Happy to help kick off an exploratory redesign of nexus tokenomics and bonding curve.
Think it could make sense to involve the best tokenomics modelling experts in the space to propose improved designs to it! Would be valuable to include 1kx, 1confirmation and other leading funds involved in nexus to propose experts in their network that we could approach for a commission of a nexus tokenomics rethink.
Excited for the community to kick this off, I’m very happy to be involved in this:
Here are some objectives I believe we should be aiming for:
Attract capital when the mutual needs it because it’s either under capitalised, eg due to claims, or to fuel cover growth
Get excess capital back to members when it’s not required.
Avoid situations where the mutual can be arbed against
One key aspect to explore is the conflict between requiring permanent capital for the purposes of selling cover vs allowing members to exit. There are three main solutions I can think of here:
a) Allow exits only when excess capital exists (current approach - which leads to confusion and angst)
b) Don’t allow exits unless the mutual goes into full wind down, and distribute any excess capital in a different way (eg buyback/burn)
c) Have long term locked capital but not permanent capital and restrict cover buys to align with long term locks.
The primary issue with the current bonding curve model is the one directional nature of the MCR, if you have a value that expands when demand for cover increases then it is intuitive that it should also slowly contract when the ratio of active cover / capital pool falls.
There has been great resistance to any reduction in the MCR in the interest of preserving capital to enable future large cover buys, or less charitably, to protect the mutuals unique moat of capital over competing solutions.
I don’t know if a more dynamic MCR would have been damaging to the mutuals ability to write a similar amount of cover than currently but it would certainly provide a lot more confidence in the NXM tokenomics, the effect of which on growth and attracting capital I believe has been underestimated.
100% agree… ultimately think its a mistake that native protocol is not allowing for any native swaps below 100% mcr… it should be way more dynamic… as well as structured to incentivise an increase in the capital pool
Some of our team members will be happy to contribute from their tokenomics expertise.
Let us know how / what would be the best way to move forward. Perhaps a small group to discuss ideas first and then propose them to the community?
My concern is that we are going to hit the same problem as we had with the buyback on the “Get excess capital back to members when it’s not required” part.
When is excess capital not required? The capital efficiency ratio has been on a downward slope for about 12 months… this would indicate that excess capital is not required, but of course it is the floor (which was raised during DeFi summer) that controls the MCR% right now.
agree that new tokenomics should allow for exiting near book (although maybe with dynamic penalties based on risk parameters and price, so the mutual and holders benefit) and incentives towards contributing more capital to the capital pool in times of demand… i’d envision nexus bonding curve iterated with all the learnings from fei, ohm to convex, and taking it to the next level for our purpose.
a Liquity like model could make sense. Setting up a pool of eth which is willing to buy NXM at a discount from the ones pressed to sell below the MCR. This pool should be incentivized in some way other than the discount of course. That would create a floor price for wnxm which I’ve seen many are rooting for.