7 ♥ · Incentive · Draft
Mutual Insurance
Members pool money into a shared fund and vote on paying each other's claims when a loss occurs.
How it works
Members deposit capital into a shared pool and receive membership tokens. Anyone who wants cover pays a premium into the pool for a set period and a set risk, such as a smart contract failing. Members can also stake on a specific risk to signal it is safe, which lowers its premium. When a covered loss happens, the holder files a claim. Members assess the claim and vote to accept or reject it. Accepted claims are paid from the pool, and stakers on that risk lose part of their stake.
Use it when
- You want to protect members from a risk that no traditional insurer will cover.
- Share the cost of rare, large losses across many members who face them.
- You prefer members, not a company, to decide which claims are fair.
Watch out for
- One large event can drain the pool and leave later claims unpaid.
- Members who vote on claims have a reason to reject them, since payouts come from their own capital.
Example
Nexus Mutual. Nexus Mutual has run as a member-owned pool since 2019, paying claims for smart contract failures such as the bZx and Yearn hacks.