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.
In this blog, we have covered the basics of parametric cover in a simplified way.
Some losses are difficult to quantify. While it’s easy to quantify loss or damage to a car or the contents of a home, it’s not as straightforward when it comes to quantifying loss caused by agricultural and environmental disasters.
Hence why parametric covers exist.
A parametric cover is a type of cover that covers a policyholder against a specific incident or an incident of a specific magnitude.
So, how does it work?
Rather than paying a set amount for the magnitude of losses (covered by a traditional indemnity policy), parametric cover pays a set amount based on the magnitude of the event.
For example, a parametric policy could pay out a set amount if an earthquake of magnitude 5.0 or greater occurs. The contract for that policy would specify the amount of payment, the trigger parameters that determine whether or not the event has happened, and a third party responsible for verifying the status of the trigger parameters.
Some policies include a tier of third-party verifiers just in case the primary agency becomes incapacitated.
Trigger events depend on the nature of the parametric policy and can include environmental triggers such as wind speed and rainfall measurements, business-related triggers such as foot traffic, and so on. Examples of current parametric products include the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the African Risk Capacity (ARC), and the protection of coral reefs in the state of Quintana Roo in Mexico.
A key attribute of a parametric cover is its elimination of the claim adjustment process. There will no longer be a need for an adjuster to investigate the loss, interpret the policy wording, and apply the policy based on facts discovered in the investigation.
As long as the parameter was triggered, the parametric policy will initiate a payout. This makes claims money reach policyholders faster. Unlike standard indemnity contracts that can take months or years to payout.
The beauty behind a parametric cover contract is its ability to deliver payouts within a matter of days.
The policyholder also has an incentive to minimize their losses with a parametric cover since the amount of policy payment is unaffected by the total loss. This reduces the company’s exposure to the problem of moral hazard. This is where a person with cover takes greater risks than they normally would because they know their policy will pay out if something bad happens.
The risk of insurance fraud is also reduced because trigger events are usually large-scale and independently verified, and payment is standardized.
Parametric covers can also work alongside standard indemnity policies.
Those seeking parametric cover do need to understand that removing the link between losses incurred and payout means that careful attention should be given to the amount of cover that is taken.
It is important to ensure that there is a reasonable match between the payout of the policy and the potential losses that might be incurred if the parameters are triggered.
So far we’ve looked at parametric cover in the physical world. Now, we come to examine how parametric cover protocols work in the blockchain industry.
The cryptocurrency ecosystem is still in its infancy. Participants face numerous risks including hacks of centralized exchanges and custodians, including exploits, and other forms of attack on decentralized protocols. Crimes like these can result in big financial losses for both service providers and consumers. For service providers, the drop in consumer confidence resulting from a hack or exploit can be more costly than the loss of funds themselves. Unfortunately, there are only a limited number of tools available to protect against such cybercrimes, some of which still need further development.
This may seem surprising given that decentralized finance (DeFi) has evolved into a robust, autonomous, and borderless financial ecosystem that provides disintermediated alternatives to core financial services including investing, borrowing, and trading. With attractive yield opportunities offered, the total value locked in DeFi protocols currently exceeds $230B across numerous popular blockchains.
The rapid growth of the DeFi ecosystem makes it crucial for users and platforms (exchanges and protocol teams) to manage the risk of hacks and exploits. However, only a handful of insurers are willing to tailor products that meet this demand, and insurance is still a very expensive option for providing financial protection.
As a result, not many exchanges have any insurance protection available. Only large platforms that have substantial financial resources can afford to reserve a certain percentage of profit to cover such risks. Many insurance protocols in the blockchain industry are focusing on DeFi, and it is perhaps surprising that in an industry that is well-known for its risks, all these insurance, and financial protection protocols combined have locked only $1.3B worth of assets, a tiny proportion of the overall assets within the DeFi space.
Most of the DeFi insurance solutions currently available are either discretionary or based on predictions (options). Some solutions require Know Your Customer (KYC) while others do not. However, nearly all protocols require that individual policyholders submit claims with a proof of loss, and await a centralized or third party jury to assess the nature and amount of loss for each claim before any payout can occur.
Backlogs and delays in approvals and payouts can be caused if large numbers of claims need to be processed at once. This cumbersome claims assessment process results in significant inefficiency. In addition, and arguably more importantly, in many cases less than half of policyholder claims that are submitted ever get approved.
One could argue that this low proportion of claim acceptance defeats the purpose of having insurance in the first place.
The big risk of discretionary insurance on the blockchain is that it’s not always clear what these policies actually cover. As they say, it pays to read the small print.
A surefire recipe for all-round dissatisfaction is a crypto hack, followed by an announcement from the insurer that the policyholders will not be able to claim a payout because the type of hack exploit was not covered by the terms of the policy.
The challenge of protecting consumers in a digital environment against a wide range of highly technical scenarios can potentially create a disconnect between the insured and the insurer.
Many insurance policies that one can take out to protect against hacks and exploits look quite similar, however, people need to be aware that there is a significant risk they won’t receive the payout they expect after a hack. A quick analysis of Nexustracker, which lists Nexus Mutual’s most recent claims, reveals that of the 95 most recent claims at the time of writing, 77 were denied and only 17 were accepted.
Scenarios where claims are denied and not paid out also put a protocol’s reputation at risk.
First, the lengthy insurance process causes uncertainty, frustration, and impatience in the community. Then, the investing community naturally expects action. But, they may quickly lose confidence if insurance claim assessments get rejected because of policy exclusions or discretionary rejections.
Later this year, Neptune Mutual will be launching an alternative to discretionary insurance on the blockchain.
Neptune Mutual’s parametric covers will provide policyholders with protection against specific hacks or events on the blockchain.
To start with, Neptune Mutual selects high-quality cover creators; typically entities strongly linked to the CeFi/DeFi project being covered. The platform guides cover creators through the process of setting up a dedicated cover pool. The first step defines the parameters of the risks that the cover will protect against. Parameters need to be binary and there should be at least one specifying a minimum size of loss to the community.
Parametric cover policies are generally defined by only a few parameters, with a very limited number of exclusions (for example, the exclusion of deliberate or malicious action by the cover creator or protocol team).
After that, the floor and ceiling price of the cover policies offered by the cover pool are set and the next step is to attract liquidity providers. Liquidity providers benefit from a variety of revenue streams including the fees paid by cover policyholders. One of these revenue streams arises from the option to stake the Proof of Deposit (POD) that is provided when supplying liquidity to a cover pool.
To compensate and alleviate some of the risk taken by the liquidity providers, cover creators can provide a reassurance token that will re-capitalise a portion of the dedicated cover pool in the event an incident arises.
Dedicated cover pools provide a guaranteed payout to policyholders because:
It is funded with stablecoin.
Neptune Mutual’s NPM token price does not impact liquidity or payouts.
Available cover pool liquidity is always higher than the total cover pool liability.
There is no individual claim assessment process. If an incident is validated, ALL policyholders can receive a payout.
From purchasing cover from a Neptune Mutual pool, reporting an incident, dispute resolution, to claims payout, everything is fully transparent and decentralized. Anybody can purchase a protection from Neptune Mutual cover pools without having to go through a complicated onboarding process. Most importantly, cover purchasers never have to worry about their claims not getting paid upon incident resolution.
The Neptune Mutual protocol is based on a parametric cover model that offers policyholders protection against financial loss resulting from a predefined set of parameters or events (also known as cover incidents). The policyholders pay a premium (also known as a policy fee) to get cover for a fixed duration and desired amount. As a result, faster claims payout becomes possible because a claim does not require any back and forth between the underwriters, claims assessors, loss adjusters, or any middlemen or centralized party.
There is no need for individual assessment of each claim or the accompanying proof of loss documents. Once resolution is reached in the cover incidents, the payout is validated for every policyholder. The payout amount does not change during the term length and the policyholders cannot file a claim exceeding the agreed upon amount.
It’s easy to see how discretionary insurance can fail to live up to expectations when it comes to covering the risks of hacks and exploits. The claims assessment process is highly inefficient, and too few claims get approved. Fortunately, a fast and reliable solution for blockchain investment protection can be found in Neptune Mutual’s parametric cover protocol.
