[jbkiv]

We are working on an insurance product for crypto. :-(

The more we dig into it the more scams we find. Everywhere. Wash trading, click baiting, pump and dump, code is law, etc. You will find the biggest bazaar there is in the crypto world. Biggest than the Nevarro bazaar.

The anonymous ecosystem is a paradise for scammers and money launderers. And a terrifying "crypto lord" on Telegram or Twitter may just be your nicest coworker.

I am not sure we will ever find a backer. So far we are working on the private risk management side of the venture.

I would expect more mainstream users, and they will hammered day one. Look at what is going with NFTs, all the wash trading pushing price ups (source: https://blog.chainalysis.com/reports/2022-crypto-crime-repor...)

[beebmam]

Seeing cryptocurrencies grow so much over the last few years, it seems to me that without governance over cryptocurrency transactions, cryptocurrencies tend to incentivize scams and black market trading, and they tend to function as speculation/gambling schemes. "Shilling" is common among everyone I know that has purchased cryptocurrencies, and many of them have been ruining friendships over it.

I used to be more optimistic, but I can't help but see cryptocurrencies as a strong negative on society now.

It's pretty wild cryptocurrencies are still legal in many parts of the world.

[sho_hn]

It was Charles Stross, I believe, who once described Bitcoin as an enormous social experiment educating hackers on the historical needs for financial regulation.

[jjoonathan]

Sure, but let's not pretend like bank regulations are perfect.

Micro: Right this second, one of my checking accounts at a "reputable" institution (efirstbank.com) is blocked from ACH transfers until April due to hitting an inactivity threshold they refuse to elaborate on. The only way I can move money out is by paying $50 per wire.

Macro: the BTC coinbase says it all: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"

[toomuchtodo]

> Micro: Right this second, one of my checking accounts at a "reputable" institution (efirstbank.com) is blocked from ACH transfers until April due to hitting an inactivity threshold they refuse to elaborate on. The only way I can move money out is by paying $50 per wire.

https://www.federalreserve.gov/faqs/credit_12666.htm

https://www.consumerfinance.gov/complaint/

https://www.helpwithmybank.gov/file-a-complaint/index-file-a...

You have some recourse with regulators when dealing with fiat banking systems. You have zero recourse when dealing with crypto losses (unless you’ve lost enough that a criminal prosecutor makes it their problem and you can convince them it’s worth their time).

[beebmam]

Very good point. Democracy can govern banks. Democracy cannot govern cryptocurrencies. That is both why it is hated and loved by different groups of people.

[rtpg]

"Banks get bailed out" seems to be a feature for stability of systems (counterargument: "Let all the banks fail" would have been helpful for what part of society?)

There is of course the very legitimate argument of bailing out homeowners (banks still get their money and people get to actually be in houses), but letting the pieces fall where they may is extreme orthodoxy when the real world is at stake. And of course the crypto ecosystem has shown this pragmatism so many times now when basically forking off to other things to reverse unwanted transactions.

[rawtxapp]

Yeah, let's privatize the gains and socialize the losses because the banks are too big to fail. What a great system! But hey, at least it's stable.

[rtpg]

Didn't say we should privatize the gains. I just don't think that it's useful to tear down a bunch of infrastructure on principle. I would not have minded just nationalizing as much as would have been needed either. And of course bailing out a bunch of homeowners would be extremely ideal.

Gov't intervention when systems are falling apart are not a bad thing (well, at least when they actually do helpful things).

[ABeeSea]

The bank bailouts were ultimately profitable for the US government. Banks paid back the loans with interest.

https://money.cnn.com/2014/12/19/news/companies/government-b...

[Sebguer]

How is the bank bailout materially different than the Eth fork?

[kritiko]

The ACH thing sounds annoying, but your money is not at risk.

I think the more concerning thing I have seen is banks deciding that they no longer want to do business with you with no appeals process or recourse as to why your account was flagged.

[dralley]

Bitcoin does not replace banks. People and business still need loans, they still want to invest money and have money invested with them. Crypto doesn't solve that problem.

The 2008 collapse had nothing to do with ACH or any of the aspects which crypto has a plausible case for improving.

[BLKNSLVR]

My understanding is that (one of) the point(s) of Bitcoin was to de-centralise the control of the currency so that "banks getting a bailout" isn't possible since the currency control of Bitcoin doesn't allow printing it out of thin air for handing out to the businesses that caused the crash that seemingly necessitated the bailout.

Secondly to that, I find it amusing that the cause of the GFC (amongst numerous other large-scale issues) is both poor regulation and ineffective enforcement of an industry that's over a century old. Proving, basically, that the regulation of cryptocurrency is a pure talk-fest (or that any US regulation is a pure talk-fest). It will result in the honest folks doing the right thing and getting screwed in the process whilst the dishonest still do the bad things because the US' will to enforce regulation is weak.

[ohgodplsno]

A few years later, the TheDAO hack happens, and Vitalik and friends pretty much force a fork on the network by spamming FUD and threatening to stop the entire thing because they're losing too much money and they're too big to fail.

Totally different from banks: it's no longer the government deciding to bail them out, it's straight up the bank printing the currency telling people to bail them out or their currency becomes worthless.

[jollybean]

" so that "banks getting a bailout" isn't possible since the currency control of Bitcoin doesn't allow printing it out of thin air for"

?

What part of 'the economy would crash and burn' do people not understand?

The banks would have gone down like dominoes and taken the entire system with it. This isn't 'fear mongering' it's basically just math, you can see how the system is connected and what will happen.

That's what happens when systems are tightly intertwined. We could entirely firewall them, but then they wouldn't be remotely as efficient.

The fallacy of 'Hard Currency' is that people think we can avoid these problems with some extant construct, like 'Gold' or 'Digital Proof' but that doesn't solve the problem at all.

Economies are integrated systems that have to be regulated as best we can there is just no way around it.

'Hard Currency' is an 'instinct' that develops into an ideology that just doesn't hold up.

Far from 'weakly enforced regulations' most Western nations have very well and strongly enforced regulatory regimes. There are rules upon rules about what is allowed and what is not.

Securities Regulation are maybe a bit iffy, particularly insider trading, but that's only one thing.

The only way to avoid the problems we saw in 2008 would be to have more effective regulation of the parts of that system that failed, crypto won't save us there.

Finally, the banks were bailed out mostly with loans which they paid back, not free money. If there was a big funny business bailout, it was the mortgages that the Fed accepted as collateral at face value, which was more or less a bailout of homeowners, related to the fact the issue was with homes, not so much currency.

[ajross]

> Right this second, one of my checking accounts at a "reputable" institution (efirstbank.com) is blocked from ACH transfers until April due to hitting an inactivity threshold they refuse to elaborate on. The only way I can move money out is by paying $50 per wire.

You can't... write a check? It's right there in the name.

[pjc50]

Just because the US has terrible consumer protection doesn't mean you need to build a worse system with no consumer protection at all.

[weq]

My GF attempted to transfer money to a CEX that was verified and her money was frozen abritartly for 3months by her "bank" until they "investigated it thouroughly".

Banks are nice until they arnt. Crypto is a wild west but its the future of investments. The older traders will die out, those who had the money and the advantage will be replaced like the older bootleggers turned into multi-nationals.

[DonHopkins]

Somehow I suspect there are details to this convenient anecdote that you're not telling us...

[ABeeSea]

TARP was profitable for the US government. The “bailout” loans were paid back with interest.

[JoachimS]

"Sure, but let's not pretend like bank regulations are perfect."

Nobody claimed that. And whataboutism is not a solution, right?

[latchkey]

Except that "financial regulation" doesn't seem to really stop much of anything in the traditional finance sector. How quickly we forget 2008 and the litany of other failures.

[tootie]

The 2007-8 crisis wasn't about the illicit movement of money. In fact financial regulation is what allowed us to detect and mitigate the business practices that lead to the crisis. The response was the massive QE that everyone feared would lead to terrible consequences yet instead it spurred a soft landing to what could have been 100x worse. There were no bread lines, no mass displacement, no political turmoil. You can't stop people from losing money on bad investments but you can prevent it from pulling the rest of the world down and that's what happened. That crisis should have everyone on their knees in awe at the Altar of Fiat Currency.

[kiba]

It didn't really fix Americans' fundamentally dysfunctional relationship with housing.

Now we live in an economy with asset inflation, and everyone's going "housing market is robust" as if that's a good thing.

Sure, it doesn't 'hurt', but we're leaving huge amount of money on the table.

[tootie]

90% of the reason for that is fiscal policy, not monetary. Neither the Fed nor Satoshi can make houses get built faster.

[spopejoy]

Nah, but nice job whitewashing QE as anything but a massive upward wealth redistribution.

Instead, the bad CDOs and CDSs could have just been unwound one by one with investment banks eating the losses and a lot of rich people becoming poor. Sure some _actual_ banks might have needed a holiday or two but instead we got TARP and QE.

[sho_hn]

Isn't that a whataboutism?

[latchkey]

"the technique or practice of responding to an accusation or difficult question by making a counteraccusation or raising a different issue."

I didn't raise a different issue or make an accusation.

I do agree that history plays an important part in the future, but the assumption that 'hackers' are not versed in history, seems awkward at best.

Never mind that a lot of the people building DeFi and writing the contracts today, have traditional finance backgrounds.

[sho_hn]

What I meant is: The crypto space lacking regulation doesn't imply a claim that other currency systems don't also lack regulation in some form, nor that regulation is necessarily effective in either case. Stross didn't say regulation is perfect, he said it arose for a reason.

Stross' original statement is about regulation of traditional systems having historic drivers the crypto community had yet to re-discover, in his opinion, either in terms of broad awareness or appreciation. Challenging that would be fine (and interesting); saying "so what if it's bad? this other thing is also bad", though ...

FWIW, I think he's both right and wrong. I think there was a subset of the crypto community (and it likely strongly correlates with the productive one) aware of and actively rejecting a lot of history, but also a larger majority swept up in the hype without awareness of that information.

[jbkiv]

Agree. Very hard for regulators (=protect the consumer) to keep up with it. I compare that to the massive fires we have in California, so big that only the rain coming in November saves the bacon.

[rawtxapp]

Not having a central single governance is the whole point of the exercise, it's a trustless system driven by mathematical rules and decentralized consensus. You can't stop a transaction, you can't kick anyone out (good or bad), the rules can only be changed by decentralized consensus and certain rules are pretty much guaranteed to not change (for example, any Bitcoin chain that has more than 21M Bitcoin issued wouldn't be called BTC, it would be treated like a fork, etc).

> It's pretty wild cryptocurrencies are still legal in many parts of the world.

I think there's a few reasons for that, one is, it actually makes money (ex: Coinbase generating billions, tax money generated from all the capital gains, electricity paid for by miners, etc), capitalist systems won't ban money making machines. It's also impossible to ban, you can ban on/off-ramps, you can't ban Bitcoin from running and transacting, by banning on/off-ramps, you'd lose any visibility into what's actually happening on the pseudonymous network. And last but not least, if this ends up being the next big thing, nobody would want to be left behind, so there's some game theory mechanics as well.

[8note]

If you consider Dan Olsen's argument, the scams are built in to ensure that the crypto founders have liquidity to cash out with. You're not going to win trying to fight against what the whole system is designed to do.

[danielvf]

If anyone wants to see an example of a company that is currently doing well at crypto insurance https://app.nexusmutual.io/cover

[TylerE]

Why are they any more trustworthy than your typical crypto company? (i.e. not at all)

They don't have a list of board members/investors or a mailing address anywhere that I can find

[jbkiv]

Got it, the trust level is pretty low when you the very basic due diligence.

I think Nexus Lexus is legit. They had to in order to get UK clearance. But I understand that they want to demutualize now and become a DAO. DAO is the gold standard for no corporate oversight.

Fake profiles on Twitter and Linkedin. Thousand of fake followers. Incorporated in banana countries. And if they are incorporated at all. If the plan is a rug pull, then bypass incorporation, of course.

[dralley]

Even if they were a "normal" company, trust level ought to be low by default by virtue of their name being a fairly obvious ripoff of a well known lawtech and risk analysis company.

https://www.lexisnexis.com/en-us/gateway.page

[phphphphp]

I know nothing about the company but I do know about UK company law. A UK company is very easy to open, there's no oversight, you declare the truthfulness of your statements and that's it: it takes about 10 minutes, you could have a UK company by the end of today. The directors of the company in question are not British, so even in the worst case scenario where they break the law and are pursued, they can just skip the country and face no real recourse.

There are some opportunities that can be a meaningful demonstration of credibility, like registration with the FCA, but I don't see any evidence of that for this company. I would consider their incorporation (as a cic, not a for-profit company) meaningless in determining if they're credible.

[danielvf]

From the link on the home page for the "notice of general meeting" for Nexus Mutual Ltd, the directors are:

KARP, Hugh DANILA, Ionela Roxana MELBARDIS, Reinis MUNOZ-MCDONALD, Nicolas THURGOOD, Graeme George

This matches the company and director information registered in the UK since 2017. Company mailing address is here as well:

https://find-and-update.company-information.service.gov.uk/c...

[robjan]

The office address in that link is just a virtual office.

[vmception]

because you can get claims approved pretty fast after making cheap policies for specific protocols and transactions. consensus on unexpected behavior of a smart contract is pretty quick. the insurance pool is filled by the risk tolerance of people wanted that form of passive income.

If it doesn’t function as intended then complain about that and launch a competitor.

[tkfu]

That's a completely nonsensical answer to the question that was asked. It's frigging insurance--the whole damn point of buying insurance is to offload risk.

Insurance where you can't be certain the company will be around (or actually pay out) when the shit hits the fan is completely useless as insurance, and it's either naïve or disingenuous to suggest that the solution to that is to "complain". And suggesting launching a competitor is just an extra special kind of stupid: if you have enough capital to start an insurance company, you're obviously not in the market for buying insurance.

[vmception]

In this model the protocols are often community funded and there is sentiment for more competitors. Just copy the same model and tweak a small variable.

Its not the same as the highly capitalized opaque insurance company you need to be skeptical about, the analogy from a lived experience almost doesnt work at all. it does have the function of derisking things though.

So it exists, I know it exists, you dont know it exists, I’m not the encyclopedia of the specific nuances of each protocol, so go check it out

[tkfu]

The basic argument you seem to be making is "This exists, and there is self-evidently a market for it, therefore it must be good. (Or, if it isn't good, tweaking some parameters could make it good.)" That's a bad way to evaluate the risk of something so new, in a market that is so volatile. People get suckered into buying bad insurance all the time, even in highly regulated markets.

But anyway, I went ahead and checked out the white paper of nexus mutual [1], because I was curious. It appears to have a serious amount of hand-waving on one of the most important topics: the risk correlation between offered insurance products. They do reference the correlation matrix, but the only mention of how the value of the matrix is determined is to say that if independence between cells can be assumed, the math is very simple. Doing a quick search through their website and code, it looks like they are indeed just assuming that products aren't correlated, instead of trying to estimate real correlation values. This means that their minimum capital requirements (and thus the implied risk of default) are incorrectly calculated if that assumption is violated--which it certainly is.

This seems to be by design, and baked into the incentive structure of the whole concept. There's just no practical way to crowdsource proper correlation evaluation and adjustment, and the economics stop being remotely competitive if you just guess at correlations and treat it as another risk to be hedged. You can see this later on in the white paper (appendix A), where they point out that the economic viability of the project depends on lowered labour costs because product creation, assessment, and policy issuance are crowdsourced or automated. Their game theory/tokenomics are focused on providing incentives for individual products to price risk accurately, however: they do not propose any mechanism for adjusting or calculating MCR based on correlation risk when new products/coverage are offered. This is further evidence that they're just assuming independence without any real justification, and thus being chronically undercapitalized.

[1] https://nexusmutual.io/assets/docs/nmx_white_paperv2_3.pdf

[throwhauser]

How many claims have they paid out?

[vmception]

I don’t know.

I know of dozens of high profile hacks over the last year that left entire communities scrambling where some members and users had previously opened policies on one of the various insurance protocols and got paid out the same day as the hack. They were often recipients of the recovery path the communities took too.

There is more than just Nexus Mutual. You can ask in their respective communities if they have stats on that, or perhaps run a query on dune analytics to see what actions their associated smart contracts have taken, isolate a claim payout and tell the query to count

What I envision is the insurance choices being shown at the wallet level or opening policies is concatenated in other coverable smart contract transactions.

[latchkey]

LMGTFY...

https://www.yahoo.com/now/defi-insurer-nexus-mutual-balks-08...

https://twitter.com/NexusMutual/status/1460313218430210058

https://medium.com/nexus-mutual/paying-claims-for-the-yearn-...

[danielvf]

You can see on this page on their site:

https://app.nexusmutual.io/claim-assessment

[jbkiv]

Nexus Mtual and others focus on smart contracts on a protocol, rug pulls, and de-pegging risk Our target: consumers buying and selling NFTs and crypto. When we launch I'll scared to death 24/7.

[thelibrarian]

I think you would have less risk if you were selling life insurance policies to Soviet soldiers in Stalingrad in 1942.

[sofixa]

Or even a German or Romanian soldier in Stalingrad in 1943.

[jbkiv]

Agree.

[vmception]

a backer? have you seen the other insurance products in crypto? theyre pretty good and community funded

[jbkiv]

Agree, lots of options. Nexus Mtual and others focus on smart contracts on a protocol, rug pulls, and de-pegging risk. Our target: consumers buying and selling NFTs and crypto. As I said when we launch I'll be scared to death 24/7.

[vmception]

Well hope the upside is way better for you to offset that fear

[netheril96]

Why does your insurance have to cover all aspects and all cases? It can be as simple as insuring BTC storage only. No involvement of smart contracts or NFTs.

[not2b]

Insurance has to be able to pay out if all the shit hits the fan at the same time (like in 2008) or it is worthless. That takes a hell of a lot of capital.