Designing a marketplace for crypto asset risk

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Insight
Henry Gale

Nayms, founded in 2019, is a regulated insurance marketplace powered by smart contracts on a blockchain. It is designed to provide cover for crypto-related risk. We spoke to Co-founder and CEO Dan Roberts to find out more.

Background

The cryptocurrency market has grown monumentally in the last few years, which has opened a large insurance protection gap. Few coverage options are available for the market and capacity is low.

This is caused, in part, by the pricing problem cryptocurrency coverage creates. If an insurance company underwrites Bitcoin risk, for example, but only holds capital in dollars, its exposure to risk changes when Bitcoin’s value changes relative to the dollar.

Either the insurer’s capital will be underexposed, or the insured will be insufficiently protected. This severely limits the ability of insurance companies to provide coverage for cryptocurrencies.

Business proposition

Nayms’ marketplace seeks to apply the traditional insurance model in a native solution for blockchain and cryptocurrency. It is starting with coverage for digital assets, but it is planning to allow more types of coverage, both crypto-related and non-crypto-related, on its platform.

Co-founder and CEO Dan Roberts is a serial entrepreneur with experience in blockchain technology. During a project investigating the applications of blockchain to insurance at Insurtech Gateway, he considered how to solve the problems of cryptocurrency coverage and was inspired to start Nayms.

Nayms runs on ‘Smart Insurance Contracts’. Brokers place contracts on the Nayms platform and institutional investors provide coverage by providing collateral, i.e. the funds, for the contracts in return for a yield.

Contracts are collateralised with the currency in which the risk is denominated. Bitcoin capital is used for Bitcoin risk, Ether capital for Ether risk, and for risk in US dollars, ‘stablecoins’ tied to the dollar are used as capital.

Underwriters can allocate capital to Smart Insurance Contracts, with Bermudian specialist insurer Relm Insurance working with Nayms on its pilot. Nayms is also interested in bringing other underwriters onto its platform as fronting underwriters for the capital provided by investors.

Activity and partnerships

Nayms secured $2.1 million in seed funding in January 2021, before announcing $6 million of new investment in June. Its investors include Coinbase Ventures, CEO of Kin Insurance Sean Harper and Insurtech Gateway, which incubated Nayms.

The investors are supporting the launch of Naym’s native crypto token, NAYM. The launch programme is to be announced later in 2021.

Nayms is piloting its platform with Aon, Relm and Teller Finance, a decentralised network for lending. Other insurance partners include Coincover, SafetyWing and Digital Risks.

Context

Insurance for crypto assets is still in its early stages. Despite the large protection gap, mainstream insurers have been reluctant to offer coverage. As I explain in two recent articles, demand is growing for insurance solutions in the cryptocurrency space – whether that’s insurance for NFTs or using Bitcoin for premium or claims payments.

Startups such as Nayms have emerged to fill the gap with solutions native to blockchain. We’ll follow Dan and his team as they plan the platform’s launch. For more information on Nayms, go to nayms.io.

At InsTech London, we’re speaking to the companies innovating with blockchain, cryptocurrency and insurance. Sign up below to follow our insights into cryptocurrencies and blockchain. If you’re innovating in this area or would like to know more, you can also reach out to Henry Gale on LinkedIn.

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