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

It wasn’t an argument, it was acknowledgement. I would consider to both open a policy in defi insurance protocols including Nexus mutual, or consider to provide capital to the insurance pool for passive income or simply trade the associated token. But that’s because all 3 may periodically fit my personal risk profile. This post only acknowledges that they exist and work and are options that require evaluating differently than a traditional insurance company. I don’t care thaat much about how they currently function or your own personal risk tolerance. I’m fine with them blowing up on occasion or permanently, I expect it to happen and for more resilient ones to exist in their place.

You’ll be better off asking around in their community or using the product to see what the current state is, usually they diverge far from the white paper such that analyzing it that was is a waste of energy. Sorry about your dissertation. You can branch the chain onto localhost to prod at it if you don’t want to spend any money.