Wrapped NXM (WNXM) is an ERC-20 token on the Ethereum blockchain that represents Nexus Mutual’s native NXM token. It allows the otherwise non-transferrable NXM to become liquid, tradable, and compatible with decentralized finance protocols. Let’s explore what powers WNXM and its use cases.
Overview of Wrapped NXM
Wrapped NXM was launched in 2020 through a partnership between Nexus Mutual and protocol developer 1inch.
Some key facts about WNXM include:
- Each WNXM is backed 1:1 by Nexus Mutual’s NXM utility token.
- It is pegged to NXM and follows the same value.
- WNXM is minted when NXM is deposited into the wrapping contract.
- WNXM enables liquidity for NXM and DeFi composability.
- The total supply dynamically adjusts based on NXM deposits.
By representing NXM on Ethereum, WNXM unlocks new opportunities for the token.
What is Nexus Mutual?
To understand WNXM, it helps to examine Nexus Mutual, the project behind the native NXM token.
In short, Nexus Mutual is a decentralized insurance protocol that lets people pool risk together into smart contract-based mutuals. Members contribute to claim payout pools and vote on governance.
NXM is the native token that powers Nexus Mutual. It is used for staking, governance, and covering claims. However, NXM itself is non-transferrable to ensure alignment of incentives.
This is where WNXM comes in — it basically represents the liquid value of staked NXM in a freely tradable form.
Minting and Redeeming WNXM
The WNXM wrapping process works as follows:
- Users deposit NXM tokens into the WNXM smart contract.
- For each NXM deposited, 1 WNXM is minted. This locks up the staked NXM.
- WNXM can then be freely traded, lent, or used across DeFi apps.
- To redeem, WNXM is burned to unlock the underlying NXM.
This two-way convertibility between NXM and WNXM is the key mechanic enabling liquidity for NXM holders.
Use Cases for Wrapped NXM
Wrapped NXM unlocks several new use cases for NXM holders including:
- Providing WNXM as liquidity on decentralized exchanges for earning fees.
- Using WNXM as collateral for lending or leveraged trading.
- Staking WNXM in yield farms to earn interest and rewards.
- Allowing portfolio apps to seamlessly track NXM value.
- Sending to other users easily like any ERC-20 token.
These applications are impossible with non-transferrable base NXM. WNXM bridges this gap.
WNXM Supply Mechanics
Since WNXM is minted when NXM gets deposited, the WNXM total supply dynamically adjusts based on market demand.
If more NXM holders wish to access DeFi or liquidity, more WNXM gets created. If they redeem back to NXM, WNXM supply declines.
This elastic nature ensures WNXM does not distort the original NXM use cases or circulate excess tokens. The value remains pegged to NXM.
In summary, Wrapped NXM fulfills the important role of making Nexus Mutual’s NXM interoperable with the Ethereum DeFi ecosystem. This bolsters NXM’s composability and unlocks new use cases.
Given the continued growth in decentralized insurance and DeFi applications, WNXM appears well positioned to see increasing adoption and utility going forward. Its elegant minting/redemption mechanics provide the right incentive alignments between NXM and WNXM as well.