When a DeFi insurance protocol's minimum capital dips too low, new policies simply cannot be purchased. The protocol enforces a hard limit—the Minimum Capital Requirement (MCR). If the capital pool size falls below this line, the platform will directly shut the buy button for new coverage. This is a risk-control mechanism built into the protocol.
Nexus Mutual is the largest DeFi insurance protocol today, and its MCR logic is a good example. The MCR represents the minimum amount of funds the protocol believes it needs to be "very confident" it can pay all claims. The formula is:
MCR = Total Active Cover Amount / 4.8
So the more cover (policies) the protocol sells, the higher the minimum requirement for the capital pool becomes. This ratio (4.8) is currently fixed, meaning roughly 20.8% of the cover amount must be held as a minimum reserve.
What Restrictions Apply When the Capital Pool Falls Below the MCR?
Based on Nexus Mutual's historical rules, the MCR percentage (MCR%) acts as the master switch for the system's liquidity:
Redemption restrictions: When MCR% drops below 100% (i.e., pool size is less than the minimum capital requirement), members cannot redeem NXM tokens for ETH. This prevents the pool from shrinking further and ensures enough money is available to pay existing policyholders.
Purchase restrictions: Historically, when MCR% exceeded 400%, buying new policies was also limited to balance the protocol's risk. Today, the more common limitation is that buying a new policy pushes the MCR requirement higher, potentially bringing the ratio down or triggering the hard limit.
Risk note: A low capital state means the insurance pool is approaching the "solvency" danger line. The Kelp DAO hack in April 2026 caused a loss of $292 million—16 times the total claims Nexus Mutual has paid out over seven years (about $18 million). If risk events of that size happen back‑to‑back, a single claim could easily empty the pool.
Why People Often Get It Wrong
Many people think that because the pool looks large, they can always buy full insurance. But the MCR is a dynamic red line. When the protocol sells more cover, the MCR rises at the same time, which can make the capital pool "relatively insufficient" and trigger purchase limits. The "sufficient funds" you see may just be a static number. What really matters is the Available Capacity, which may already be taken up by other policies.
What to Do Next
Check the current MCR% in the Nexus Mutual app. If it is near or below 100%, new policies will be almost impossible to buy. Even if it's above 100%, keep an eye on Available Capacity—that is the actual maximum cover amount you can purchase. If the capital pool remains low for a long time, it could mean the protocol lacks enough funding or demand is very high. You'll have to wait until some capacity is released before you can buy.
