Crypto-native insurance service Nexus Mutual reimbursed its customers who had lost money in the recent Arcadia Finance hack.
According to a Monday announcement shared with Cointelegraph, Nexus Mutual reimbursed approximately $250,000 to users who lost funds in the Arcadia Finance hack. The protocol was hacked in mid-July for $3.5 million in USDC (USDC) and USDS on the Base blockchain, with stolen assets swapped to Wrapped Ether (WETH).
The attackers siphoned funds directly from user accounts. Arcadia users who lost funds started filing claims on July 29 after a 14-day cooldown. In partnership with OpenCover, a base-based coverage seller, Nexus Mutual has provided $250,000 in reimbursements to date.
“Zero risk does not exist offchain, nor will it exist onchain,” said OpenCover CEO Jeremiah Smith. He added that decentralized finance (DeFi) insurance drastically changes the status of the industry:
“The Arcadia payouts are not only about making impacted users whole, they are proof that DeFi is ready.”
Related: DeFi and the importance of insurance protocols — Interview with Neptune Mutual
Onchain insurance model accelerates payouts
Nexus Mutual maintains a transparent claims history and enables its verification onchain. Since its inception in 2020, the service has reportedly paid $18,256,181 worth of claims to its users.
Claims paid per year. Source: Nexus Mutual
Unlike traditional insurers, which often take months to resolve claims, Nexus Mutual says most valid claims are paid within seven days, thanks to the transparency and verifiability of blockchain data.
“Too many people have had a bad experience with the traditional insurance claims process, and we’re here to show that there is a better way,” said Hugh Karp, CEO of Nexus Mutual.
Related: Meanwhile raises $40M to bring BTC life insurance to inflation-prone economies
Smart contract risk still looms
While DeFi eliminates risks related to custodial intermediaries, it introduces new vulnerabilities in the form of complex smart contracts, often with significant attack surfaces. Due to the complexity of onchain systems, it is much easier for critical vulnerabilities to go unnoticed until it is too late.
One recent example is the hack of the SuperRare (RARE) token staking contract, which occurred at the end of July and resulted in the theft of approximately $731,000 worth of RARE tokens. Cointelegraph analysis revealed a vulnerability in the smart contract — a botched access control check — allowed anyone to modify the in-contract balances of users.
According to the Nexus Mutual announcement, the Arcadia exploit highlights “the inherent risks associated with decentralized finance.” Still, investors can now leverage insurance to mitigate such risks, which the company claims makes the space more accessible:
“Nexus Mutual provides extensive coverage against smart contract exploits and related risks, enabling forward-thinking institutions and sophisticated investors to confidently allocate capital within the DeFi landscape.“
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