COVER · HOW IT WORKS

How a cover works

From the asset to the question of whether anything is paid

The path from front to back

Five steps, in this order. Most misunderstandings come from somebody joining at step four.

The asset. Tokens at a particular address, on a particular blockchain. Not “my crypto” but a quantifiable holding at a nameable place.

The use. That holding sits in a protocol, is lent, deposited or locked. Only that creates the risks in question.

The cover. A product that covers a described event for a period. You buy it beforehand. There is no retrospective purchase.

The event. Something happens. Whether it is the event is decided not by the loss on the balance but by the definition in the wording.

The claim. The notification, the assessment, the decision. This is where it shows what the product is actually worth - and not before.

THE FOUR CONDITIONS

Sum insured	An upper limit, not a promise. Covering 50,000 euros does not get you 50,000 euros but at most that much. What is actually paid follows the loss proved - and under some models additionally how much capital there is for all those affected together.
Term	The period within which the event has to occur. Not the period in which the loss is noticed. With some risks those two points lie days apart - with bridge risk it was six in one documented case.
Covered event	The most important part, and the only one hardly anyone reads. It says what must have happened: which contract, what kind of operation, from what amount, determined by whom. Every word in it is a condition.
Premium	What the cover costs. It says nothing about the likelihood of a payment. A low premium can mean the risk is judged small - or that the covered event is narrowly drawn.

Almost always the same four questions, in this order. If one fails, the rest are never reached.

Was the cover in force at the time of the event? Date against term. This question is pure arithmetic and is asked first.
Is what happened the covered event? Here the wording is held against the sequence. With governance risk that is exactly the hard point, because everything ran according to the rules.
Does an exclusion apply? Exclusions are checked even where the event clearly fits. They are rarely under the heading you would expect.
How large is the loss? It is as a rule proved onchain: which address held how much, before and after.

Nexus Mutual

One provider as an example: which model is behind it, who carries the risk and how a claim is decided.
The risks

Seven risks, each with the questions a wording has to answer about it.