Covered risks

Each Insured Vault is backed by an individual insurance or cover policy tailored to the specific risks of the underlying yield vault and desired claims triggers. The policy schedule, detailing the exact covered risks and cover terms for a given Insured Vault, is immutably stored on IPFS to provide complete transparency and auditability for users, integrators and claims assessors.

Covered risks (OpenCover x Nexus Mutual Vault Cover)

At present, all Insured Vault policies follow the new Vault Cover standard developed by the OpenCover and Nexus Mutual teams.

Vault Cover is a modular cover policy framework that protects end-users both against incidents in the underlying yield vault (including the associated strategies where applicable) as well as the Insured Vault smart contracts. This ensures end-to-end protection at every level of the risk stack.

Individual Insured Vault policies are deployed and dynamically capitalized on the Nexus Mutual protocol as a function of their TVL. This enables the entire risk transfer process to take place natively onchain providing unprecedented transparency, speed, and composability unmatchable by an offchain or hybrid approach.

In short, this approach makes it trivial for anyone to verify that a policy backing a given Insured Vault is always larger than or equal to the value it protects (Insured Vault TVL), as well as audit overall solvency parameters on Nexus Mutual, the leading risk underwriting protocol, proven over $5 billion of transferred risk and a public record of full payouts of all valid claims.

Covered smart contract risks

Flaws, misconfigurations and vulnerabilities in deployed smart contract code that allow the Insured Vault and/or associated underlying yield vault to be exploited or used in an unintended way, resulting in a loss of end-user funds, are covered.

Covered economic risks

Sudden and widespread economic events outside the normal operation of the Insured Vault and/or associated underlying yield vault, resulting in a loss of end-user funds, are covered. Specifically:

Oracle failure

Incorrect price feed data due to:

• Faulty oracle configuration

• Missing safeguards that allow unauthorized parties to update pricing

• Manually updated fixed-rate oracles where data is entered incorrectly

• Oracle failing to update prices after defined trigger conditions are met.

The error threshold for incorrect price feed is defined as greater than 1% for stablecoin pairs or 2.5% for other assets relative to the true market price.

Oracle manipulation

Deliberately corrupted price feed data due to:

• Liquidation failure where the mechanism responsible for liquidating unhealthy borrow positions fails to operate as intended, resulting in bad debt or undercollateralized loans. Covered scenarios include:

  • Keepers being unable to liquidate collateral backing unhealthy positions, causing socialized bad debt for lenders

  • Collateral being liquidated for less than 80% of its fair realizable market value, adjusted for prevailing market conditions.

Governance takeover

Malicious actor(s) seizing control of the underlying yield vault protocol's governance forcing through a malicious upgrade or parameter change.

See example policy and annex for the Morpho V2 Steakhouse High Yield Instant USDC Insured vault.