Claims processes

When you get hacked in the DeFi space, the most important thing for users is a fair claims process, which is simple and can be resolved quickly. These users want their refunds fast, so they don’t miss the next investment opportunity. Overall, a transparent and democratic process is required to ensure that the right incentives are involved and that fraudulent parties are unable to manipulate the process.

The community stakes their funds in insurance risk pools. Since the staked money is used to pay out claims in the event of hacks or losses, the governance over these funds must be very robust. Legitimate claims need to be paid out fast, and illegitimate payouts need to be avoided.

The covers underwritten by Nexus Mutual would have the following claiming process:

Claim Assessment Overview

When a loss event happens, active cover holders can submit a claim. After submission, members can stake NXM to participate as claim assessors, who verify the claim's validity. To date, over $18M in claims have been paid out.

Claim Process

1. Claim Submission:

   • Cover holders can submit a claim via the Nexus Mutual interface, providing details of the loss incident and proof.

   • A claim deposit in ETH is required, which is refunded if the claim is approved; it is not refunded if denied. Minimum deposit is 0.05 ETH, with a maximum based on 50 NXM.

   • Claim deposits reduce spam, allowing multiple claims as long as a deposit is made.

2. Voting Process:

   • After submission, the vote lasts at least three days. Claim assessors stake NXM for 90 days post-voting.

   • A majority (50%+) is needed to approve a claim. A 24-hour silent period follows the last vote, and any last-minute votes can extend the voting period.

3. Claim Payouts:

   • After a successful vote, a one-day cool-down period occurs before the payout can be redeemed within 30 days.

Fraudulent Votes: During the cool-down, claims can be reviewed for fraud. If found, the voting assessor's stake is burned, and their vote is reversed, with processing open to any member.

Which Process is the Best?

Choosing the Optimal Claims Assessment Process

Selecting the best claims assessment process involves understanding the level of automation and transparency involved. Here’s what to consider:

• Automation Benefits: Automated claim assessments are typically faster and more objective. However, not all covers can utilize automated methods. For instance, custodial platforms often lack open-source smart contracts, making parametric custody cover impractical.

• Variations in Provider Approaches: Even among providers using similar assessment mechanisms, differences may exist in how they encourage fair evaluations. It's important to understand these nuances.

Key Factors to Evaluate

When assessing a provider’s claims process, consider:

• Transparency: How public are the approvals and denials of claims?

• Automation Level: What portion of the process is automated?

• Decision Authority: Who has the power to approve or deny claims?

These elements will help you determine the most efficient and fair claims assessment process for your needs.