Bering Waters Ventures presents its investment thesis in Armor.fi, a decentralized brokerage and aggregator for cover underwritten by Nexus Mutual’s blockchain-based insurance.
Users of Decentralized Finance (DeFi) protocols face an unprecedented risk of attack from hackers exploiting the open-source protocols used to exchange value. These attacks have become more prevalent over the past year as the number of funds locked in DeFi has increased. Insurance against these attacks has become a critical piece of the DeFi infrastructure and insurers have often found themselves in a situation where they do not have sufficient liquidity¹ to underwrite the growing demand in policies.
The DeFi cover market is still early in its evolution, and there are naturally some limitations around the offerings which are provided today by cover providers. Having observed these limitations in this nascent market, Armor.fi has built a decentralized platform to solve some of the key challenges that exist today. Version 1 of the platform was launched by Armor.fi in February this year, followed by more products and refinements in the months thereafter.
There are three key challenges that Armor.fi is seeking to solve in the DeFi cover market:
- The lack of flexibility to cover dynamic portfolios
- The challenge of obtaining cover in an increasingly fragmented market
- The lack of permissionless DeFi cover
The lack of flexibility of cover policies is a key pain point for DeFi cover policyholders today. The coverage contracts tend to have a fixed term and amount of coverage that cannot be altered by the insured parties. As a result, the policyholders end up paying for coverage they do not need, which over time decreases the profitability of their trades. Armor offers “Pay-As-You-Grow” options, so investors have flexibility on the cover as they buy and sell assets.
New cover providers are entering the DeFi market. While this is beneficial to the industry by increasing choice and driving down the price through competition, it does increase the workload of those seeking cover as they need to survey an ever-expanding set of offerings. In the world of traditional financial services (TradFi), brokers perform this service. In DeFi, this service had not been offered until Armor.fi entered the space.
Nexus DeFi cover requires that customers become members, but permissionless access to cover is preferred. Armor has created this permissionless layer.
Armor.fi attracts cover users by:
- Positioning itself as an aggregator for the cover market, whereby it can act as an insurance broker across multiple insurers
- Offering “Pay-As-You-Grow” coverage, flexible coverage whereby customers can dynamically cover the assets they own and only pay what they owe for the time they need the cover for
- Providing permissionless access to cover
Armor.fi’s Brokerage Model — Providing Flexibility To Customers Across Different Cover Providers
Armor.fi has positioned itself not as an insurer but an aggregator of pools of liquidity seeking to underwrite risk. While Armor.fi’s V1 product offering provides cover from a single provider — Nexus Mutual — Armor.fi intends to expand aggregate coverage options from a range of sources.
Through its marketplace, Armor.fi is able to provide greater flexibility to customers than the underwriters writing the cover policy. In this marketplace, Armor.fi has created a coverage pool where Liquidity Providers (LPs) that hold Nexus Mutual’s NXM token or the “wrapped” version (wNXM) can deposit these into the arNXM vault. Armor.fi then uses the underlying NXM tokens to ‘stake’ on a changing ‘bucket’ of DeFi protocols, opening up coverage capacity for end-users, while generating yield for the stakers.
When customers seek insurance, they can specify the protocol, the specific period of time, and the amount that they would like the insurance to cover. The customer pays the cover fee, wNXM tokens in the pool are then held against the underwritten risk and the user receives a proof-of-coverage token in the form of a Non-Fungible Token (NFT, in this case, called an ‘arNFT’) in return, which can be traded or transferred or staked for rewards in the arCore Smart Cover System. arCore is the “Pay-As-You-Grow” dynamic Cover system.
This service tracks customers’ exposure across multiple wallets and offers recommendations to the user with options to optimize their insurance coverage based on changes to the protocols used and their wallet balance.
The LPs staking their arNFTs underwriting the arCore system receive $ARMOR token rewards plus yield when their staked arNFTs are being re-sold through arCore as flexible cover. In this way, customers get the benefit from flexible insurance that covers them only when they need the insurance, and LPs have the opportunity of generating a yield on the tokens they hold.
A Growing Market
The DeFi insurance market clearly has a large market potential as evidenced by the rapid growth of the amount of funds that are locked up in DeFi protocols. It has also seen an increase in attacks. DeFi has grown to a market value of $76bn from under $1bn a year ago², while at the same time the amount lost in attacks in this space reached $100m³ last year, up from a near-negligible amount the year prior.
This created an unprecedented opportunity for investors who are prepared to put their funds to work covered by DeFi insurance but also for insurers that truly understand the needs of market participants.
A Long Term Thesis To Drive The Industry Forward
Insurance is a critical piece of the puzzle for DeFi to become sustainable in the long term. Bering Waters Ventures believes in the importance of foreseeing the future, with a portfolio of multi-year strategic investments in organizations that are seeking to create impactful long-term change to the evolving space of decentralized networks. Armor.fi is one part of the extensive ecosystem Bering Waters Ventures actively supports.
Bering Waters Group’s synergetic approach
Over the past three years, Bering Waters has provided services, solutions, and formulated partnerships across the three arms of Bering Waters Group in support of its portfolio companies to help them reach important milestones. While the Venture arm has invested in Armor.fi, Bering Waters OTC Desk has been appointed the official Investors Desk to handle the interest of institutions and strategic partners in $ARMOR secondary market opportunities as they arise. With years of experience in trading high volume of unreleased tokens, locked tokens, and liquid tokens listed on low-liquidity markets, Bering Waters OTC is uniquely positioned to seamlessly manage investors’ interest in acquiring blocks of vesting or transferable $ARMOR tokens.
About Bering Waters Ventures
Founded in 2019, Bering Waters Ventures is one of three businesses that form Bering Waters Group. The Venture arm focuses on research-heavy innovations in the blockchain and cryptocurrency space. It identifies and supports companies and entrepreneurs of various types and sizes, from undervalued projects to leaders in its sector. Its mission is to provide value to projects through its services and solutions offered across three companies of the Group and to leverage its extensive network of global investors in the areas of funding, market strategy, and development support.
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