Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.
TL;DR
Introduction
Over the last few posts, we have highlighted how blockchain projects are increasingly crossing over into the ‘real world’ and providing clear, significant value by helping address acute problems facing various tech industries broadly. (Nb: internet native value transfer platforms are inherently valuable and solve real-world digital problems, but we’re just focusing on the narrow blockchain-applied-to-existing-industries topic in this post).
This post will double click on an example of how blockchain technology is being implemented to transform an historically illiquid asset class, insurance, into a fully tokenized and 24/7 tradeable investment product while also leveraging the efficiency of decentralized capital formation to fund its programs.
Nayms – the blockchain enabled “Lloyds of London”
At the highest level, through its blockchain stack, Nayms provides the legal, regulatory and technical infrastructure to enable insurance providers to build on-chain balance sheets and investors to allocate to insurance as a fully liquid, actuarially priced asset class. Nayms is fully licensed and regulated Segregated Account Company (SAC) in Bermuda and is one of just 3 companies that holds both the full Digital Asset Business Act License and the Innovative General Business Insurance license in the country. Bermuda is one of the top jurisdictions for re/insurance globally.
Policies offered through the marketplace are primarily P&C coverages (primary, reinsurance, captive, ILWs, etc.). In 2023, Nayms issued the world’s first crypto-denominated (USDC) ILW policy, covering US named windstorm damage and purchased by Prospero Re. Nayms has assurance professionals on the team with 20+ years experience underwriting policies. They also have an oversight committee in place that reviews all programs on the platform and oversees other commercial activities.
There are essentially 4 entities that engage on the platform:
As in traditional marketplaces, insurance brokers sell policies through the Nayms market. Surplus distributions are paid to the Participation Token holders of that specific program - the institutional investors and the Nayms Liquidity Facility (NLF – more on this later). Participation Tokens are issued specifically for each program on the marketplace. Program sponsors are traditionally licensed and regulated insurance companies, simply just utilizing Nayms’ tech stack.
Nayms, with the support of program sponsors, is responsible for determining when the account is in surplus and thus when distributions should be made to P-Token holders. Payments are made pro rata to holders of the respective P-Tokens.
All investors will need to be KYC’d to buy directly from the NLF and Participation Tokens (program-specific investments) are open to institutional investors only. P-Tokens will never be tradable on secondary markets outside of the Nayms platform, whereas the NLF-governing token NAYM will be freely tradeable across any digital asset venue.
On Nayms, target ROI for programs are roughly 10-15% on an actuarially risk-adjusted basis.
The Blockchain Value-Add: P-Tokens and the NLF
Up to this point, this should largely sound like a traditional insurance marketplace, with perhaps the exception of P-Tokens and the NLF. That is precisely the point – Nayms is primarily incorporating the benefits of an internet value transfer platform directly into its marketplace to provide a better, more streamlined way of facilitating all aspects of traditional insurance transactions.
However, Nayms also extends the possibilities of its marketplace by leveraging tokenization and decentralized finance in two powerful ways, 1) through the use of P-Tokens as fully liquid tokenized insurance risk, and 2) through the provision of capital from the Nayms Liquidity Facility.
P-Tokens as an alternative capital source
One of the major hurdles that insurance companies face in growing their business is that capital is tied up as policies are written.
Essentially, P-Tokens act as another venue for insurance companies to access additional statutory capital to grow. Up until this point, however, similar funding arrangements have been entirely illiquid. P-Tokens now allow investors to reallocate that risk to other institutions on secondary markets. This is only possible to do on liquid secondary markets if everything else related to the programs and payments is publicly accessible and viewable onchain - a unique unlock provided by the blockchain-based stack.
P-Tokens are uniquely issued by each specific insurance program on Nayms and represent the pro rata exposure an investor has in that specific program. Any distributions paid out by the program are divided in proportion to the token holdings.
The Nayms Liquidity Facility and USDM – bringing DeFi to insurance
The NLF represents the most ‘decentralized finance’-y aspect of the Nayms platform. Here, KYC’d participants can buy the NAYM token directly from the NLF pool in exchange for e.g. USDC or USDM. In return for using the NAYM token to engage in governance of the pool through staking, participants receive pro rata shares of yield that accrues to the NLF. With the USDC and USDM capital paid into the pool, the NLF acquires P-Tokens from the various programs on the platform, in essence building an investable, diversified insurance index providing exposure to a range of P&C programs. The majority of the yield that accrues to the NLF is passed through to stakers actively participating in governance, and the remainder retained to grow the capital pool.
NAYM tokens purchased from the NLF directly cannot be redeemed back, removing any potential for capital drain on the pool. Further, the pool will never hold less than 20% in NAYM tokens, simultaneously ensuring a long-term way to draw additional liquidity and provide a backstop to the token value. The tokens are fully tradeable on secondary markets to any investors, providing retail and institutions alike with access to actuarially risk adjusted yield opportunities in DeFi (programs target 10-15% yields), a highly unique return proposition.
Collateral held in smart contracts can be in a range of digital assets (e.g. ETH, wBTC), or stablecoins such as USDC or USDM, the latter of which introduces another unique aspect of DeFi to the protocol. USDM is a USD-pegged stablecoin regulated by the Bermuda Monetary Authority, holding a Digital Asset Business license (#202302512) since 2023. What sets USDM apart is that it essentially provides tokenized US treasuries exposure to the holder, yielding ~5% at current rates. USDM has been approved to be used as balance sheet collateral by insurance providers in Bermuda. As such, any of the programs on Nayms as well as any passive capital in the NLF denominated in USDM accrues an additional ~5% for the respective entities.
Nayms is live on Ethereum and Base and recently agreed to a deal with NEAR to bring crypto-specific coverage for apps and companies building in the ecosystem. Nayms' infrastructure is tightly entwined with Coinbase (CB Ventures is an early investor), using their wallets and institutional custody stack for the platform.
Conclusion
Nayms is an innovative approach to introducing blockchain and decentralized finance to insurance in a regulated and compliant way. The team has attracted strong capital and policy demand commitments from top insurance companies around the world and has built a novel tech stack that is well poised to bring traditional insurance marketplaces into the digital future. Ultimately, the success of Nayms will come down to its ability to attract sufficient capital and sell sponsors to put that capital to use, but if successful, the addressable market for Nayms is measured in the trillions.
Nayms remains a private company, but the token generation event and public trading of NAYM is expected in the coming months.
Thank you to the Nayms team for reviewing for factual accuracy.
MEV (Maximum Extractable Value) is the value captured by third parties on blockchain networks
