Nexus Mutual is a decentralized insurance marketplace where risk-takers insure DeFi users against smart contract vulnerabilities in return for earning insurance premiums.
Nexus Mutual allows its members to buy Cover against a specific smart contract risk. Only existing members may purchase coverage. This requires users to hold NXM token, pay 0.002E and go through the standard KYC/AML processes. All members are reponsible for arbitrating governance proposals, claims and other risk assessments. The memers have to assess the risk level associated with each smart contract. In case of a hack, the members will vote to decide whether the claim is legitmate and thus requires a payout. Nexus Mutual members can also stake their NXM with certain DeFi investments based on how secure they think the smart contract is. The more NXM token staked on a particular smart contract, the cheaper it is for other members to buy coverage. NXM stakers (claims assessors) risk losing a portion of their stack if the smart contract is hacked in exchange for earning the insurance premiums. As such, claims assessors are incentivized to only stake on smart contracts that they deem to be secure. Members act as judges to determine the outcome of a claim, with each claim subject to a yes/no vote by claims assessors. Claims assessors earn rewards for voting with the consensus outcome. If anyone is determined to have voted fraudulently, their stake may be burned via a governance process.
Nexus Mutual generates revenue from its capital pool which is funded by cover premiums paid by members seeking insurance coverage. When funds flow into the capital pool, 50% is kept in the pool and 50% is used to mint NXM tokens and distributed proportionally among claims assessors.
You can hedge against potential smart contract vulnerabilities by purchasing insurance for a specific pool you are invested in. This will lower your overall annualized yield but provides peace of mind against any hacks. NXM stakers in a specific smart contract can also earn a portion of cover premiums (paid in NXM).