Is ‘Shield Farming’ the Next Step for DeFi Insurance?

The newest yield farming incentive and staking system in the world of DeFi is coming from crypto-insurance provider Nexus Mutual. Shield mining, as it has been termed, could encourage the purchasing of smart contract covers. Currently, staking rewards for the insurance provider’s native NXM token can be burnt if there is a successful claim on the system. However, 50% of every cover purchase price is distributed proportionally among the stakers as a reward.

DeFi ‘Shield Mining’ More Rewarding

A new system of shield mining would allow stakers to be rewarded in the tokens of the partner project, starting with a tokenized version of Bitcoin called tBTC. Nuggets News CEO, Alex Saunders, praised the project stating that it “creates tangible value for the entire Ethereum ecosystem by incentivizing greater smart contract cover for protocols.”

Forget #YIELDFARMING

SHIELD FARMING creates tangible value for the entire @ethereum ecosystem by incentivising greater smart contract cover for protocols. @keep_project is the 1st to do this on @NexusMutual.

250% APY paid in $NXM & $KEEP! 🛡️📝🚜 $tBTChttps://t.co/jsj7PPHV6C

— Alex Saunders 🇦🇺👨‍🔬 (@AlexSaundersAU) September 30, 2020

According to the blog post announcing the new incentive, NXM holders that stake to provide cover for tBTC minters will be rewarded with another token called KEEP at a rate of two for every one staked. Rewards are distributed weekly until the total supply of 750,000 KEEP has been dished out. The tBTC protocol, built by Thesis, works on both the Bitcoin and Ethereum blockchains. Users can lock up Bitcoin so that nodes in the Keep network can mint tBTC. Unlike wrapped Bitcoin (wBTC), which has BitGo serving as custodian, tBTC is trustless and operates through smart contracts on the Keep network which are now insured by Nexus Mutual. The insurance provider has opened up the program to any other project that wishes to participate in what appears to be a mutually beneficial symbiosis.

Token Price Reaction

Nexus Mutual tokens have seen little reaction on the day, trading marginally down at $38 according to Coingecko. Over the past 30 days, however, NXM prices have fallen substantially, down 48% to current levels. The all-time high for NXM was on Sept. 1 when the token topped $75. Prices for KEEP have also fallen. down 6% on the day to $0.80. It has shown a minor retreat on the month and is down 86% from its price spike peak of $6.10 in May 2020. It should be noted that DeFi tokens across the board are still correcting from their massive price surges over the past few months.