The mutual currently has significant excess demand for cover and is now beginning to attract new capital to the pool. Especially after the Pooled Staking release. These are both really good signs. But now we actually have a good problem, new capital is coming in quicker than the mutual can effectively use it.
Getting into the details, the limiting factor on cover purchases is the Minimum Capital Requirement (in ETH). MCR is currently 14,473 ETH and increases by 1% per day if the mutual has “excess” capital, where excess is defined as total funds being above 130% of the MCR.
Capacity on any system is limited to 20% x MCR which roughly equals $700k at current ETH prices. To double capacity (assuming a flat ETH price) MCR would need to increase to approximately 29,000 ETH. At the 1% per day increment this would take a minimum of 67 days, assuming every single day resulted in an increment.
I believe the mutual can attract capital much faster than this and would benefit from scaling faster and taking advantage of the current market conditions. Without this change we may miss an opportunity to attract material amounts of capital to the mutual.
The increment process can be quite easily sped up by shortening the period between MCR increments, eg from 1 per day, to 1 per hour. This would reduce the time taken to double the MCR from min 67 days, to less than 3 days (again assuming sufficient capital inflows). In reality it would likely take a few weeks.
The downside is that the NXM price is unlikely to progress deeply into the exponential part of the bonding curve while this accelerated incrementing is ongoing, even though the NXM price would still be increasing overall. So this is about sacrificing the potential for sharp short term price increases for faster capital scaling, so we can access demand for cover much sooner. It would also likely drag down the MCR% from the current mid 140% levels to 130%. So there is likely a short term sacrifice for a much greater medium – long term benefit.
Assuming we reach an MCR of 100,000 ETH the token price would be 0.0596 ETH (at 130% MCR%) vs the current token price of 0.0221 ETH (at 148% MCR%)
The quicker incrementing should be more of a temporary measure, rather than permanent, so I suggest it is only put in place until MCR hits 100,000 ETH initially, after which it reverts to once per day. The accelerated approach could easily be extended if members wish but I don’t think it should be the default setting.
If the community is supportive we would look to formalise via a governance vote fairly quickly to take advantage of the current DeFi market activity.