DeFi By Design EP#27: Financial Security & Building the DeFi Insurance Layer

Transcript

welcome to d5 by design where we talk all things blockchain and cryptocurrency while striving to educate empower and enrich what's going on guys real quick break for the d5 by design podcast sponsors and a defy slate sponsors who make this all possible first we have ave a money market protocol that allows you to borrow and lend and leverage your assets to earn interest uh right so if you want to deposit some stable coins in there currently you can get three four five six eight percent apys on stable coins which else any bank in the world uh as far as we're concerned you can deposit uh any uh ethereum based asset that is listed there borrow against it you can borrow stable coins you can borrow other assets like ether wi-fi link even the ave token itself ave is

the go-to protocol for any sort of borrowing lending check it out at app.com the next one we have is access auxis is a new crypto wallet auxis.com you can store all of your crypto there they have quite a few options uh they're integrating new dex features soon um and allow you to have a non-custodial way to store your crypto safely off of centralized exchanges and also just not in a meta mask or in your own ledger a bit of extra security there next we have mcdex mcdex is a decentralized perpetual swap protocol basically allowing you to trade on leverage uh on the ethereum chain right they're coming out with v3 very soon at that time you're listening this might already be out they are super solid team um and they're pumping updates and

allowing you to trade decentralized perpetual swaps on eth link and a few others all on ethereum all decentralized so that is mcdex next video ramify ramify is a decentralized stablecoin it's an algorithmic stablecoin that is pegged to the purchasing power of commodities and then basically it measures what value one dollar buys in terms of a commodity index each week and then it provides you with essentially a store value that allows you to continuously evade inflation while maintaining you know a stable aspect as if it was a dollar and that is the ramify protocol check them out on twitter finally we have diversify it is an l2 decentralized exchange they allow you to basically trade in a gasless and feedless manner

big volumes whatever quantities you need it's almost like a centralized exchange on ethereum but you are the custodian they do not hold your coins as a centralized exchange would you have full control full power so really it's almost like centralized exchange capabilities on a decentralized exchange and that is diversified all those sponsors make this possible i know it's a lot to take in but thank you very much for listening and let's get back to it howdy good morning y'all we are here today it is as robbie says every single time a beautiful day here in florida wow what a surprise now i'm kidding guys good morning

uh we are live right now this will be out in just a few days so it will be live for you we are here today with hugh from nexus mutual uh been interested in this project for you know months now been kind of learning about insurance throughout this whole thing wouldn't you say robbie like we didn't even know what define insurance really was and then now all of a sudden it's something that that's been brought to our attention yeah yeah i mean uh what's up guys it's day after st patty's day i hope everyone had fun last night but you know like andy's saying insurance is the new wave when it comes to d5 obviously crypto right about 10 years old d5 call it three years max and the the world of insurance insurance

in d5 probably only a year too old right so definitely bleeding edge technology here um super interesting stuff honestly if someone you know even you know after you learn about crypto a little bit if someone mentions insurance um along with crypto on the blockchain you're like you know maybe you think about it a little bit but the implementation just sounds difficult and and not really sure how that would even work um but nexus mutual certainly you know has their approach and and is figuring it out so we got hugh here yeah it's all about safety rob i don't mean to interrupt so early but it's all about safety uh he will tell you after the hack hugh yeah yeah um here why don't you go

ahead and introduce yourself and um kind of dive right into uh kind of what's going on with nexus mutual and how how you got to the point uh where you're at now yeah cool thanks for having me on guys um yes i i'm q i'm the founder of nexus mutual um a little bit of quick background on myself um i'm an insurance professional by background been doing um insurance for quite a while now uh 15 years um studied actuarial science i'm an actuary um worked in australia 10 years and then moved to london and worked in big reinsurance companies for a while before kind of starting nexus okay so i guess what we're really trying to do is take insurance

um all the way back to its roots so like so many years ago like millennia ago you had like different communities banding together to share risks with each other and and essentially that's that's how insurance starts like just a just a group of people sharing risk and and now we have this really great new technology that allows people to coordinate on a financial basis a lot more effective and scalable way and so if we can construct the right incentive mechanisms then we can share risk together um without the need for an insurance company um so that's kind of what we're trying to do what we're trying to recreate and i guess from a more specific like crypto point of view um our early users are obviously going to be crypto natives and so we wanted to

build a product specifically for them and the most obvious risk that we could think of um when um in the crypto spaces about contract risk um and i think that kind of came about primarily because um in 2016 i watched the dow be drained live i was watching the blockchain with all the money flowing out transaction by transaction going this is a massive moment for the whole ecosystem and how and if we're ever going to be successful we have to protect against these types of risks so um that's kind of where the genesis of the idea came about and yeah we've been building and um selling cover for for a while and since then nice yeah that's a that's an interesting background i remember earlier

we were talking about your journey through australia and kind of how uh that's where you grew up and went to school which it's interesting to see how uh you know the school and the area that you've grown up in is is completely different than us but we are still able to be here working as you said this entire message of shared risk shared responsibility it's still it's this world is becoming globally shared globally connected um yeah and we're happy that you're here uh let's go into safety rob so ave has a motto or slogan safety is sexy and d5 safety is sexy mark zelda will tell you that he's an absolute clown love that guy and robbie what do you think yeah yeah i mean

uh safety is definitely sexy when it comes to crypto right like you know you want to make sure that not only you have um potential to grow right that's certainly something that um is fueling a lot of the speculation and a lot of uh just a lot of the money and and interest that's pouring into crypto but at the same time with all of that that collective um you know hype and and attention that's being put towards crypto you have a lot of risk right and nexus mutual is taking the approach where we can share that risk and it doesn't just fall on the people that you know are coming in and taking on speculative

um a speculative approach to these projects with high apy come on guys like exactly like it's so just it's risk and speculation to the max like the world is hooked on it hooked on it hugh i'm curious kind of what your mental model of all this is with safety right like what does this kind of mean to you and how do you like see that right like how do you see uh the vision of a safe defy like what what does it mean to you it's this is just a new industry i mean just in the industry i think it's a fantastic industry but you know um it's essentially a new economic industry and like we had shipping before we've had space exploration we've had a whole like railways we've like all throughout history we've had like new economies and industries spring up

and they generally go out into the wild west a bit before but then um before long everyone it's just kind of scale up and grow you actually need an insurance layer um and that kind of spurs economic activity because that means more people can actually take on business risk when they know that they they can offload the risks that they can't handle so for any economy to grow there needs to be basic financial infrastructure and insurance is one of those things um like no one sends a rocket without insurance um so you know that they wouldn't get off the ground and stuff and so right now we're a whole bunch of you know little explorers going out there in the wild west ourselves but um but as soon as we want to get more

mainstream adoption and more serious players especially if they're more risk aware um they're going to have to take those compliancy type boxes and and um they're going to need these types of solutions before they enter so you know um it's it may you know they say this insurance is sexy but you know it's kind of um it just kind of has to be fundamentally there and um stuff to kind of get adoption happening and so that's kind of um what we think we're providing is a big kind of service for the whole industry and you know andy mentioned uh kind of your your journey through australia and you went to university there maybe you could take us through that journey you know how once you graduated you started working in insurance and

then that really opened the world um and then how you found the bridge between that traditional insurance world and one that can exist in crypto yeah so i think um yeah so basically you know you started cycling working for various life insurance companies in in australia and sydney um i don't mean to interrupt in the very beginning of the story but life insurance like do you mind if i ask do you have that like is that is that advisable for young kids like robbie and i just as a as a smarter older guy like i'm curious like look i mean um not a financial advisor all that stuff but um you know if basically if you die if there's if there's someone that's

dependent on you or you have that someone you know if you've got a kid or if you've got a spouse or something like that or you've got a debt that's going to be passed on to someone else like you know that type of stuff um then it makes sense but if you kind of just um by yourself you know if something happens then that's kind of it there's no real kind of following consequences then you probably don't need this stuff but um but you know it's fundamental for a lot of people so yeah um i guess but i guess one of the interesting things about life insurance though is which is very different to d5 is that i i spent my life growing up doing financial projections over 80 plus years like basically making sure we've got enough reserves as an insurance company to pay out future claims

on a time frame that was longer than i was going to be alive um and and whereas defy is where am i getting my yield from tomorrow um so you know it's kind of like this total different end of the spectrum um and and i i think i have a bit of a um i'm definitely much more longer term focused on things and making sure that we build things properly and um around there to be be there to pay the claims and all that type of stuff so um it's definitely a bit of a challenge being in there with all of the you know apes and the dj's doing that doing that thing and is that different than when you uh when you started robbie was kind of getting at this like like what's the what's the bridge between the two industries like through your experience

you know for for folks who are in insurance or not i mean it it's definitely like you know it seems different but it's also so similar i suppose yeah so i guess the bridge was like i i kind of went down the bitcoin rabbit hole 2010 2011. um and i didn't really know what i was doing there but i like i got really interested in the tech because it fascinated me in terms of being able to send money without anyone else in the middle um and so um i was always kind of keeping an eye on things and stuff and um but i did put it down for a bit and i kind of got back into it once i heard about ethereum um and i think i also i guess the other element is i got a bit jaded with my time at um one of the

bigger insurance companies in munich um we were we were doing a lot of good stuff but we were essentially shifting big amounts of money around balance sheets capital doing capital arbitrage um like where fundamentally that's what it came down to um and i felt that was a bit too far from the end user and i felt i want a bit more purpose in there and and when connecting that with ethereum is like oh wow i can actually just to take this whole chunky machine out and um in just like the whole insurance machine of of everything and connecting each other and just replace it with some code and we can just connect together as

individuals because when it comes down to insurance is a very social community focused piece of like tech technology or um i guess um skills that humans have like it's all about sharing risk together and the infrastructure and everything that we put in place to industrialize insurance over the centuries um it's just been a way of more efficiently doing that but now we have a new tech that can actually fundamentally coordinate us at the base level and we don't need all that other stuff so that's kind of the um that was kind of the journey and the thought process and stuff that went behind it yeah and you mentioned the uh the dow

hack that happened back in i think it was 2016 um when ethereum was launching this glimmering shining product it was supposed to be a game changer the dow the dow right like not just a doubt but it was a thiedau um and as soon as they pressed go all that money got sucked down just drained obviously there was tremendous consequences that hap that resulted from that um born was ethereum classic right and and there was a lot that a lot that followed let's pretend nexus mutual was in existence back then when ethereum and the dow got got hacked how could that have been prevented what what could have been the steps that

um were taken if there was an insurance layer on ethereum you know way back in the day when ethereum had the dow that was drained i mean ideally if something like that happened and people had some cover then they could simply just make a claim based on how much they lost and they could get refunded essentially and that's kind of how our first um product smart contract cover was but specifically what it was designed to cover against um i guess it's kind of funny that um we we designed smart contract cover when basically the hacks that we'd seen were the dow and the parody the two parody multisig wallet issues and a few others but but basically that's when we were designing

our product at that point um there's obviously been a myriad of extra additional types of exploits and things of just you know ballooned with different protocols different integrations flashlights a whole bunch of other things right um you got hacked you i did yeah there is that as well um that's a that's perhaps a bit different but yeah um but the um yeah there's obviously keeping your private keys safe as well which is like up to individuals and stuff so um you know the risk is kind of ever present with everything we're doing here like everyone in crypto um and the outside world kind of knows that as

well so you know they're definitely aware of it yeah so maybe this is a good transition into kind of more on the nexus mutual side rather than your personal side of things um you know you guys were able to look at the past hacks there was the two big ones uh the dow and the parity multisig hack um and really model the product after protecting against those types of attacks now that d5 has evolved quite a bit there's much more complex hacks that that are happening as well as personal attacks um how is nexus mutual evolve their own product your pr you know your guys's product with the complexity in those layers that

are now being built up um to protect against these more sophisticated attacks yeah i think obviously things are developing and um the kind of the variety of different attacks is widening um so i guess the one really concrete thing is right i guess right now we've actually got a vote in our governance system that people are voting on at the moment to upgrade smart contract cover to what we're calling protocol cover um and so instead of at the moment smart contract cover covers against bugs in the smart contracts pretty much and the protocol cover will cover a wider variety of events it will cover everything that smart contract cover does plus

oracle attacks governance attacks and economic economic attacks um as well um they're kind of on the severe end of the economic attack spectrum so um it's definitely a lot wider it and it also will cover um it also gives us a capability to cover smart contracts running on any chain um so not just ethereum and it allows us to also cover layer two systems as well so it's it's a very big upgrade in terms of the potential risk coverage that's available there and it's definitely a response to how the ecosystem is developing yeah yeah okay so this is definitely a big upgrade and we can you know dive into some more of what what this means as the

insurance layer pretty much go to for the ecosystem i i have kind of a specific question i'm i'm really curious what a an insurance on a governance attack looks like um right to me it's like you know if a governance you know votes in a certain direction it's like well you know that was the vote and that's kind of the direction you guys take but what what are some of the mechanisms to protect against well first i guess what is a governance attack and then what are the measures to protect against one yeah so i guess both the governance and attack and probably the economic attack fall into this kind of spectrum what we're doing is we're just we're designing the product to cover the more extreme end of the events

so with the governance attack the kind of criteria is basically one the protocol is governed by a governance token and can be upgraded by token novel so there is a governance system in place rather than it just being held or controlled by a multi-sig um so we don't cover the rogue pool scenario um that's very specific um the the so and the second thing is that they gain control of the system via the governance processes and then they alter the system to basically steal funds from regular users so they take liquidity or they take collateral et cetera so not just that they've taken that they've changed a parameter and the system still operates more that they've maliciously attacked this thing

and taken people's money against the original design of their system almost like a a 51 attack yeah or like a cybel attack is that a term for that a symbol yeah yeah it could be it could be that as well i mean you know that's obviously where we didn't quite use that term but basically um basically someone gets control of the system and and drains it upgrades it in a very malicious fashion yeah but yeah you there could be never be a scenario where you covered rug pulls too because then there would be people who just rogue pull on purpose to game the system and it's just been a big game of chess and it's like come on guys the game theory behind it all is is awesome i'm a math and philosophy major oh you know where i go to school so i kind

of they don't have a game theory major here but like if they if there was one i i feel like it would kind of be the intersection of you know what what i'm studying so i just i find all this stuff really interesting yeah i think um i played um i played magic the garage for many many years um and um that's a lot of strategy and stuff like that and i in a weird way i think that set me up reasonably well to think about all of these different kind of attack vectors and stuff you're very just operating in that totally adversarial environment but um but i think um the i think this is basically something that um we need the i guess on the rug pullings but in particular yes totally agree

this is it's an uninsurable event in my mind um it's like you can't ensure someone's private keys because i'll just double my money you give that insurance to me i'll double my money um and so you know um it's that there's there are some things we can't quite do right now but there are definitely stuff that we that we can do um and make it a lot safer for a whole bunch of people yeah on the game theory side it it makes you think about kind of how everything in crypto is created because you have to think of all these you know things that could happen effectively and run all the numbers through and then find the end product and then keep improving that based off new things that happen while incorporating all those new events into what's already happening

in the past and the current product if you will um i'm curious in that kind of uh train of thought what is the zero to one improvement for crypto wallets that you could foresee right we we've got the seed phrases we've got the social recovery you know we've got the passwords we've got the uh like the yuba keys and the and the two factor and stuff you know but i guess you can't tell the future but what's next you know what's better yeah i mean i think like there's a lot of people that trading on this stuff and we'll get to a good good solution i actually think there's a way of making a recoverable cost insurable crypto wallet um and like that would be kind of designed with a um

with a recovery process in place i'm probably under a time lock um but and so um if you you don't actually insure the private keys but you insure the recovery agent against um failure so it's kind of like a business so you have a service provider being a recovery agent that can restore your wallet if you lose your keys but then if they fail then you've got an issue so you can ensure that um so that type of approach i think can work quite well if for the self-custody um segment which you know i to me that's what we should all be trying to encourage yeah yeah and now that we're getting back to kind of a personal security aspect

um you know i'm interested you know if maybe you could just without going into too much detail you know whatever you feel comfortable with you know the attack um on your wallet kind of take us through what happened why it happened it you know as much as you can understand and some of the preventative measures that going forward you know can can stop something like that from happening again yeah cool i'm yeah happy too um so i think i guess the first thing is that i was operating a hardware wallet through metamask um and my private keys were never whenever breached so i still got full control of the private keys um so what actually happened was um i basically opened a malicious.x file

that um was very highly targeted because it had a it had a title of a particular topic that we were talking about in our discord at the point in time so the i guess the point being the hackers are frequenting discords and tight and they doing highly targeted emails um so i wasn't it was a spoof email from one of my teammates to me with a um docx file with a heading that was a specific topic we were talking about anyway opened it at that point they've compromised my computer and they've compromised my metamask that's all fine to a certain extent because i've still got my private keys in the hardware wallet that's okay um and then at some later point in time they have deployed the malicious

metamask extension and what that has done is instead of when i go to just do a normal transaction i was claiming some rewards it has replaced that transaction and with me to send them a lot of um nxm tokens um and so i approved it on metamask because that looks okay it goes to the hardware wallet you can't see what the detail is because it's just hashes um and so i just click through and approve so basically i've approved it's a bit it's a spearfishing attack or or a spoof attack where i've approved something that i should never approve so um so the the problem is with me not

double checking that what i'm approving on the hardware wallet is actually what i thought i was approving on metamask so um so it was basically one transaction that i shouldn't have approved um that's the trick the things you can do i guess one of the more important things is i use a separate computer that just signs transactions doesn't do anything else visits a few only a few websites that you need no email no no social media nothing else on that um and and i guess the other thing is consider make sure that you kind of know which two address you're supposed to be interacting with um which is often easier said than done

it's often quite difficult but take your time and and do that type of thing um you mean on like when you're scanning the ledger like when you're checking the hash it shows you the contract address yeah yeah exactly so basically before you do a transaction um check the contract address you're supposed to be interacting with look it up on either scan and then go from there that's not what i meant though like when i said like what's like the next best because like that is still just like subpar like honestly that's just subpar i'm not gonna blame it on it you know you took responsibility but that's still you know very subpar i mean it works great but yeah i look i i agree like uh um the lattice from

grid plus is a a good step in that direction i haven't got one but um but they have it's more it's a bigger hardware world that has a screen which gives you a lot more human readable information about the transaction that you're actually approving um rather than just a small screen on the ledger or whatever um so that's kind of one thing i'm sure there are different other ones that can that are i'm coming into it but yeah um i'm i'm quite paranoid and cautious now but i i take extra time um and make sure i do it properly so you know i i totally agree that that's not for everyone um but that's what i do right now yeah yeah and i mean it makes me think about you know there's

i don't know how many people would you say are capable of doing something like that on solidity they have the technical know-how not only i mean i mean basically just just to create a uh a malicious metamask software and integrate their own malicious transaction on to that i'd say i mean it's got to be less than a thousand people worldwide that have that technical know-how um yeah these are these are sophisticated hacking groups that know exactly what they're doing wow yeah and and it's interesting that i mean they're using their powers for evil instead of good um in real life mafia it's like it's probably like you said groups

of people there's probably you know there's probably several honestly probably hundreds maybe you know yeah yeah yeah i mean i don't i don't really know but um the point being that step one like if the fact that um they compromised my computer at that point if you if you are just have holding money on metamask you're gone um so the fact that i was on the hardware while it gave me another level of protection but you know security is all about levels you're never 100 secure and there's always a routine um but you just have to put um find the right balance for how much money you have versus your ux versus your um wished for security so you know it's definitely a balance it's a

never-ending journey yeah yeah and on metamask it said the transaction that you were trying to confirm right it didn't say anything about a different address or nexus mutual tokens at all yeah correct yeah that what it said on metamask was perfectly correct yeah so that was the spoof yeah the hot wallet is uh is is dangerous very convenient but dangerous i am not a crypto advisor but for everybody who's listening hot wallets are great for small amounts on cell phones in my opinion because i mean if my phone got stolen it would be very unfortunate or if i lost it right but if you don't keep a huge amount on your phone in a hot wall that you can spend and you can do as you

need you know taking an l on that would suck but it wouldn't corrupt your let's say savings accounts elsewhere um and kind of on that train of thought you you don't have to tell us all you're upset but like curious like just one or two improvements aside from what you already said like that you know our listeners can do today to improve their security yeah i guess the um separate computer one is a good one um i guess the other one is make sure you remove any infinite approvals that you don't need there's a few websites that do that um and i think that's an interesting one especially because some of the attack factors on d5 protocols have been like replaced with evil evil contract and um if you haven't got an infinite

approval then you're in a lot better spot um so yeah that's that's one thing good health on that one um and yeah i guess yeah there's always a million things but that's probably true for now i remember i went back to one of those sites after i saw it on twitter like some i mean absolute gutter tiered coin farm that i was in in summer was like it was like freaking out everybody was freaking out so i was like i was paying the gas for all of it like i was trying to figure out the website it was like there's three options it was just like oh my god i was like okay i'm just gonna go through a lot of these that just some sketchy and just cut it off um but yeah i mean thank you for those uh for those two options uh and i mean i i

think that's a good start and yeah the improvement of the wallet experience is gonna be a big thing that i think is gonna be a i mean a 100 million or 100 bitcoin 100 000 uh 100 000 coin industry literally like whoever can do that and expand on that and just keep growing that is going to make so much money help the community a lot um so i'm excited for those developments yeah and and you you hit on another thing that could definitely uh improve personal security is the disbursement of funds right like in fiat currencies traditional finance we have checking accounts savings accounts if you're you know at that level you have maybe a trust fund that has different beneficiaries and

different signers um and that is now getting paralleled in the crypto world like you said a little bit of money in a hot wallet on your phone there's your checking account um you know that ledger or that yuba key with two factor and all of that your hardware wallet that's your savings account and then you have a multi-sig where you can you know delegate beneficiaries signers um which can act as your trust fund once once you start to accumulate that level of wealth um and and kind of um what hugh mentioned about um convenience user experience security it reminds me of the trilemma that vitalik mentions between uh scalability

right you have these three things you can really only pick two of them um without sacrificing the other so you kind of find like a centrist um idea somewhere in the middle of all three where you're not sacrificing anyone too much hugh is that a good narrative for us to kind of view the fundamental of uh of security and of wallets and of kind of innovation in crypto i'm wondering there's there's a lot of fundamental talk and there's a lot of narrative talk um you know i'm kind of wondering where where you align with um uh i suppose yeah what rob's saying as far as what we what what we sacrifice for innovation and then what what we can keep when it comes to safety

yeah i mean look at the end of the day different solutions are gonna work better for different people and i mean i do like your approach rob of like having you know a small amount of cash in you um it's like cash in your um in your wallet versus something in your you know um savings account or whatever and then a trust or something like that you know that kind of tiered approach makes complete sense so that you're kind of um if something goes wrong you're less exposed um and other teams and more professional people and institutions are probably never likely to sell custody um and they're probably going to be trusting the big custody providers with their high-tech um approaches and that's going to be fine but um you know i think um we we want kind of individuals to be

able to interact with this these systems and stuff and so there's definitely a whole lot of people working on these problems and i you know i think everyone's making good progress there's definitely more to go but um but we're definitely getting there and people are focusing on the right on the right things cool yeah um let's bring it back to next mutual and and kind of away from security but more towards insurance obviously those two are related and you know have a lot of overlap um but there's a lot of cool things happening on nexus mutual like you said uh the big upgrade coming out um i'm interested you know we we talked kind of specifically about governance attacks and these different types of attacks um kind of

what is nexus mutual's approach um to protecting against these attacks away from a personal security standpoint um and what are some of the new features that are coming out on nexus mutual that these power users these contributors can use um as a functional way to either make money using nexus mutual or gain more security um using some insurance coverage yeah so i think most of the big updates we're pushing right now are definitely on the kind of end users end of the spectrum where um you can like just get coverage for a wider variety of risks and stuff like that so um i guess one thing a lot of people don't know is we actually already offer

a couple of decentralized exchanges for custody providers so you can get cover on finance coinbase and kraken gemini and also like celsius and block fire and a few others like that i'm total known as well so um so that's that's kind of um we've got some different products out there and i guess that that's one thing that actually shows the kind of flexibility of the nexus system like we can actually develop new products relatively quickly and because we have this voting process on claims um we can effectively that's our oracle um and so we can pull in if information from the outside world it doesn't have to be all one chain or whatever so we can design products um with triggers that as long

as we can assess whether they've happened or not um then then that's okay so um so that's kind of most of the focus has been on that angle in terms of the product and risk coverage side especially with like this sudden explosion into deploying on other chains obviously layer two is coming soon um just starting but this is going to be a big thing for the ethereum ecosystem really soon um so we're kind of getting ahead of that curve in terms of the product to make it compatible that way um i guess the on the other side of things in terms of like members of nexus and being able to kind of earn rewards and stuff like that um along with the current protocol cover that's in governance we've also got another governance action happening right now

where you should be able to increase your kind of leverage as a staker from 10 to 15 times um and this will allow the stakers to earn more take on more risk as well but earn more and back more back more covers so we have these stakers indexes can kind of specifically back risk so they put their money behind like compound or uni swap or um or whatever you know different they back for different protocols um and the more people that stake the lower the price of cover and the more cover is available so this is kind of giving people more capital efficiency on their staking so they can stake 100 xm and they can spread that across 15 different things rather than 10 um and earn rewards on all of that so that's that's a that's kind of a pretty

big change for the for the stakers um and that'll be that'll be quite good to get some extra fluidity into the staking system and stuff like that so um especially especially as we're growing wide so one of the one of the key things about insurance is actually diversification so the mutual itself needs to back a whole bunch of different risks so that it can be diversified and is not overly exposed to anyone risk itself but curry covers lots of different risks and in that way it can actually be heavily under collateralized and that's really key from an economic point of view so that we is that kind of zoning into your thought process about other chains in l2 you know in a sense that's kind of a

diversification yeah exactly like i mean the mutual will work better the more diversified it is um that means a small capital efficient you can basically write um like at the moment we've got um we're writing about three times as much risk as we have capital um so we've got gearing of three times which is sounds pretty cool but um aig runs at 60. so um so you know um the this in the teams over there oh yeah um but like the point being like you know um insurance is massively under collateralized and that's the whole point it diversifies risk um if everything was to claim it once no insurance company would ever be able to

pay all um but that's that's the whole point of what it does um that's the way it can offer cheap rates so um that's that's really key so we're on our journey there and diversification is a big part and obviously being able to support different ecosystems they too's etc is part of that am i understanding the balance rate that as the gearing of insurance protocols goes up and we're able to write more insurance this thus being more under collateralized on the insurance later on the insurance layer um the over collateralization of investment products can go up for example like ave compound those types of projects that

require over collateralization that amount of collateral can go up as the gearing on the other side goes down or gearing would go up but collateralization would go down um so not necessarily mainly because ave and the collaboration ratios are specifically designed to address market risk movements rather than the risks that nexus is taking which is more technical failure type risk which is independent of market risk so the the market risk buffers on amazon et cetera are basically so to prevent object collateralization when the market moves quickly um and so the more volatile and asset the bigger the buffer um and so they're kind of the different risks so not necessarily

um but i guess one thing that is potentially nexus can provide um is a protocol backstop to like like ave for example has a like self-insurance layer um and some of that's backed by um of a tokens and so if there's an event they will pay from the insurance fund and then potentially top it up by minting extra rv tokens and selling them on market i guess one of the things that nexus can do is provide a claim payment to the protocol at that time if there's a technical failure and in that way you can avoid some of the minting and burning of the token so there's kind of a it's kind of a

dampening effect on on a big risk so that's that's that's one that's a different angle that um that nexus could be used for um we can't really don't do that right now but that's that's that protocol protocol kind of relationship and interworking is just going to be so key for composability and for growth in d5 like we've only scratched the surface of like what i consider b2b deals if you will you know those are going to be crucial for the growth of the system and just bring us back real quick to kind of rob what you were saying with the collateralization and the obvi the the way that i view it is a bit as hugh was saying obviously you know when you're putting your funds in obvious collateral right that is dependent on the market not on if they get hacked however if you're borrowing stable coins

and then you're going to put those stable coins into a farm at higher than what you're paying and that farm is insured by nexus you can have a bit more risk tolerance in what you're doing with your with your loan than if there was no insurance on the loan at all so obviously you know you can't change what the price of bitcoin and ethereum and how they are right but you can choose to take your loan and go to a safe a safe place i think that was a great way to explain it yeah um and it takes the market risk that um you're taking on when you invest in a coin or you're in a farm but that farm also is going to have a smart contract risk

and if you can have ave ensure against the market risk with their collateralization mechanism and you can have nexus insure against a smart contract risk you're able to share that risk no one is taking on the bulk of it um and you know it it kind of spreads it out thinly so that no one is taking on too much um super cool stuff and uh yeah i agree andy the the b2b um deal yeah i want to get more into that that's like that's dope it's just it's kind of stupid like what do you think robin and i'd love to hear hugh's mental model for what they're trying to do like partnership-wise i suppose yeah i mean collaboration is key right um and decentralization breeds collaboration which is um it's to me

is kind of revolutionary because we're getting away from a competitive nature of business where competition you know you want to outperform your competitors you want to earn the majority of the market share earn the most profit understandably so but now we're getting into a sense where no you actually want to share risk spread it amongst the most amount of people and diversify accordingly so that no one on no one protocol is taking on too much for the sake of the ecosystem as a whole so how does that happen hugh in literal terms in d5 higher rankings hierarchy ceo hugh carp of the d of the nexus mutants no no i'm kidding but yeah so how does

that actually happen right like what what happens with your partnerships like you know what are some examples yeah i mean there's lots going on there i mean in general i think one of the things that's really interesting in this space is that we can turn um like games which are one person against the other into cooperative games really really easily and so i think that's that's really cool um in terms of like the partnerships and things we've got we've got a lot going on there um a lot of the a lot of them are going to be around surrounding um like just being able to easily buy cover at the point of sale rather than um go and put money in particular yield farm over here and then come over to buy nexus you know that

type of thing um so distribution place like that um but also that protocol the protocol type um covers is definitely interesting um we put a we put a proposal to make it like late last year about that specifically um and it didn't quite make it through governance um for a few reasons but um it i think one of them was um it it opened up a few larger questions about what they should be doing with the surplus buffer and how they should be structuring stuff um so it had some support but probably not enough to quite get through so there is a there is a different question here about alignment of interest and stuff like that because we're in this situation where all of the early adopters

uh basically saying self-custody your own responsibility it's your own um you should take full responsibility for your own stuff that's kind of what crypto is about a lot whereas if you insure the protocols then the users are effectively passing that on to the protocol the protocol is responsible for keeping them safe and that puts liability on protocols and how does that work and it's all a bit mucky um so you know i i i totally like the idea um but it's not it's not as simple as going yes let's go and turn it on um and also um i think you have to with any one of these you're going to have to go through decentralized governance processes which um are great and have a lot of

benefits but they're also quite um sticky and challenging to to get through and there's obviously a lot of different competing interests i always tell my friends to get on metamask and to get on you know their own wallets and all that stuff and you know i don't know a lot of them just are happy with that uh like you said displacement i suppose or shift of risk onto basically somebody else um now in my current setup i do have funds on centralized exchanges or centralized uh like uh a celsius or next i don't know please don't hack me guys um and then also you know in your own wallet so i think there's there's a happy medium but yeah when those when those parties collide they don't seem to understand each other

when it comes to like the governing or well when it comes to like their thesis and then in the governance what tends to happen from my experience is the early adopters are the ones who have money and these guys are kind of new so the early adopters really shaped the protocols early stages and honestly like all the way up to like your first few years like your early adopters are like the basically your board of advisors if you will like they are like the team um you know you've got the team that that's doing all the work and and the developing but the early advisers are or the early adopters so are contributing so curious i guess on that note you know what was that process like with the nexus nutrients you know how that name came about

let's talk about that meme what early adopters started that mean you know how did this community form forum in the early days and yeah just i would love to learn more about you know that process yeah i mean honestly i have no idea where those memes are coming from but um they do it they give me a little bit of amusement out every now and then that's for sure um but i think one of the things that's interesting about our particular community is um we i think we're doing quite well at fostering a long-term focus group which is actually really key to our success if you actually think about insurance right if if you are short-term focused it makes no sense at all to pay any claim whatsoever

um but if you're a long-term focus it makes complete sense to pay every legitimate claim because otherwise you'd never sell any more cover in the future right so it's going to be really key for us to attract long-term people and um is that because you get so when you pay for a claim you you obviously lose some money is that correct but then through the payment of the claim you you then get more more rewards in the future is that well no because if you pay the claim um that gives confidence to future users that you will pay claims in the future if you don't pay any claims and you don't have a business so like they're

the kind of two ends of the spectrum right obviously there's you have to do it in the right way but like um if if if stuff goes bad that's when insurance companies are supposed to step in um and if they don't step in and then most will not even be there um so you know that's and but that alignment comes when everyone is more long-term focused um and so we had that's obviously a bit of a challenge with everyone in crypto a lot of them being very very short-term focused and so we've um we've spent a lot of effort trying to cultivate and filter the for the right type of community because maybe that doesn't um you know maybe that doesn't mean number go up in the immediate term

but um but it means that we're going to be building a much more sustainable community i guess perhaps this comes from me and my background um but also building through um a bear market for a while and um and knowing that you know at another point another one's going to come and we have to be able to make it through that as well so you know that type of that type of approach yeah listen to it bank was crossing that one that one was pretty dope um they're talking about how in bear markets fundamentals are born and in bull markets all the narratives are born um and so i think you hit on the head in in in the sense that y'all were building bear market so you all know what it takes if you will to build throughout another one and through a bull

you know sure maybe like the marketing gets a bit different in the bull market but everything else is still just build build build um yeah so i i think that's a good foundation um to to have um yeah i am honestly like pretty flabbergasted right now rob do you have any questions no i mean this was super cool i think we hit on a lot of uh good topics um ranging from security personal and um ecosystem wide um as well as nexus mutual right um and kind of the new upgrades and new features coming out there and governance right uh which is really just the highest level of um you know the the inner workings of a lot of these protocols this is super cool

like uh we could take it in so many different directions but we've been going at it for you know 45 minutes uh 50 minutes here yeah let's close it off with some quick questions eh yeah yeah what do you got andy um this one might be a little bit longer but q what is uh like what's your why man what's my what sorry yeah basically providing coverage of people that can't access it i've um traveled through travel through perusal and earthquakes devastate a whole bunch of people that just would just a basic simple insurance product will get them back on their feet really really quickly um and regular insurance markets can't access that stuff very easily and so i guess crypto is another one where the insurance markets don't access

it so that's good thank stop banking the bank so much world god damn good one good one rob do you have one yeah yeah um all right so on the verizon nexus mutual um can we expect insurance on real world events earthquakes hurricanes tsunamis anytime soon i'd love to do it um priorities are probably more crypto space for right now but but if someone comes and says i want to buy 50 million of earthquake coverage in mexico i'll i'll do it it's fine would you invest in a protocol that was trying to do that oh i don't know potentially so if they're doing it the right way

all right let's get the pizzagate let's get the pitch going now yeah i like that i think the expansion to real world is uh is key my next one is um what is the bridge to real world with nexus how do you how do you take nexus from crypto degens to you know a billion users yeah we think it's um we think it's the most opportunity is probably likely going to be coming from the more risk aware people so whether that's smaller institutions or larger institutions or something like that um that's going to be one route but then but then it's more going to be accessing different communities um where they are they're underserved um

one particular example i do throughout there a little bit but um i think it's quite pertinent it's like like marijuana growers in canada right that's a big industry or anywhere but they can't get banking or they can't get standard insurance just because the reputational risk the the providers don't want to take it on um but they shouldn't like that shouldn't be the case um and so it's just a big example of some a large chunk of economic activity that can't get served and so if we have a um a different like we're looking for like distributors or people that know that type of community those those products that they need and if they want to come to nexus then we can we can build the product pretty quickly and give them something that they want yeah yeah it's almost it you're almost

saying we'll go where other people aren't so thereby will take more risk but it's a new world that we're kind of growing into and so the risks and the and the thought process yeah as you said is different it's pure it's pure disruption but andy you know what that's to the benefit of nexus mutual right as you guys take on more risk you have a more diversified product and the risk is spread thinner so wow it's like a d5 flywheel all over again 20 20. that was that was the narrative flywheel bro it only goes up how do you feel about that hugh that's one of my last ones uh tokenomics speaking wise ponzinomics if you will i mean what do you think about the flabby effect and how does it end i guess i i think

fundamentally is really powerful like you know you need to bootstrap liquidity you need to boost up something so that you so that the protocol is more useful to regular users so at the crux of it underlying there's some really powerful stuff there um i think it's been dialed up to 11 when it should be down at three but um you know um but i think um there's fundamentally some good stuff there but you know as with everything everyone pushes it a bit hard there will be a burnout and then we'll find a good level amazing cool amazing stuff well great this was an awesome podcast i really enjoyed this one so for all the listeners that are still with us thank you so much for being here you guys really make this possible we are extremely grateful to have you on as well hugh

uh it's a great start to the day for us here in the states uh thank you so much and this is a pleasure yeah thank you thanks for being on guys great too great to meet you thanks for listening to the d5 by design podcast until next time defy slave team