Increase staking leverage from 10x to 15x

Overview

Increasing the staking leverage factor from 10x to 15x will allow stakers to open up more capacity for in demand protocols and allow us to grow coverage in a more diversified fashion (the most efficient way for Nexus to grow). In addition it will increase the potential returns from staking.

Details

Nexus needs to grow cover demand across a wide range of protocols before it can start growing vertically, and we have multiple protocols is relatively high demand that need more staking to open coverage. Due to the 30-day unlock period there is a reasonable amount of friction required to rotating stakes, which means we need extra slack in the system to meet cover demand.

Staking returns could also be higher and increasing the leverage factor is a relatively low risk way (for the mutual, not necessarily individual stakers) to increase potential returns.

More widely, when the mutual reaches large scale (comparable to a large insurance company) stakers should be able to stake at very high leverage factors, eg 30-50x, as there are wide range of diversified risks. So we should be increasing leverage factors as the mutual grows and as more risks are offered.

When we move to Staking 3.0 all risks will need to be fully backed by stakes, rather than the current situation where there are capacity multiples of up to 4x which allow risks to be un-backed. Moving to Staking 3.0 therefore requires increasing leverage further to maintain the same fluidity in the system.

Potential Issues

  • Increasing leverage is potentially quite risky for stakers.
  • There is a small increased likelihood of unbacked claims, ie probably of two alrge events close to each other. This risk seems manageable for the mutual
  • Why not higher? There needs to be a balance between leverage and the amount of risks available as well as create some scarcity in stakes to signal pricing. There is likely a wide range of acceptable answers here, I’d argue that 15x seems reasonable as a next step.
11 Likes

Strongly support. We could increase cover capacity by either increasing staking leverage or reducing the staking threshold to reach 2.6% APY premiums. Since there’s mostly just demand for increasing cover capacity for a handful of projects, the former allows a more granular selection of those projects to open up cover capacity.

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Thanks Hugh - looks good to me!

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This has been implemented as per Proposal 132

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