Introduction
The purpose of this post is to put forward a budget proposal for the Investment Hub covering the next 6 months of activity.
We present the objectives for the next 6 months, linked to the activities listed in the Investment Hub Charter, a budget for those 6 months and a mechanism for allocating the budget to contributors.
Objectives of the Investment Hub: Q4 2021 & Q1 2022
Allocation Targets
In the Investment Philosophy, we proposed the following allocation to the risk ‘buckets’ of potential investments. Below, I have also included the current % allocation of the Capital Pool.
| Bucket | Minimum (%) | Maximum (%) | Target (%)* | Current % (2021/10/19) |
|---|---|---|---|---|
| ETH/Stables | 5% | 20% | 10% | 81.6% (81.3% ETH) |
| Lower Risk | 30% | 80% | 30% | 18.4% (all stETH) |
| Medium Risk | 0% | 40% | 35% | 0% |
| Higher Risk | 0% | 25% | 25% | 0% |
As we have assessed potential investments over the past months, we have come to the conclusion that the universe of appropriate assets that meets our risk, trust and technical requirements remains quite limited.
We therefore remain some way off from where we would like to be in terms of allocating the Capital Pool. Over the next 6 months, we aim to get closer to our target allocation by examining, assessing and performing due diligence on as many investment opportunities as possible.
However, we are also not intending to implement inappropriate investments just for the sake of deploying the capital pool into something other than ETH. Therefore, we are not setting a numeric target allocation to be achieved within 6 months.
Investment Philosophy
If necessary, we intend to update the Investment Philosophy to reflect changed circumstances within the mutual or the wider crypto ecosystem within which the mutual operates.
Quarterly Reviews
We intend to perform two reviews as outlined in the Review of Performance section of the Charter [insert link], adapting the topics as appropriate given the current range of investments.
These would happen at the end of December 2021 and the end of March 2022, focussing on:
- Ongoing appropriateness of exposure to current investments, mainly stETH
- Appropriateness of Investment Philosophy given the mutual’s position at the time of review
- Whether we have identified enough investment opportunities and ensuring our process here is fit for purpose
- Hub structure and workings
ETH2 Investments
ETH2 staking remains, in our view, one of the most appropriate investments for the mutual, as discussed in the successful Lido stETH allocation proposals here and here.
Over the 6 month period discussed here, we intend to:
- Draw up and maintain a list of additional investment options derived from ETH2 staking
- Evaluate their appropriateness to the mutual
- Implement additional ETH2 staking options if appropriate
- In the process, produce a general framework for obtaining ETH2 staking rewards for the mutual’s Capital Pool
wNXM
An ongoing topic of conversation within the mutual remains the price differential between wNXM in the open market and NXM at the 100% MCR point on the bonding curve.
Hub members have been investigating potential uses for wNXM by the mutual itself. We intend to present our findings to the community and, if appropriate, put forward and implement a proposal.
RfP for High Risk Portion
To date the Investment Hub has had discussions with ~10 potential providers of investment services for the high risk portion of the mutual. Typically 2-3 members of the hub at one time engage in conversations with respondents to the initial RfP, assess their offering and its suitability for the mutual.
This is one of the main ways in which hub members contribute their time, but unfortunately, due to the often regulated nature of the respondents, we can not always be fully transparent with the community on the work that goes into these assessments.
Over the next 6 months we intend to:
- convert the RfP from its original status as a one-off into an ongoing invitation for external providers,
- set a stricter set of guidelines on management fees that are acceptable to the mutual, working with the community to create a framework for what is and isn’t acceptable,
- continue to engage with a wide variety of potential providers, assessing their suitability,
- refine and publicise the framework that we use to evaluate potential managers,
- work on strategy implementation and technical integration with suitable managers, if appropriate.
Budget Proposal for the Investment Hub: Q4 2021 and Q1 2022
Size
We propose a budget for the Investment Hub of 750 NXM for 6 months, equivalent to 125 NXM per month. This is the equivalent of a 0.035% (or 3.5 bps) charge per annum on the capital pool allowing for the bonding curve price of NXM and the size of the Capital Pool at the time of writing (19/10/2021).
There are no specific budget allocations for the individual items listed in the objectives above, but we feel this amount is broadly in line with other community grants and would be enough to reward contributors for their efforts.
Once the six months are up at the end of March 2022, we intend to propose an updated budget for the hub given the circumstances and requirements at the time.
Allocation Mechanism
The team currently contributing towards the Investment Hub is made up of 7 people who all have full-time jobs or other significant commitments (see bios here and here). However, due to the extent of the work involved, it is unrealistic to expect the contributions to be entirely voluntary. We feel like all contributors should have the possibility to be rewarded for their effort on behalf of the hub.
We have therefore chosen a DAO-friendly distribution mechanism, using Coordinape. We plan to use this tool to allocate rewards in regular periods (epochs) based on the value added by hub contributors. The hub participants can choose to distribute their nominal tokens (GIVE) on the platform to the other contributors in the proportion in which they feel is appropriate given the work performed by hub members in any given epoch. The platform will then generate a percentage allocation which we will use to distribute the budget to participants. Note that each of the current members of the hub will get an equal share of GIVE tokens to allocate and contributors can also opt out of receiving rewards in any given epoch.
This mechanism allows us to remain flexible with contributions to the hub on top of other commitments, while providing a strong incentive to produce valuable output. Furthermore, it allows us to integrate other willing contributors to the hub in future.
Review Period
This proposal will be up for discussion for the usual 7-day period before proceeding to Snapshot vote.