Wanted to make you all aware that Nexus Mutual has released Yield Token Cover with specific vault by vault comprehensive coverage for Yearn.
How it works
One of the challenges with covering Yearn (and other money lego protocols) is there could be an issue with an underlying protocol that Yearn relies on, which causes an issue to Yearn users. Yield Token Cover deals with this by covering the full stack of risk of a particular vault in one go.
Conceptually this differs to our existing Protocol Cover product as per the diagram:
If we take the DAI v2 vault as an example, the user purchases Yield Token Cover with Nexus and if there is an issue they can swap their LP tokens (yvDAI) for 90% of their face value in DAI. So it only makes sense to swap the token if there is a depeg of more than 10%. It’s like a put option for technical risk.
The product effectively covers any risk that could cause the yvDAI token to depeg vs its face value.
What this means for Yearn
We strongly believe this type of product can help onboard the next wave of capital in DeFi, those who are more risk averse, but are also attracted but the very high yields on offer vs TradFi.
Our initial listings include 3 Yearn vaults, with the potential for many more if demand warrants it.
- USDC v2
- DAI v2
- ycrvstETH v2
In general we see this product as very symbiotic for the Yearn ecosystem, one which allows us both to grow together. If one of Yearns goals is to become a middle-ware savings account solution that other consumer facing applications back-end into, then an “insurance” solution will be required for regular users.
How we maximise the benefits
Right now the user undergoes a two-step process where they deposit on Yearn and then come to Nexus to purchase cover. Making the process smoother from a UX perspective is expected to result in higher Yearn AUM as more users will be able to easily take out protected positions.
In addition, Nexus’ next priority are some underlying protocol enhancements that will allow the covered vault to be built, whereby a version of the vault can automatically purchase cover on behalf of all users. The user would then choose between the regular version and a covered version with a slightly lower APR. We see this bundled product as something uniquely enabled by DeFi and hope to work closely with the Yearn team when the time is right.
Nexus core team is on standby and happy to help on any aspect here.
Disclaimer: I’m the Founder of Nexus Mutual.