Summary
This proposal seeks approval for an allocation of up to 9,000 NXM from the Grants and Accelerator Program to fund the purchase of Nexus Mutual cover for the baseline yield protection of the proposed RWA Insurance Vault. The funds would be required over the space of 18 months from the launch of the RWA Insurance Vault.
The requested NXM would be used to purchase cover to protect vault depositors against the risk of insufficient returns. The Vault Operator has to pay the cover fee upfront as deposits to the vault come in, before operating margin from the vault can be withdrawn by the operator. Eventually (after ~18 months) the cover will be purchased using excess returns from the vault.
The requested NXM would be used solely for the purchase of Nexus Mutual cover on behalf of the depositors in the RWA Insurance Vault, directly contributing to the economic success of the Mutual.
Rationale
Why pre-funding is needed for the vault’s cover fees
The RWA Insurance Vault is designed to generate substantial yield by providing capital to regulated insurance portfolios. Insurance returns materialise gradually, with a typical timeframe of 18-24 months before loss reserves can start being released as actuarial surplus.
However, Nexus Mutual cover must be purchased upfront to protect the RWA vault baseline yield from risks such as insufficient underlying returns, smart contract and operational risks.
This creates an initial funding gap, where cover fees are due before an ongoing operating margin becomes available to the Vault Operator.
The grant is requested to bridge this initial gap until the point where there is a reliable stream of surplus emerging from the underlying insurance products.
Why use NXM from the Grants & Accelerator Program
The program was explicitly designed to fund initiatives that expand the use cases, adoption, and utility of Nexus Mutual with a focus on driving growth in cover sales.
The RWA Insurance Vault is a new strategic product that directly drives demand for Nexus Mutual cover (as the vault itself is a cover buyer). It opens a new growth channel for Nexus Mutual into institutional participants seeking stable, long-term returns on their stablecoins. The proposed operating margin sharing mechanism between the RWA Vault and the Mutual generates a further source of revenue for the capital pool.
The grant would be used exclusively for cover purchases for the initial period after launch, directly generating value for NXM holders and stakers. Downstream, the tokens would be split between:
- NXM rewards for stakers and staking pool managers backing the RWA Insurance Vault cover.
- DAO commissions
- burns, increasing the book value per NXM.
Program funds are already denominated in NXM, making this request straightforward to implement without the need for conversion into stables.
Request
Amount
A maximum of 9,000 NXM.
Purpose
Solely for paying the cover premiums that protect the RWA Insurance Vault’s Baseline Yield during the first six quarters following the launch of the vault.
Mechanism
Each quarter (season), the Vault Operator of the Insurance RWA Vault purchases/edits the baseline yield cover on Nexus Mutual. The cover runs until the end of the upcoming quarter. The cover amount is the current balance, rolled up at the baseline yield until the end of the cover period.
If there are new deposits placed in the vault that change the balance by more than 2%, the cover is edited for the updated amount to the end of the valuation period. Likewise, if there is a withdrawal from the vault, the cover amount can be adjusted downwards by extending the cover period.
Once the calculation is performed for the exact amount of cover required, the Vault Operator proposes the appropriate amount of NXM required to pay the cover fee to the Grants and Accelerator Program committee.
Once confirmed by the G&A committee, the agreed amount of NXM tokens is to be transferred from the Grants & Accelerator Program funds to the Vault Operator, and immediately used to purchase Nexus Mutual cover, protecting the Baseline Yield on the vault.
Next Steps
If approved, the RWA Insurance Vault team will work with the G&A committee to put a process in place for requesting and transferring the approved funds based on the cover requirement arising from the RWA Vault product.
The Vault Operator will also report regularly on the funds required and cover bought on behalf of the vault.