Independent Review of Nexus Tokenomics, Premiums + Treasury Management

Howdy folks, I’m Ronan. I’m founder at Trelis .com and also write at Pinotio .com and RonanMcGovern .com.

I’m following up on this Discord discussion with @Hugh and @Gauthier : Discord

I’ve been following Nexus for some time now… although not quite as long as I’ve owned Berkshire Hathaway stock - which is how I started to learn about insurance in the first place.

From reading regular reports (congrats on consistency btw) and some digging, I’ve had some questions. Here are a select few:

On Treasury Management

  • Why is there such a mismatch between claims (75% DAI, 25% ETH) and protocol assets (mostly ETH denominated)? This seems to make Nexus a leveraged ETH bet.

On Pricing (which I realise will be updated in v2)

  • Why is there a floor of 2.6%? This seems to price out coverage of safer assets?
  • Why has coverage been so cheap on risky CEXes? Why are NXM staker incentives seemingly misaligned with the protocol? Is it even possible to align them?

On tokenomics
My gut feel here is that tokenomics are actually ok, but negatively affected because of the two issues above. I need to dig a bit more.

I realise there are active efforts on v2 to revamp pricing, there is a committee that manages the treasury, and there is a dedicated person leading tokenomics improvements.

My question is, given the above, is there appetite from this community for me to dedicate time to conduct a concise independent review of the three areas listed above?

A few parameters on that:

  1. Concise - all done by end of Jan 2023.
  2. Interactive - 1) I would submit a review here on the forum, 2) gather feedback, and then 3) consolidate in to a final short report.
  3. Additive. The focus of the review would be on providing new ideas for the community to consider pulling into current initiatives. It would be silly to think this review is a silver bullet - I have a tiny amount of context and experience relative to the Nexus team. Still, some outsider views may be of benefit.

If you are interested in reading further on some of my community contributions you can find them under Pinotio on the Celo forum. Here is my proposal from April of 2021 for the Celo reserve to immediately swap their reserve from volatiles to stables to avoid their Celo Stables from being undercollateralised. After Terra happened, the proposal was passed quickly. [You can also read my earlier post highlighting the same collateralisation risks at the market top around December 2021 -search for " celo-reserve-liquidation-mechanism/2552 ".]

Lastly, for clarity, I don’t own NXM or wNXM, although I have considered it.

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Hi Ronan - thanks for the post and putting this together.

A few comments on your specific points:

  1. Investment Management - The investment committee members can make some comments here as well, but in short my perspective is
  • the mutual initially collected ETH so has an ETH bias from it’s members
  • asset/liability matching is more critical when gearing is being used (writing more cover than capital in the pool)
  • we need to transition over time to being fully matched
  • this is mainly question about timing of the transition and how it’s done
  1. Pricing - I think any review of existing pricing is not worth the effort given it’s all going to be changed in v2. Docs are currently being drafted for v2, but you can see the code-base here for anyone who is interested

  2. Tokenomics - I’d value review and comment on the proposed strawman structure of the new tokenomics over any thing else.


I am SkyHopper, a co-founder of Bastion Trading. We are a proprietary trading firm in crypto since 2017. As an ex-options and bond trader, I think I can say myself I know a bit about premium selling and risk underwriting.

On crypto recently: I have taken on previous DAO leaderships roles such as being the Treasury Manager of Wonderland - taking the spot after the fallout of the price and community after the events there in January.

Onto to this proposal: I agree that there needs to be an independent and true community oversight over the actions of the treasury and risk underwriting.

  1. I agree with Ronan, that the contingent liability of defaults exposed to DAI vs. ETH risk is excessive and should be matched much more closely. I think such re-alignment of assets to contingent risk can be done dynamically and quickly. In essence, it does make Nexus a leveraged bet on ETH as its being subsidized with DAI contingent liabilities.

  2. Pricing: the mechanism here is broken, and even more broken with US Treasuries at 3-4%. Protection prices should be a function of the general funding rate and the risk premium, unless there are mitigating factors of limiting exposure to claims (which would be a kind of a fine print rug on insurance buyers).

The protocol deserves to have a significant look at overhauls given that the price of wNXM (the free market price of the asset token) is trading at a significant discount to the “true” value.

Further to the 2.6% silliness, even treasury management such as the Maple loans show that there in retrospect, management of many areas are in need to improvement to say the least.

I would hope this can create an amount of feedback from the community and eventually get a good market revaluation of the wNXM token.


So you think the mutual should dump $ETH quickly?

A high-risk investment went bust and Nexus lost ~2% of its Capital… idk it seems reasonable. But agree monitoring could have been done better.


In retrospect, looking to sell ETH to USD Proxies could-have-would-have-should-have been a significantly easier decision to do at 2500, 3000 Dollars a coin. But if potential liabilities are to be denominated in DAI, then sadly, I think there needs to be switch.

A way to manage this better, is to have a process where more insurance is underwritten in wETH and not DAI. Thus, over time, the contingent liabilities and assets are more aligned. So this would mean, to naturally deprecate (mature) insurance covers in DAI and simply offer more in ETH.

A combination of this can work well potentially to blunt the impact of just selling all the wETH (ETH) over a short period of time in a bombed-out market.


My 2c :

  1. People that are still holding NXM/wNXM are well aware of the current issues (which btw for most of them are in the process of being solved. Bottleneck is tech development)
  2. Everything is on-chain, discussions happen transparently on discord/forum. This drastically reduces the value add of an “independant review” by consulting firms versus in traditional markets.
  3. Everyone is free to post an opinion on social medias about Nexus’ flaws

While I’m sure it would be a quality report, I don’t think members will vote to spend Treasury’s money on an independant review.

But if proprietary firms like Bastion Trading think this is a must have, then maybe they can finance it?


You’re correct there in terms of a payment and the community voicing opinions.

The concept of wider oversight roles may make sense in general. But if qualified holders - DAO members - join would be best.


Thanks @Gauthier - appreciate the views. Having been on the community side (and given down-markets today) I understand the drivers to minimize spend.

Some small points I’ll add based on my time contributing as a community member at Celo. Perhaps this is widely off the mark for Nexus.

  • The nature of DAOs is that there is often a core team driving.

  • Community input tends to be uncompensated or undercompensated - meaning the incentives for providing deeper independent insights are weak. Community input in a forum is valuable but tends to be incremental and/or fragmented.

  • Yes, token holders can opine, but often they are either core-team aligned or are passive - just as with corporations.

  • This means DAOs have a tendency to stick to a core plan and only change course at the last minute due to market forces.

From the outside, Nexus appears well organized. Communications on claims are clear. Newsletters are regular and informative. Still, some fundamentals (e.g. asset-liability profile, pricing, tokenomics) seem off, suggesting to me an opportunity to do much better.

Perhaps the current plans sufficiently capture the realm of strong ideas for improvement - as suggested above. I think that’s the key question to weigh. Cheers.


Great discussion, agree with most things said, very simply,

  • we need to fix tokenomics, doing so will pay for itself for the community… whats the latest there? @BraveNewDeFi @Gauthier
  • beyond v2 and pricing updates, we need to do a further look on pricing and making sure we are not continuing to sell risk too cheaply (eg. binance risk def mispriced at less than 1% adjusted to discount of wnxm)…
  • also agree we shouldnt overpay for general reports containing truisms we all already know/agree to, what could be worth considering is incentive-aligned tokenomics works and compensating in vested wnxm… so that there is clear incentive

Hey Vincent,

I’ve been working on tokenomics proposals and modelling, if you DM me I can share the latest version of the strawman doc with the proposed structures. Haven’t shared a recent update in the (tokenomics-revamp) Discord yet, as need to polish some of the modelling & parameters since the recent market moves.

Same goes for everyone btw - reach out here or in the Discord (@Rei_Melb) and happy send docs over or chat :slight_smile:

In terms of timelines, aiming to get structure finalised finished by the time v2 launches and then tokenomics implementation will be top dev priority after v2.


Awesome, thanks @Rei for sharing, and excited for the updates and improved tokenomics :sunglasses:

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Hey Vincent,

All great points!

On pricing. Pricing is going to be much different than it is in V1. V2 will have dynamic pricing that starts high and decreases in price over time. The initial price for any cover product is set and when a staking pool (aka, syndicate) adds a new cover product, the pool manager sets their target price, which is the lowest price they are willing to accept for that risk. The cover product starts at the initial price and decreases over time to the target price; however, if members buy cover, then the price will increase. If there is significant demand, the price for a given cover product increases substantially and then starts to decrease unless new cover buys result.

  • If a staking pool manager misprices risk, the price has to fall to the target price. It’s likely that the market rate is established when members start buying cover at a certain price, so the target price might not be achieved for a given product is demand is sufficient at a higher price. As exposure to any one risk increases, so does the price for that risk.
  • I’ll have more details to share when I finish the documentation in January, but wanted to give you an idea on how pricing works in V2. The wNXM discount does play a role, but if demand for a risk is established at 13%, given members use the wNXM discount to realize a 3.01% cover fee, then it’s probable that the initial price set for cover products in V2 is higher to account for the discount.
    • This is also something staking pool managers can take into account when they determine pricing for cover products offered within their staking pools.

I shared my thoughts on the call about this as well. Overall, I think @Ronan’s proposal is a welcome opportunity to have an outside perspective on the new tokenomics and pricing models. However, timing is the biggest issue.

Once the information about dynamic pricing is available and there are further updates about tokenomics, it would make sense to revisit this proposal. We definitely want to set up Ronan for success by giving him all the relevant information to write a clear, comprehensive report for members to review.

Hope this gives you some insight into the new pricing model and some of the ways the wNXM discount can be accounted for in V2, @vincentj.


Amazing, thanks for sharing, wasnt fully aware of this mechanism, but makes definitely much more sense than the current design!

Fully agree

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