After much deliberation and careful thought Neptune Mutual decided to close the cover marketplaces.
After much deliberation and careful thought Neptune Mutual decided to close the cover marketplaces. Below the reasons for the decision as well as what it means for the community.
The marketplaces will be closed using an emergency withdrawal process whereby the liquidity provided to cover pools by LPs will be returned to the wallet addresses from which the liquidity was supplied. In addition to protecting cover pool LPs, there will also be refunds to all cover policy purchasers with an existing and valid policy who have paid over 10 USD in policy fees in one transaction.
For veNPM holders, please fill out this form to receive a refund for your veNPM to NPM conversion penalty.
From the end of June there will no longer be NPM emission incentives for LPs i.e. Epoch 3 of the liquidity gauge emissions will be canceled.
Unused funds raised from financial backers will be returned to those backers; this includes DEX liquidity that has now been removed from SushiSwap and Uniswap. A small amount of liquidity on SushiSwap Arbitrum has been left to enable a minimum amount of NPM trading.
The protocol will be open sourced, and become a true public good. Enabling the community to fork the code developed by the Neptune Mutual team such that others might use the existing resources to further our mission to make the blockchain space better protected against smart contracts and other risks.
There are numerous factors that have led to this difficult decision, some of which are external factors which are uncontrollable or unforeseeable. A few factors summarized below:
“Given Neptune Mutual’s Tier 1 backers, why have you not listed on a top CEX?”
This is perhaps one of the most frequently asked questions. In short, the answer is that for a variety of reasons Neptune Mutual was not able to achieve the diverse set of performance metrics (community size and engagement, marketplace user activity, DEX 24 hour trading volume, TVL growth etc.) required to list on top tier CEX. The CEXs that are prepared to list NPM token do not have the depth of liquidity or breadth of user-base to offer good prospects for NPM tokenholders.
“Why has Neptune Mutual not achieved strong growth?”
It is tempting to take a shortcut to answer this question by pointing a finger at one specific factor, but the reality is that there are many contributing factors. A few summarized below:
Since the outset of engaging with the community we have endeavored to highlight the need for DeFiInsurance; Neptune Mutual built a comprehensive dataset of on-chain hacks available, anywhere, and each week we highlight the many millions of dollars that are stolen as a result of smart contract hacks. Despite this, we have consistently been confronted by projects unwilling to spin up cover pools in our marketplace because of the sentiment that audits of their code are sufficient to persuade their community that their protocol is safe. Less than 0.3% of all digital assets are protected with some form of DeFiInsurance, and yet despite all the media reports of hacks, the conference discussions about the importance of governance or CEX proof-of-reserves, it continues to be the case that it is extremely difficult to get media attention to focus on the need for a fast and efficient means of mitigating smart contract risk.
A variety of approaches have been taken by different DeFiInsurance protocols to address this, from attending multiple conferences throughout the year and significant marketing spend, to the leaner approach that Neptune Mutual took (in part as a result of the bear market in 2023). What can be said is that no DeFiInsurance protocol has managed to achieve significant growth over the last 18 months, sadly the overall TVL of the sector has shrunk a lot.
For all the reasons above, at this moment the best course of action is no longer to double-down on investing in growth, but rather to refund unused capital and close the marketplaces.
The consequences are very tough for the Neptune Mutual team who have spent the past 3 years of their time on the mission to facilitate safer environments within DeFi. The team has delivered products according to the roadmap and the fact that the protocol was never hacked, despite attempts being made on the darkweb, is testament to the expertise, passion and absolute focus on security. The team survived the FTX and UST crisis unscathed, and believed that the continued growth in hacks would lead to growth in the demand for a good solution to mitigate these risks, but sadly, as can be seen right across the DeFiInsurance category, this is not yet in sight. So we would like to thank the team for all the dedication, skill and passion invested into the Neptune Mutual project since the outset.
The team will open source the protocol, including blockchain indexing protocol (subgraph alternative), frontend, middleware, database, and backend code, to make it a true public good. This will allow anyone to fork the code and create covers by defining parameters and premium ranges, potentially leading to innovative covers and organic usage.
The Discord channel will be closed to reduce the risk of phishing and other types of cyber attack, any questions / queries will be responded to in the Telegram channel.
We want to take this final opportunity to thank you all for your support.
Neptune Mutual will contact only its financial backers, with whom a signed agreement exists, in relation to next steps (i.e. holding NPM tokens does not qualify you for any form of refund). Contact will be made only from a neptunemutual.com domain email address so please check the source of any email you may receive very carefully. Please ignore any messages from any other email or social media accounts in relation to token/cash refunds.
Learn how Defi projects can protect there community and how they can benefit from Neptune Mutual.
Successful attacks on blockchain platforms and protocols have become increasingly common in recent times, raising questions about how stakeholders can better improve the security and integrity of their communities.
People and capital are flooding into the blockchain space like never before. So much so that governments all over the world are having to draw up regulatory frameworks as the growing presence of digital assets, such as NFTs, DeFi projects, and cryptocurrencies is no longer impossible to ignore.
However, all this public interest and money coming in means the risks of cyber-attacks and malicious activities are on the rise too. For many would-be investors and stakeholders, this risk remains a bottleneck preventing them from embracing blockchain-based platforms and applications.
Blockchain Hackers Are More Sophisticated than Ever#
Blockchain has been hailed as an inherently secure technology, and for the most part, it really is. But the reality is that there are several vulnerabilities unaccounted for, and hackers are getting more sophisticated by the day.
As reported by Atlas VPN, hackers are having a field day exploiting vulnerabilities in blockchain projects, carting away over $1 Billion in Q1 2022 alone.
The Ethereum and Solana ecosystems appear the worst hit, which is unsurprising seeing as these networks host the majority of dApps, smart contracts, and related protocols today. What is surprising, however, is the amount. Losing over $1 billion in the space of three months is worrisome, to say the least.
NFT projects only became popular less than two years ago, but are now the most targeted. The recent massive hacks that saw projects like the Ronin and Wormhole bridges lose over $900 million combined are proof of just how savvy hackers have become.
Unfortunately, much of these lost funds are unrecoverable except through the benevolence of the hacker. For instance, shortly after the attack on the Wormhole bridge, the development team issued a message appealing to the hacker to return the stolen funds in exchange for a $10 million reward.
Current Blockchain Security Measures Are No Longer Enough.
Hackers are an ever-present threat to blockchain ecosystems. In turn, this has led to the rise of various security measures aimed at safeguarding digital assets and more importantly, cementing stakeholders’ confidence in the project. These include:
A smart contract audit is exactly what it sounds like — a comprehensive, methodical examination and analysis of a smart contract’s code to discover errors and security vulnerabilities. This process is intended to give the code a clean bill of health by carefully combing through the lines, finding issues, and suggesting ways to fix them.
Smart contract audits are a necessity when it comes to protecting blockchain communities. According to a 2021 study published by the International Journal of Digital Accounting Research (IJDAR), even prominent accounting firms, including Deloitte, PwC, and Ernst & Young (EY), have rolled out various smart contract auditing solutions.
However, these audits are not without their limitations. For one, new risks arise all the time, meaning it won’t be until the next audit or after the damage has occurred that any new security vulnerabilities are detected.
There are a growing number of instances where smart contracts were fully audited by reputable firms, only for the protocol to be exploited down the line. For example, the case of the MonoX hack back in December 2021, which saw over $31 million lost, despite the fact that the protocol was audited three times that year.
Another issue is the scope of the audit. There isn’t an industry standard yet for how smart contract audits should be conducted or what framework to use for storing/accessing audit evidence. Some companies might offer more in-depth processes compared to others. These constitute gaps in the literature that must be addressed sooner rather than later.
This involves using a testnet to conduct more rigorous trial runs before taking the project live. This way, creators and investors can quickly identify issues and refine the smart contract code accordingly until everything is running as it should.
While incredibly important for improving security, extensive pre-launch testing can be quite expensive and time-consuming. Test runs and resulting fixes can last weeks or even months, which can be problematic for development teams working on tight deadlines. Some may be tempted to rush the process or gloss over certain aspects, which might prove vital only after the project has been released to the public.
Project development teams can leverage a critical resource at their disposal — their community members — to improve security within the ecosystem. It’s important to note that the power of a blockchain community is not dependent on how large it is, but on the level of interaction and harmony within the community.
Incentivising users to identify weak links in the smart contract code is a great way to get the community more involved and ultimately increase trust in the project. What’s more, it offers a practical alternative to hiring costly security firms.
The main concern here is the cost of the incentive. Projects must be able to offer enticing bounty rewards if they want to attract the best developers who are able to dig deep into the framework to find vulnerabilities. So far, bug bounty rewards range from a few thousand dollars to millions. DeFi project, MakerDAO, offers one of the largest bug bounty rewards in the industry amounting to $10 million.
Some blockchain communities turn to specialised security companies to safeguard one or more aspects of their project. This can be highly advantageous since it means the security is left in the hands of the experts.
One reason this measure might not be enough is that it can lead to increased risk. Blockchain projects are decentralised, whereas security companies typically operate using a centralised system. This makes these companies a highly-valuable target to hackers. Once they break in, they can gain unfettered access to whatever the company was protecting.
Also, outsourcing protection means communities need to establish trust in the security firm. This is counterintuitive to an ecosystem that was built and deployed using a decentralised, trustless network.
Impacts of Blockchain Hacking Incidents on Communities#
The news of a blockchain project being hacked will no doubt reverberate across the community. For the members, loss of funds represents the biggest impact, followed closely by decreased confidence in the project.
The community will expect immediate action. First, the developers will need to walk members through the technical weakness that led to the attack. This can provide some reassurance that the development team is on top of the situation. Next, the community needs to be briefed on how the creators intend to handle the recovery of the stolen funds.
For projects that are insured under traditional discretionary models, they tend to undergo a lengthy claims process. However, this stage is often full of uncertainty, frustration, and impatience. This is because traditional claim assessments can take weeks or even months to conclude.
What’s more, some claims may be denied due to policy exclusions or discretionary rejection. Imagine losing your funds only to be told that there will be no reimbursement because the nature of the loss wasn’t covered in your policy or the claims adjuster did not find enough evidence to include you in the payout. This would lead to anger, resentment, and a sense of double loss.
The reputation of the community and its developers will be tarnished too. No one will want to advocate for, let alone join, a community that has been hacked and has no system in place to reimburse affected members in a timely way.
In an ecosystem rife with evolving risks, creators can better protect their communities through parametric cover models. Already a popular option to protect against weather-related risks in the real world, parametric covers provide a progressive way to mitigate risks and address evident coverage gaps in the blockchain space.
For the uninitiated, parametric models cover the probability of a predefined event happening and payout according to a predefined scheme. Payout amounts, the scope of coverage, parameters, third parties, and other important details are clearly defined in the agreement. If the predefined events do occur, the payout mechanism is automatically triggered.
Basically, it replaces the claims assessment process with a simple yes/no equation. Did the triggering event occur? If yes, then the payment is immediately released to all policyholders. If no, then payment is not made. No discretionary measures or processes are needed.
This removes ambiguity, which is a big deal in today’s blockchain communities. With parametric covers, there’s no confusion as to what events are covered by the policy. Payouts are also released within a matter of days, as opposed to discretionary models where victims often wait weeks or even months to get their payments.
Create Parametric Cover Pools on the Neptune Mutual Ecosystem#
The Neptune Mutual ecosystem is a decentralised protocol where blockchain project creators and developers can generate parametric cover models to protect their communities.
There are four stakeholders in this ecosystem:
Cover Creators — These are the people who create the cover pool based on the unique requirements of their projects or communities.
Liquidity Providers — These are the people who channel liquidity into the cover pool, thereby ensuring adequate funds in the pool to cover payouts if triggered.
NPM Token Holders — These are the people who verify whether a triggering event occurred or not. They stake their NPM tokens to initiate the incident reporting process and then vote on the validity of the incident.
Policy Holder — These are the community members that the cover pool is designed to protect. Anyone can purchase a cover. If a payout is triggered, all policyholders are treated equally.
As a project creator, building a parametric cover dedicated to your project builds trust across the community and protects your reputation. Creating a cover pool requires you to stake at least 4000 NPM tokens. Providing initial liquidity to the pool demonstrates your commitment to protecting your ecosystem.
Creating parametric cover models tells your community members that you have an actionable recovery plan in place if things go wrong. They can see the scope of the pool themselves and can even decide to become stakeholders, thereby contributing to the security of the community and earning rewards.
With Neptune Mutual’s SDK, you can embed your cover pool into your platform. Community members who wish to become stakeholders in the pool can access it directly. This improves engagement within the ecosystem and helps the community remain focused on the project.
Increasingly, the success of any blockchain project is reliant on the security of the ecosystem. Take action to properly protect your blockchain community.
Visit neptunemutual.com to learn more about parametric cover pools for digital assets and projects.
Users can also sign up on the Neptune Mutual Testnet to connect their wallets and become stakeholders of the available covers.
