Investing the Capital Pool in stETH

I agree with you here, but I think the reason some members are not bullish on Nexus is the fact they can’t sell NXM through the bonding curve due to the MCR% issue. From my experience interacting with members so far, very few understand how the capital model works.

My personal opinion is that many people don’t understand how the mutual works and that creates a less bullish attitude. I also agree that we are in a battle to capture market share.

Making an effort to increase the MCR% will instill greater confidence in the mutual, which will help us grow our membership and drive demand. I think the two issues go hand-in-hand.

I agree we need a big push for growth, but it’s hard to grow our membership if prospective members don’t see the benefits of actively participating in the mutual and they can’t access liquidity it’s going to be very difficult to sell new members on Nexus.

The mutual doesn’t need many resources (in terms of people) to start investing a portion of the capital pool’s assets. The dev team is working on new products, such as Yield Token Cover. These new products will drive demand.

I am hoping to get the Marketing/Communications Hub Charter done this week and have it posted for approval through Snapshot governance sometime next week. Once I get that Hub active, I can make a big push to create awareness, educate prospective members, and start drawing more users to the mutual.

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I agree with you that pricing is definitely Nexus’ biggest strength right now, but imagine you are a new competitor with 50-60% of token supply up for rewards…

It would be the obvious first step for every competitor to use their token as a reward to get staking up to a level that they can outprice Nexus. This would be subsidized and wouldn’t of course last forever, but this is why I think it’s naive to assume our current pricing advantage is a strong moat.

What do you think about proposing to the community fund to augment staking rewards by 2-3% for a few months instead?

I personally also don’t like that we would basically be the first DeFi “treasury” that is buying into another project’s product when no other treasury has bought into Nexus’ product yet, which by all means, has a much stronger value proposition. We are honestly doing a very poor job on that part as a community and need to level up quickly.

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I agree with you that pricing is definitely Nexus’ biggest strength right now, but imagine you are a new competitor with 50-60% of token supply up for rewards…

Pricing isn’t Nexus’ key strength, we are already competing against heavily subsidised pricing in some pockets. Our key moat/strength is trust, confidence that we will pay genuine claims.

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Agreed, my point was not that Nexus has the best pricing now. But that insurance merges to a commodity industry of the long term and customers are price sensitive. Driving down the price is important for growth in coverage. We already have consumers confidence and ideally we can maintain that but also drive to offer the cheapest pricing (average, long term).

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Not directly related to the investment earnings, but I find this discussion a very important one and matches the observations I made when trading off whether to stake or not and when thinking about the risk adjusted return.

To my opinion it is really difficult to define a correct price tag which would convince more stakers to stake their NXM, but convincing more stakers that the risk is compensated appropriately is crucially important to drive further growth from the existing capital pool.

In the absence of historical data, it depends on individual expectations of stakers about the probability of an exploit, the size of a potential loss, claim and the mechanics of the loss allocation to stakers depending of cover/loss ratio. I would think that these mechanics are still a black box to many potential stakers and hindering them to form a reasonable estimate whether it is worth to stake or not.

We might want to consider to work on these issues by assigning certain tasks to the community to increase transparency in order to encourage more staking. A few ideas:

  • Maybe we could use rekt and other case studies of past exploits to construct a data set, which is updated periodically and summarises data on the absolute and relative size of exploits vs values locked in the respective protocols. Track the average age of protocols when the exploits usually occur, whether the protocol has been audited or not, etc. This would provide at least some guidance to run scenarios.
  • We could write up a staking guide to provide new and existing stakers with a more easy intro into the mechanics of loss and reward allocation, e.g. relevance of cover/stake ratio, etc… This would allow more ppl to form an opinion and play around with scenarios from the data mentioned above.
  • We could construct a simple model which allows to run simple scenarios and to compare them vs the yields that was usually achieved over the past weeks. Maybe in a first step on a PF level to not overcomplicate it.
  • As long as the risk related to staking remains uncertain, we may still support the additional risk that stakers are willing to take with additional rewards financed by for example additional investment earnings. This makes particular sense, since a bigger capital pool does not help the growth of the mutuals purpose, if NXM are not staked.
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hey hugh - how much technical work still needs to be completed for us to turn on investment earnings? is stETH something we could conceivably be doing right now and just aren’t or are we months off?

Technical work is in final audit stages.

Expect a governance vote soon.

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Awesome! Looking forward to it

this might drift us a little off topic here, but would be interested in your top 3 priority list for Nexus growth (I sense you are for devoting more NXM subsidies to it, but perhaps you can outline your growth wish-list?)

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Proposal is now in governance for voting. Please vote here :ballot_box:

140. Invest some of the mutuals funds in LIDO stETH

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Approved and implemented. Pool now has 15,000 stETH :rocket:

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Hugh, is there a risk threshold you have identified to trigger the remaining 5000 ETH in this approved proposal to invest in stETH? In my view, just over the past 2 months stETH has derisked on many of the metrics above, and I would be in support of investing the remaining amount.

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I agree things are moving in the right direction, though I do believe the more material risks are largely unchanged. In particular key management, and the ability for ETH to be extracted from staking. These risks aren’t going to be solved until ETH2.0 gets fully implemented so we have a while to go on this front.

Having said that, we should consider increasing the allocation over the coming months with the main reasons not to allocate immediately being:

  • We haven’t fully implemented the sell side yet. This means any accumulation over 20,000 can’t easily be sold back to ETH. Building the sell side requires building an adaptor to Curve or some other dex, and we’re not rushing here as we’re looking for a longer term solution that handles liquidity moving to different dex’s. (we previously built one for Uni v2 and then got caught by this exact issue). If necessary we can prioritise it quite quickly but it’s not urgent work right now.

  • We should consider how much liability side risk we want to take on for stETH, so strategically it may make sense to leave a bit more space here. This is an open debate we should have.

  • The Investment Committee is also working on some framework items, so it likely makes sense to come back to this question once we have their input on wider strategy.

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Have we considered the centralization aspect of Lido?

There is major concern in ETH2 centralization due to the sETH2 derivative liquidity. While the tweet below is over the top and a bit too extreme, this is still a legitimate issue.
That being said I think the solution simpler, and it’s literally in the hands of the Ethereum community with a simple decision to diversify the ETH2 staking clients and services…

Bottom line, I would vote for using any of the other ETH2 staking clients instead.
https://defillama.com/protocols/staking

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I’m less concerned over so called centralization in staking - pooled staking makes sense and as long as there are numerous pools that eventually scale, it shouldn’t be a major issue long term. That said, I do agree we should diversify the various staking pools we invest ETH into. I think we should also not be the first capital in / a major (>10%) investor in any given pool which limits the options somewhat. Just looking at the link you sent, I would think StakeHound and ANKR (both ~$100mm+ ETH TVL) would make sense for next investments, with an ideal allocation of around 2,500-4,000 ETH to each. RocketPool also looked like a decent option though last I checked, they didn’t have a mainnet product launched.

IIRC stakehound had an issue with their custody so we might want to rule that out.

Is Rocketpool live already?

Also Just checked the Stakewise community and it seems pretty active, might want to consider that one too.

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