DeFi and the importance of insurance protocols — Interview with Neptune Mutual

The vast potential of decentralized finance (DeFi) is frequently overshadowed by the risks associated with crypto markets and decentralized platforms. The lack of reliable insurance policies leads to users becoming susceptible to losing funds in the event of hacks or exploits, which is happening more often as the DeFi ecosystem grows.

The accelerated growth of the industry causes many DeFi projects to rush the security implementation of their infrastructure and conduct insufficient smart contract audits, resulting in vulnerable decentralized platforms. According to data aggregator CoinGecko, over $2.8 billion in cryptocurrency was stolen last year in a diverse range of malicious attacks targeting vulnerabilities in DeFi platforms; when one compares this with the $0.3 billion of TVL of the entire DeFi insurance category it is easy to see the need to scale DeFi insurance.

There is no single form of attack targeting crypto users and platforms. Source: CoinGecko

To boost crypto adoption and enable DeFi to reach its full potential, users’ concerns about lost funds in the event of a hack or exploit need to be addressed. Decentralized exchanges, decentralized applications (DApps), CeFi and metaverse projects should prioritize using a reliable method to cover users’ assets against the possibility of an attack.

True to the principles of decentralization, the DeFi ecosystem came up with its own solution: Neptune Mutual. In the interview below, Binod Nirvan, CEO and co-founder of Neptune Mutual, shares more about the ways in which DeFi insurance protocols can boost security in the space.

Cointelegraph: Can you provide a brief introduction of yourself and Neptune Mutual?

Binod Nirvan: I’m Binod Nirvan, CEO and co-founder of Neptune Mutual. We’re a DeFi insurance protocol where CeFi, DeFi, and metaverse projects can create cover pools to protect their communities against smart contract and custody risks. Our covers are parametric, focusing on the incident rather than individual loss claims, for quick resolution and payouts. We cater to liquidity providers with stablecoin cover pools that provide stablecoin rewards. What’s more, starting June 14, our protocol will require policyholders and liquidity providers to hold and stake the native NPM tokens. To facilitate this, we launched the NPM token on Sushiswap on Arbitrum as well as Uniswap on Ethereum. There wasn’t a public sale, IDO or IEO, but a decentralized exchange listing to let users get the tokens required for our cover marketplace.

CT: Smart contract audits are known to have limitations in preventing DeFi hacks. In your view, what other measures or solutions do you believe are necessary to enhance the security and resilience of DeFi protocols?

BN: Given that smart contract audits aren’t always sufficient to prevent DeFi hacks, Neptune Mutual insurance pools help projects enhance their brand resilience.

Trust is a crucial part of DeFi success. Ironic, perhaps, given the trustless nature of the DeFi model, which is so empowering. Preventative measures, including in-depth implementation of cyber/blockchain security and audits, are important, and it is vital that these be complemented with mitigation measures such as cover protection to restore trust in the event of an incident.

CT: Interoperability between different DeFi platforms and protocols has been a topic of interest for a long time. How do you see the integration of insurance protocols within the DeFi ecosystem contributing to the overall interoperability and risk management across multiple platforms?

BN: Wherever there are digital assets, and wherever there is risk, DeFi insurance protocols have a part to play in protecting the community. There is no other DeFi sector with such a powerful growth dynamic. The scalable nature of parametric covers, together with our growth initiatives that align incentives with increasing cover capacity, such as the vote escrow token and liquidity gauge pool, make a powerful and compelling basis for the much-needed growth in DeFi insurance.

CT: Can you explain the benefits of Vote Escrow and the Liquidity Gauge pool?

BN: Certainly! The benefits of veNPM are multifold. Firstly, through Vote Escrow, it provides holders with boosted voting power, which allows them to influence decisions regarding the future distribution of NPM emissions in specific cover pools. This is significant, as it empowers users who are liquidity providers and allows them to guide the strategic direction of the project. Secondly, veNPM holders are eligible for boosted NPM rewards thanks to the Liquidity Gauge pool. This means that they receive a higher share of NPM token emissions in comparison to regular LPs, incentivizing long-term involvement and enhancement of the protocol’s stability.

CT: We are aware that Neptune Mutual has plans to launch an NFT marketplace. How will this benefit the crypto community?

BN: We’re starting one of the largest NFT reward programs for two main reasons. First, we’re using NFTs as a fun way to share important details about risks and how to avoid them — we invite those interested to join the waitlist to receive our NFT magazine profiling the NFT characters and their stories. Second, we’re rewarding our loyal Neptunite community members with NFTs when they buy insurance coverage and contribute liquidity. We’re not selling any NFTs but giving them away for free.

You know, the sea and the blockchain world have a lot in common. The sea is full of treasures, like pearls and colorful coral reefs, just as the blockchain holds valuable digital assets. However, the sea also has dangers like sea serpents, similar to hackers in the blockchain world.

Sailors treat the sea with respect because they know its dangers, and we should approach the blockchain world in the same way to prevent problems. Most digital assets don’t have insurance, which means there’s a huge $49-billion opportunity for DeFi insurance protocols. We aim to make a big change in how DeFi insurance is adopted, represented by characters like Neptune, Salacia, the Guardians and the beasts.

CT: When will these features be launched?

BN: Our plan is to release the NFT marketplace first, followed by the launch of Vote Escrow and then the Liquidity Gauge Pools. We are diligently working to launch these as soon as possible. Stay updated with the latest announcements by visiting our website.

Stay up to date by following our Twitter account for the latest updates, and take advantage of a special offer. Use the promo code “CT020623” when purchasing your first policy to receive a full rebate on protocol fees for any cover pool.