hugh and

the team just don't have enough time to execute it's still still early and that's exciting i've never been interested in insurance until now so cheers alex hugh you got someone interested in insurance yeah you gotta you gotta stop saying that's awesome well we really appreciate the work you are doing to um get defy a little bit safer than it was the day before uh so thanks for spending the time with bankless today good great job to be on again guys good to talk to you again all right take care of you thanks a lot