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 about why the insurance cooperation is required now than ever in a blockchain industry.
Onchain insurance is a much-needed solution for risk management in the blockchain space. However, amid evolving risks and user expectations, the need for cooperation over competition among cover protocol providers has become more evident.
Can this change of approach promote more effective onchain cover solutions and improve confidence among stakeholders? We certainly think so.
Cooperation has always been foundational to success within any ecosystem. There’s no reason why it shouldn't have a role to play in establishing the value that onchain insurance brings to the blockchain space.
Admittedly, cooperation and collaboration are not always common practices in the industry. But given that blockchain is still relatively new to the party, perhaps now’s the right time to re-examine what we know and see if doing things a little differently can get us more desirable results.
Due to its decentralized nature, blockchain technology presents a number of unique challenges for insurers, such as data privacy issues, underwriting risks, claims validation processes, and lack of a standard regulatory framework, among others.
And while protocol cover providers have found clever ways around these issues, adoption of these solutions is still very limited. One can’t help but wonder if collaboration between protocols might not help raise awareness and change behaviours towards more widespread adoption of digital asset protection. As we see so regularly in news headlines about huge losses, there is clearly a strong case for protecting digital assets.
With a projected growth rate of more than 72% over the next six years, the global blockchain market continues to thrive with more participants coming into the scene every day. But it is not just the sheer volume of investments by millions of investors around the world that make the space valuable.
The blockchain ecosystem is highly segmented – payments, smart contracts, digital identity, governance, digital voting, documentation, exchanges, and many others. Each segment brings a new wave of applications which offer the potential to completely transform how we do things. These applications are what drive value in the space.
Like its off-chain counterpart, onchain insurance seeks to provide cover against risks. These risks manifest themselves in different forms and can impact almost every facet of the blockchain space, including:
A Multibillion Dollar DeFi Market
Even with a prolonged bear market, the Decentralized Finance space has managed to maintain a market capitalization of over $39 billion.
Popular DeFi projects like Uniswap, Aave, PancakeSwap, and Chainlink have quickly attracted millions of users to their respective ecosystems. This means that there is a ready market for onchain insurance to safeguard against certain and uncertain risks.
A Rise in Code Exploits and Security Breaches
Cyber-attacks by hackers seeking to steal digital assets and commit other related unscrupulous activities continue to make headlines. In the first quarter of 2022 alone, over $1.2 billion has been lost to smart contract code vulnerabilities and security breaches.
The presence of onchain insurance to cover these risks can go a long way in allaying the apprehension of investors and in building trust between projects and their respective communities. It will also promote confidence in the viability of blockchain projects and their related transactions.
A Budding Metaverse Ecosystem
The metaverse is the future – at least that’s what tech entrepreneurs and investors believe. They’ve even gone as far as investing billions of dollars into the concept. Microsoft, Meta (formerly Facebook), Google, and Nvidia are just some of the leading tech giants to be actively involved in shaping the metaverse market, which is projected to be worth over $800 billion by 2024. Individual spending on metaverse projects and items is steadily rising too.
People have already spent over $200 million on Metaverse assets | Source: grayscale.com
Non-Fungible tokens or NFTs, which are an integral part of metaverse interactions continue to attract heavy inflows as well, with some NFTs commanding tens of millions of dollars in the open market.
As more individuals scramble for these digital assets and collectables, onchain insurance will play a critical role in providing cover against uncertainties, as well as facilitating trustless transactions.
How Does Cooperation Among Cover Protocols Fit In?#
Onchain insurance is still nascent and the pioneers are working hard to forge a path through new terrains laden with challenges at every turn. There’s no better time for collaborative efforts than now. And while competition breeds creativity and innovation, the industry has far too many issues that if not addressed now can continue to plague onchain insurance for years to come.
Of course, the scope of the cooperation among cover protocols will be tailored for mutual benefit, but there’s no denying that there’s merit to the idea.
Here are some areas where insurers on the blockchain can bridge gaps and deliver more value across the entire ecosystem.
Collaborate on More Efficient Information Sharing#
Because onchain insurance is built on emerging technology, it is subject to emerging risk. With so much money coming into the space, the probability of hacks is always there. In fact, one may argue that hacks are a necessary evil in blockchain because they expose flaws within a project's security system and lead to better code infrastructure development.
But with more efficient information sharing among cover protocols, it’s easier to prepare for these risks. As soon as a hack occurs, all other protocols know about it and add that to their checklists to make sure they don't fall victim.
Insurance for insurance companies – that’s basically what reinsurance is all about. It’s a stop-loss insurance that lowers underwriting risk for insurers and helps them remain solvent by recovering a portion of amounts paid out on insurance claims.
Reinsurance is already common practice in real-world insurance, having been a critical part of the global industry for over 150 years. It has also outperformed other segments in the overall insurance space in recent times according to a 2017 report on Global Reinsurance by Mckinsey and Company.
You’ll agree that reinsurance is a necessary component in the blockchain space. It decreases risk to insurers by passing a portion of the underwriting burden on to others.
Reinsurance can also help stabilise losses, such as when a cover protocol has to pay for a large number of claims in a short period of time. This can leave them in a dire financial situation. Reassurance offers insurers the opportunity to benefit from a wide base of underwriting capital.
As the name suggests, a cross-chain bridge connects two blockchains so users can transfer digital assets and information from one chain to the other. Because cryptocurrencies and tokens are typically siloed to their native blockchains, bridges are a necessity in facilitating value exchange.
Because they handle such valuable transactions, it’s easy to see why the risks of security breaches are concentrated around cross-chain bridges. One of the biggest DeFi exploits in history was the result of a cross-bridge attack. The Wormhole bridge hack saw the loss of over ETH 120,000 ($321million at the time).
Recent attacks on cross-chain bridges | Source: 0xzx.com
While it is not necessarily their responsibility to address this particular issue, onchain insurers are a key stakeholder in the security of cross-chain bridges. Lending their expertise to the matter can definitely help move the needle towards more viable and lasting solutions.
The blockchain space is characterised by a strong sense of community, and so having the brightest minds in the onchain insurance industry coming together to help make it a better protected place should be a positive outcome.
Collaborate to Increase Onchain Insurance Adoption Rates#
The success of insurance protocols is likely to be driven more by widespread adoption of digital asset cover. To make this happen, it’s important to take a step back and examine what factors influence adoption of new technologies: we examined this issue in our blog Crypto Crash Heightens Awareness of Risks & Hacks, But Is This Enough to Drive Mainstream Adoption of Digital Asset Protection?
According to a PwC report, the top driving factors of blockchain adoption are provenance, improved access to payments, and customer engagement.
To a certain extent, these elements are also crucial to adopting onchain insurance.
Provenance in the form of authenticated incident reports and claims validations; streamlined financial transactions through efficient underwriting and payouts; and customer engagement in the form of improved top-to-bottom user experience and careful consideration of UI (user interface) design.
These goals are generally more attainable when there is positive cooperation between existing insurance protocols.
As the onchain insurance grows in maturity, we can expect regulators to take a more active interest in the space. After all, the real-world insurance industry is one of the most regulated.
Most countries have wasted no time in drafting up regulatory guidelines for blockchain-related transactions.
At some point, it may be that regulations are expanded to include aspects of the operating activity of onchain insurance providers. And when that time comes, maintaining a collaborative approach between cover protocols can greatly help in moving these discussions in the right direction.
What Do Industry Leaders Think About the Role of Cooperation Among Cover Protocols?#
On April 21, 2022, Ethereum security firm Secureum TrustX, in conjunction with DevConnect Amsterdam, hosted a deep-dive discussion with some of the leading innovators in onchain insurance.
The session was chaired by Emiliano Bonassi of Rentable and included guest speakers – Dan Thomson of insurAce, Evert Kors of Sherlock, Hugh Karp of Nexus Mutual, Kiril Ivanov of Bright Union, and Robert Forster of Ease.
When asked about the possibility of cooperation among cover protocols with regard to reinsurance, Nexus Mutual’s CEO Hugh Karp had this to say,
"Yeah, I think it'll happen. I think that we will be seeing some reinsurance between different protocols… But I also think that there will be a point where we may actually go outside at some stage to get reinsurance from traditional markets. And, you know, philosophically that's not really where I want to be, but it might actually help us progress forward."
(Armor) Ease founder Robert Forster echoed the sentiment by stating
“I think we're gonna purchase some amount of reinsurance in the next week or so. With our system we need to be adequately diverse. We can't have faults having too much capacity in one way or another. So we need a little bit of reinsurance and I agree that eventually something off chain, something more traditional is going to be extremely helpful… Hopefully, there'll be more talks there regarding how we can work together.”
InsurAce’s director of marketing and business development, Dan Thomson also believes cooperation has an important role in moving onchain insurance forward, particularly with regard to regulatory frameworks
“Yeah, we agree working together is a feature we've actually been talking about this week though not necessarily this exact issue, but also about having to deal with regulators globally… A united front is a much better collaborative state to be rather than competitive.”
Lastly, Bright Union’s co-founder and technical lead Kiril Ivanov believes cooperation is a given in blockchain.
“It's a no brainer. With the composability of the blockchain, reinsurance is a given. If you want to launch your insurance product, you will definitely reuse some of the DeFi solutions out there…so collaboration is part of the blockchain nature.”
Complex evolving risks, more demanding customers, market disruptions, and other inherent issues require that onchain insurers move toward better collaboration. Working together will be crucial to meeting these challenges and developing specific value-add solutions within the ecosystem.
What the winning model of cooperation will look like remains to be seen, but it’s clear that it will require a combination of well-defined objectives and a strong commitment to achieve them.
Let us hear from you. What do you think about the need for cooperation over competition among onchain insurance cover protocols?
