Nexus Mutual rolls out major Protocol Cover upgrade

  • Thread starter Thread starter krugman25
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I'm just gonna put a tl;dr and possibly may have read some of the concepts on different places, and this is a hypothetical

Defi is about game theory, and aligned incentives for all participants, let's take a look at a successful project like pancakeswap firing on all cylnders, cake tokens go up in value,developers are happy since they hodl a lot of the tokens, yield farmers (LP providers) are happy with the rewards, stakers are happy with the rewards, the users using the exchanges and other parts of the ecosystem are happy with low fees, fast transactions, deep liquidity on dexes...

Let's look at a stalled defi project, based on TVL, like Badger, it experienced hypergrowth, but now for all kinds of market conditions some of which attributed to the Ethereum blockchain, but there's still $1B of TVL on the platform

If there's insurance on the Badger platform and most of the users have coverage including the devs hodling the tokens, we now have an incentive to exit scam from one or more of the dev team members, if they introduce a bug on one of the updates. The game theory actually makes this the correct action, the original ecosystem participants are made "covered" to some degree of the losses

And this can be played out on an up and coming project, like let's say mooncakeswap is growing, but now, insurance was available, the incentive to grow versus cash out early again through the introduction of a bug...

I just do not like it when the incentives are not aligned with everyone on the project...
 
johnarb said:
I'm just gonna put a tl;dr and possibly may have read some of the concepts on different places, and this is a hypothetical

Defi is about game theory, and aligned incentives for all participants, let's take a look at a successful project like pancakeswap firing on all cylnders, cake tokens go up in value,developers are happy since they hodl a lot of the tokens, yield farmers (LP providers) are happy with the rewards, stakers are happy with the rewards, the users using the exchanges and other parts of the ecosystem are happy with low fees, fast transactions, deep liquidity on dexes...

Let's look at a stalled defi project, based on TVL, like Badger, it experienced hypergrowth, but now for all kinds of market conditions some of which attributed to the Ethereum blockchain, but there's still $1B of TVL on the platform

If there's insurance on the Badger platform and most of the users have coverage including the devs hodling the tokens, we now have an incentive to exit scam from one or more of the dev team members, if they introduce a bug on one of the updates. The game theory actually makes this the correct action, the original ecosystem participants are made "covered" to some degree of the losses

And this can be played out on an up and coming project, like let's say mooncakeswap is growing, but now, insurance was available, the incentive to grow versus cash out early again through the introduction of a bug...

I just do not like it when the incentives are not aligned with everyone on the project...
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All good points. You're not bringing up anything that the mutual members haven't discussed a thousands times before, lol. It's one of the reasons that proof of loss was introduced. It's also one of the reasons that the mutual generally doesn't immediately vote on claims as soon as the exploit happens, but waits for information to come out. Even then, each claim from each wallet is evaluated on an individual basis.

People taking advantage of insurance is not unique to crypto, and pretty common in traditional insurance. The best the mutual can do is work on ways to mitigate the risk and iteratively improve the system.
 
krugman25 said:
All good points. You're not bringing up anything that the mutual members haven't discussed a thousands times before, lol. It's one of the reasons that proof of loss was introduced. It's also one of the reasons that the mutual generally doesn't immediately vote on claims as soon as the exploit happens, but waits for information to come out. Even then, each claim from each wallet is evaluated on an individual basis.

People taking advantage of insurance is not unique to crypto, and pretty common in traditional insurance. The best the mutual can do is work on ways to mitigate the risk and iteratively improve the system.
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Got it. I think this is one of the concerns I had with the subjective comment in my original post. Defi is about smart contract, code is law, deterministic and algorithmic expectations

I do want insurance in the industry and I wish them success for the sake of everyone
 
johnarb said:
Got it. I think this is one of the concerns I had with the subjective comment in my original post. Defi is about smart contract, code is law, deterministic and algorithmic expectations

I do want insurance in the industry and I wish them success for the sake of everyone
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I get where you're coming from. With insurance/cover, I don't how long until or if it can ever remove the human element. There still needs to be a way to determine that a valid claims event has occurred and if the payout should be made.

I see the north star for insurance protocols as being DAO driven and fully decentralized. For things like trading protocols or fully collateralized borrowing/lending protocols the north star can definitely be fully autonomous, fully trustless and even non-upgradable (so bugs or exploits can't be introduced later on), which Uniswap has done a great job achieving. Another protocol that falls into this category would be Tornado Cash.
 
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