Hi all,
Following on from this thread, I wanted to restart the discussion about generating yield on the Mutual’s asset pool. As Hugh mentioned, this is an area where community input is very valuable to both decide a framework and subsequently pick the individual options.
A few points to start off with:
- The investment asset universe for Nexus remains limited to ERC20s on Uniswap due to the current technical implementation. As I understand, there are other priorities for protocol improvement before specific smart contract calls are developed for investment purposes.
- There were a number of proposals for ERC20 assets in the initial thread linked above. However, these typically come with compounded technical risk (on top of that already covered by the mutual) and/or require trust in an asset peg or a centralised entity. These can be managed with exposure limits but the rewards for doing so don’t seem overly appealing at the moment.
- The Mutual is in a position now where the liability exposure to Smart Contract Covers is significantly below the assets in the capital pool. While this is the case, exposure to the entire Ethereum ecosystem in the form of holding ETH seems preferable to picking out individual ERC20s for outperformance vs. ETH or hunting DAI/USD yield.
- ETH2 Phase 0 has gone live with something like 1.6m-1.7m ETH deposited at the time of writing.
Therefore, believe it’s worth having a discussion about whether it’s worth deploying the Mutual’s assets to earn ETH2 staking rewards. Two aspects that we should establish:
- A framework for evaluating any staking service or other route to obtaining the yield.
- What percentage of the assets (if any!) and when should we be allocating to this. Assume that we would start out slowly and increase allocation over time.
Some possible routes are listed below.
Tokenised ETH2:
Buying tokenised ETH2-yielding ERC20s is the option that is currently the easiest to implement, but the landscape of options is sparse. Available volume and liquidity is not where it should be for meaningful amounts in the context of the Mutual’s assets.
However, this seems like a good medium-term option if the community believes we can do this within acceptable constraints. Hugh and team have good connections within a number of these projects so if the community feels it makes sense to explore further, there is scope to do so.
Some examples:
(1) https://lido.fi/
(2) https://stkr.io/
(3) https://stakewise.io/
(4) https://beta.rocketpool.net/ (when live)
A number of the centralised exchanges (Binance, Kraken, etc.) also provide staking opportunities but doesn’t seem worth considering in too much detail given the lack of transparency and risks.
Staking Services:
The system isn’t currently set up to do this, but this is worth discussing for the longer term. Ethereum Staking Services Overview - Open Source Ethereum Blockchain Explorer - beaconcha.in - 2023 seems to have a pretty comprehensive list outlining all the options for staking services.
One prominent option that popped out: https://www.attestant.io/
Probably more targeted towards wealthy non-technical users than projects wishing to deploy assets, but a decent example of an institutional-grade staking service.
Interesting that there is https://ethddc.org/#, whose first task is to evaluate the staking pools. Something to look at once they publish results if we do want to go down this path.
Framework Proposal:
Below are some considerations for the framework that could be used to evaluate any available options. Feedback welcome.
-
Yield:
How much do we earn from putting the pool into one of these services? What are the fees they charge? -
Governance:
Evaluation of the governance framework of the asset/staking provider. Encompasses both centralisation/trusted counterparty issues and the governance framework of any decentralised solution. Can Nexus Mutual participate in the governance? Do we want to participate in any governance mechanisms and, if so, to what extent? -
Technical/Smart Contract Risks:
For any possible solution, need to assess how likely it is that something doesn’t function as intended and we lose a significant proportion of the assets. -
Liquidity:
What’s the possible amount we can actually acquire or provide to the staking service? How comfortable are we being a huge chunk of the assets held by each individual service? How big does each service have to be for us to consider it? -
Infrastructure of Underlying Service:
What are the risks that would lead to loss of funds due to slashing? -
Decision point:
How many of the above points and to what extent do we need to be comfortable with to push the trigger. How much due diligence do we want to do on each individual project?
Community Questions:
Keen to hear thoughts from the community on the following topics.
- Should we do this at all?
- Are we happy with the current state of the options available? Any other suggestions?
- How much capital should we deploy and when?
- Any feedback on the framework above, including specifics of due diligence you’d like to see performed.
- Any other points?
