Nexus Mutual is now using Chainlink’s price reference data contracts for decentralized valuations of the multi-currency capital pool
We’re excited to announce that Nexus Mutual will be using Chainlink’s decentralized oracle networks to bring transparent and accurate on-chain valuations to its multi-currency capital pool. This allows Nexus Mutual to perform daily on-chain updates and rebalances of its minimum capital requirement (MCR) by consistently recalculating the value of each capital asset (currently ETH and DAI) in the multi-currency pool using Chainlink’s Price Reference Data Contracts.
We are leveraging the DAI/ETH price reference contract, which is now live on mainnet. It brings secure and reliable on-chain valuations to ETH and DAI by tapping into a decentralized network of data aggregators that pull prices from all the top liquidity sources in the market.
To understand this upgrade in architecture design, let’s dive deeper into both protocols, expand upon the importance of the current integration, and briefly discuss an exciting frontier for a future collaboration together.
Nexus Mutual is a peer-to-peer risk sharing mutual built using smart contracts and blockchain technology. Instead of traditional insurance agreements between the insurance company and a policyholder, it’s a membership-based discretionary mutual that protects its members against hacks and pays out their claims based on communal voting. The first coverage plan offered is called smart contract cover, which provides discretionary coverage against technical risks, such as software bugs in smart contracts.
Nexus Mutual operates as a discretionary mutual, wherein members can stake against a contract to show they believe in it’s security, or purchase smart contract cover to protect themselves in the event there is a hack. The mutual is backed by a pool of capital. Any member can buy coverage, in ETH or DAI, in case of a failure.
When a claim is triggered, NXM (the token held by Nexus Mutual members) holders can vote on whether or not to pay out the claim. While payouts are not contractually guaranteed, the members are incentivized to act fairly to not only support their own member’s claims but to support the trusted reputation of the mutual so that it can both maintain and grow its membership into the future.
An oracle is a digital agent employed by a smart contract to retrieve and/or connect it to data and systems outside its native blockchain (off-chain). Chainlink is a decentralized oracle network that currently provides decentralization at both the oracle and data source level. By using multiple independent Chainlink nodes, the user can protect against one oracle being a single point of failure. Similarly, using multiple data sources for sourcing market prices, the user can protect against one data source being a single source of truth.
Chainlink’s Price Reference Data Contracts are a collection of decentralized oracle networks live on the Ethereum mainnet, each one responsible for securing a particular market price (ETH/USD, ETH/DAI, ETH/BTC, etc). Each Price Reference Contract is backed by numerous independent, security reviewed, and Sybil resistant nodes, which are run by leading blockchain DevOps and security teams, many of which have extensive experience running POS nodes that secure millions of dollars in value across multiple blockchain networks.
Each node sources market data from a pool of seven different highly respected data aggregator APs. Their individual responses are then aggregated together into a single data point and updated on-chain at specified intervals, such as by time (daily), deviation (every .5% change in price), or a customized combination of both (minimum once a day + 1% price deviations). These reference contracts provide Dapps with exposure to market-wide price discovery and are redundantly secured via decentralized oracle computation.
Current and Future Integration
One of the critical components for operating Nexus Mutual in a secure and reliable manner, which is easily verified by all its members, is maintaining the minimum capital requirement (MCR) on the blockchain. The minimum capital is a key value for the mutual as it influences how much cover can be written on any particular smart contract system, and is also the level at which redemptions are restricted. It is essentially the level of funds the mutual needs to operate.
Since the MCR is vital to calculating quotes for new coverages and rebalancing the capital pools, updating the MCR regularly is critical to managing risk and maintaining profitability in the face of price volatility. For this, we need a secure and reliable price feed for the ETH/DAI price.
Chainlink’s Price Reference Contracts come into play, as they not only provide highly decentralized pricing that secures the underlying collateral in our capital pool (DAI right now), but also source it from an aggregation of the top liquidity providers and provide it on-chain in a transparent manner. By tapping into true market price discovery, quotes more accurately reflect the current risk distributed in the capital pool. Additionally, members are always up-to-date on the risk present within the system, therefore are better equipped to make more informed governance decisions.
Chainlink provides security when rebalancing the mutual’s funds given its reflection of the collective liquidity in the market. Our fund is far better protected against an oracle attack similar to bZx, since it is not reliant on one liquidity source.
In addition to the recent integration, both teams are exploring how Nexus Mutual can provide cover for Chainlink’s Price Reference Contracts in the event of a contract failure. While their reference contracts are already highly decentralized and secure, this would provide for an additional level of security for the numerous DeFi applications currently leveraging them for critical smart contract functions or considering it in the future.
“We are excited to be working with Chainlink to further increase our security against liquidity attacks. Security is a critical aspect of what we are doing; it’s at the core of our product and is absolutely essential to providing the best options for our members.” — Hugh Karp, Founder of Nexus Mutual
“We’re glad to work with Nexus Mutual by supplying their mutual with highly reliable and accurate price reference data secured by our decentralized network of price oracles. This allows their mutual to tap into true market prices when valuing their on-chain capital pools, ultimately bringing more security to their members.“ — Sergey Nazarov, Co-founder of Chainlink
Nexus Mutual is a discretionary mutual, an alternative to insurance, running on Ethereum. Members can buy cover to protect against hacks against any smart contract verified on Etherscan. Using Nexus gives members peace of mind when interacting with any smart contract system by knowing their funds are protected in the event of a hack. You can become a member here.
Members own and operate the mutual through raising and voting on claims and governance proposals. All funds are owned by the members. Come and chat to the community in our Discord or on Twitter. We are looking to expand the security expertise in our team. If you’re a solidity developer passionate about DeFi and security, please get in touch!
Chainlink is a decentralized oracle network that enables smart contracts to securely access off-chain data feeds, web APIs, and traditional bank payments. It is well known for providing highly secure and reliable oracles to large enterprises (Google, Oracle, and SWIFT) and leading smart contract development teams such as Polkadot/Substrate, Synthetix, Loopring, Aave, OpenLaw, Etherisc, Conflux, and many others.
If you’re a developer and want to connect your smart contract to existing data and infrastructure outside the underlying blockchain, reach out to us here! We can help you quickly, yet securely launch your data-enabled application or Chainlink Price Reference Data Contract on mainnet today. You can also visit the developer documentation or join the technical discussion on Discord. Learn more by visiting the Chainlink website or follow us on Twitter or Reddit.