Managing crypto risk is no easy task, and many DeFi cover providers learned that the hard way. Our Head of Community, Sem, sat down with Hugh (Nexus Mutual's Founder & CEO) to see why the first crypto insurance alternative succeeded where so many failed, and what comes next for the industry.

Many protocols and companies trying to cover DeFi risks have come and gone. What made Nexus Mutual different?

Hugh: Running a mutual is genuinely complicated. Prices need to be affordable enough that it makes sense for people to buy cover, but not so low that you go insolvent from paying out claims.

The core of the business is risk management. Several protocols went bust from industry black swans; the UST/Terra Luna collapse is one of the main examples. We never covered UST depeg risk because we didn’t fully trust the mechanisms behind the token. Our approach has always been to cover reasonable risks without overexposing the mutual to any single position. Coming from insurance, we knew which pitfalls to avoid and to err on the side of caution.

Both Rei, our first hire and Head of R&D, and I are life insurance actuaries, used to valuing liabilities over 60-year-plus time frames. While people in crypto often focus on the next few weeks, having that long-term perspective matters.

Sem: You can get away gambling on low-probability events for a year and look fine. On a five-year timeline, things look very different.

Hugh: Absolutely. We also underestimate tail events as humans. Reasoning about extreme scenarios doesn't come naturally unless you've been doing it professionally for a long time.

How did you go from being a 15-year insurance executive to founding the first crypto insurance alternative?

Hugh: It started around 2011 when I stumbled on Bitcoin in a random internet forum. The fact that there were no intermediaries was fascinating. Then Ethereum came along with programmable money which really peaked my interest. I started designing how a mutual might work onchain - use cases, protocol structure, all of it.

What were the early days of building Nexus Mutual like?

Hugh: It was a lot of time spent fundraising and building. Rei joined early, and I actually convinced him to leave his job. At that stage there were only a few live protocols on Ethereum.

We launched in May 2019, but by then we'd depleted much of our funds, and Rei had to go back to a regular insurance job. Getting traction was hard. The early days were exciting but stressful.

What kept the founding team aligned?

Hugh: Mutuals are the original form of insurance - a group of people pooling resources to protect each other. I saw that blockchain, DAOs, and tokens were a natural fit to bring the mutual model back at scale, coordinating people across the world. That vision is what the early team members aligned with.

Where does Nexus Mutual stand today?

Hugh: We've come a long way. We launched early, before the ecosystem had fully developed, and cover is an especially complicated use case. The fact that we've been going seven years, and the trust we’ve earned from our partners, means a lot to us.

Since 2019, Nexus has paid more than $18.5 million to cover holders. We’re proud to have paid 100% of valid claims.

We are always listening to our community. Our partners and members wanted expert claims assessors; we shipped that in Nexus Mutual v3. We launched the world's first covered vault with UltraYield and Kelp DAO. Partnering with OpenCover, we released the Onchain Risk Map as an open standard to raise awareness of DeFi risks.

The type of investors coming into DeFi has changed, from risk-on individuals (aka degens) to institutions managing significantly more capital, with much higher risk awareness and coverage needs.

What excites you about the future of Nexus Mutual and DeFi risk?

Hugh: In the near term, it’s all about vaults. That’s how most people will access DeFi yield, and many vault operators and curators are looking to integrate cover solutions. Investors can allocate funds and expect a reasonable risk-adjusted yield, truly a set-and-forget solution. 

Longer term, I’m focused on two things. First, AI agents. They'll be bigger - and are coming sooner - ​​than most people expect. DeFi is perfect for agents. Traditional insurance companies aren't built for it, but we are.

Second, Nexus Mutual is fundamentally a marketplace for risk. Right now we cover onchain and crypto-related risks, but there's no reason it stays there. Industries underserved by traditional insurance need capacity. As the barriers to crypto adoption fall, they'll be interested. That's how we continue to expand into real-world risks.

Do you have any closing thoughts for our readers?

Hugh: If you're an institution looking to get into DeFi, reach out to us. Attractive yields still exist, but managing risk is the name of the game. 

You don’t have to do it alone - Nexus Mutual is here to help.