Liquidity Parameters Discussion (Part 1) | How much ETH liquidity do we start with?

[NXMBull]

Thanks Brave for your responses. I wanted to take some time to conduct an in-depth view of each holder before responding to you. Please see here: wNXM Holder Commentary: TOKENOMICS UPGRADE - Google Sheets. I have adjusted the settings to the document such that anyone with the link can comment but not edit. I think it would be worthwhile if a designated team-member could either replicate the sheet and edit it or even simply comment on wallets that you may have particular insight on. In summary however, the answer is likely in the range of 1-1.4m wNXM, corresponding to 15-20% of the supply. Given constraints of the analysis which I outline below I recommend the mutual to provide 30% at the very least during the Initial Exit Period.

Noting a few items. Firstly, this is only an assessment of wNXM holders. I’ve erred on the side of caution here given that wNXM is largely a community response to the MCR lock and is the only way to obtain exit liquidity for members. Hence whilst, I do understand the OpSec points you raised earlier, the likelier motive for wrapping is to obtain liquidity (or conversely for not unwrapping is to retain optionality on liquidity).

Secondly, this assessment does not look at NXM holders which, whilst I hope many are a lot more long term aligned given their involvement in governance and assessing claims, I know with 100% certainty that there is an extra 120k NXM looking to leave there at the least (10% overflow to the answer provided above). Thirdly, there is no granular way of splitting or looking at the proportion of CEX wallet tokens that may look to exit nor have I looked at wNXM holdings below 2k. As a result of all of the points above, the conclusion provided should be seen as an absolute lower bound and an underestimate. If you disagree, please do feel free to comment on the spreadsheet provided such that we can collaborate and reach a perhaps more accurate answer. It might even be necessary to take an in-depth look at NXM holders next.

Given the above qualifiers, and the vague nature of the analysis I hope you come to agree with us that we will need to build a sufficient buffer to ensure that the ‘Initial Exit Period’ does exactly what it is designed to do.

Thank you again!

[NXMBull]

Would be great if someone could respond to this as we’re halfway through the first week already. Thanks.

[BraveNewDeFi]

@NXMBull

Please see here: wNXM Holder Commentary: TOKENOMICS UPGRADE - Google Sheets . I have adjusted the settings to the document such that anyone with the link can comment but not edit. I think it would be worthwhile if a designated team-member could either replicate the sheet and edit it or even simply comment on wallets that you may have particular insight on.

On this point, I’m not willing to share any insight on individual wallets for privacy reasons. I’ve shared my insights and assumptions on the forum. I very much agree with Rei’s approach to this discussion, as noted in the comment below. I would hope that anyone with strong opinions would engage with everyone on the forum and share their views.

@Rei

Will only discuss at high level, don’t want to doxx anyone, but DYOR etc.

There isn’t anyone who can say with certainty what actions NXM and wNXM holders will take–all we can do is assign a likelihood of who may be a seller and who may be long-term aligned. Any community member who wants to create a Snapshot voting space for non-NXM holders can do so and host a vote, but it’s my belief that the turnout would be low and the picture would still be incomplete. We’d likely have as much insight as we have now.

In looking through your analysis, we had close to the same numbers, but you had inconsistent categorization for CEX wallets and DEX contracts, where some are marked as not sellers and others are marked as sellers. We’re apart on our max sell amount by ~400k NXM, and I’ve accounted for additional with the 5% buffer I mentioned before (i.e., 15% + 5% buffer). As I shared in a previous comment, I believe 20% represents the sell pressure of both NXM and wNXM holders based on my previously shared insights.

@NXMBull

Hence whilst, I do understand the OpSec points you raised earlier, the likelier motive for wrapping is to obtain liquidity (or conversely for not unwrapping is to retain optionality on liquidity).

On this, I’d tend to disagree. People hold wrapped NXM for a variety of reasons, not all of which mean selling: (1) splitting across multiple wallets for opsec practices; (2) buying wNXM and not unwrapping because it has tax implications in various countries, depending on each country’s tax code; (3) using other protocols built on top of the Nexus Mutual protocol, such as Ease (formerly, ArmorFi) and iTrust; (4) LPing on DEXs to earn yield; and (5) to sell. While your point does factor in, it’s as clear cut as NXM means hold, wNXM means sell, in my opinion.

@NXMBull

Would be great if someone could respond to this as we’re halfway through the first week already. Thanks.

On this, I do hope more people participate in the discussion and share their views on the three (3) questions that have been posed to the community so far. With more contributions to this discussion, we can gain more insight into what choices should be offered in next week’s Snapshot votes.

I appreciate your contributions to the discussion, @NXMBull, and all of the other community members who have commented and shared their views so far

Looking forward to others sharing their answers, so we can have a well-rounded picture before Monday.

[NXMBull]

@BraveNewDeFi

On this point, I’m not willing to share any insight on individual wallets for privacy reasons. I’ve shared my insights and assumptions on the forum. I very much agree with Rei’s approach to this discussion, as noted in the comment below. I would hope that anyone with strong opinions would engage with everyone on the forum and share their views.

Thanks Brave, to be honest, there really is a difference between actually wanting members to share their opinions and subsequently listening to said views, and tossing out jolly, well-gestured but ultimately vapid requests for members to comment. It seems that the Mutual leadership’s position is 1) To not attempt to reach a granular answer in collaboration with the community (whom are working for free for the good of the Mutual), 2) To not provide any reasonable analysis or data of any form to back their misguided answer to the questions set forth under the guise of ‘privacy concerns’ which can be circumvented in any number of ways. Your/Rei’s insights and assumptions may be sufficient or they might not be, thats the point of working together and collaborating to reach the right answer here.

@BraveNewDeFi

In looking through your analysis, we had close to the same numbers, but you had inconsistent categorization for CEX wallets and DEX contracts, where some are marked as not sellers and others are marked as sellers. We’re apart on our max sell amount by ~400k NXM, and I’ve accounted for additional with the 5% buffer I mentioned before (i.e., 15% + 5% buffer). As I shared in a previous comment, I believe 20% represents the sell pressure of both NXM and wNXM holders based on my previously shared insights.

Glad you took a look. There should be a clear delineation between DEX tokens which are idle and sat there ready to be arbitraged, vs CEX tokens which aren’t productive and are likely held by MMs or just for cold storage who wont necessarily sell. DEX tokens such as the main V3-LP are clearly going to be sold up to BV, where as the Ichi pool is likely dead capital. One can make an argument that the V2 pool is also sell pressure but its ambient liquidity hence it wouldn’t matter or move the scale.

On the actual numbers, I’d like to note that we’re off by much higher than 400k NXM given that this analysis solely looks at wrapped tokens, which is why I added a 10% ‘buffer’ to my upper bound of 1.4wNXM. If I, and I believe I speak for the community at large, am proven right, then the delta between our numbers of 10% (which includes your buffer) is an extra 4.5 months post the Initial Exit Period (taking Hugh’s 3 year exit to MCR). There is no economic/logical/marketing sense to lock members, who want to leave, out of their asset-backing for this arbitrary amount of time.

@BraveNewDeFi

On this, I’d tend to disagree. People hold wrapped NXM for a variety of reasons, not all of which mean selling: (1) splitting across multiple wallets for opsec practices; (2) buying wNXM and not unwrapping because it has tax implications in various countries, depending on each country’s tax code; (3) using other protocols built on top of the Nexus Mutual protocol, such as Ease (formerly, ArmorFi) and iTrust; (4) LPing on DEXs to earn yield; and (5) to sell. While your point does factor in, it’s as clear cut as NXM means hold, wNXM means sell, in my opinion.

That’s fine. We’ll agree to disagree here. Regardless, my analysis looked at wallet activity, other token holdings, activity within the mutual and dates of wNXM purchases to inform the categorisation. Again, would be great if you overlaid your comments so we can perhaps reach a more accurate conclusion.

[ReeseWickham]

Imo, you’re putting too much effort into finding out how many holders will exit. The question you’re trying to answer is how much liquidity to set up this pool with, not the other one.

You seem to be trying to figure out the total amount of holders exiting to match this with that liquidity in the initial stage, providing enough liquidity for this, but not more than needed.

But how many holders will exit is irrelevant.

Set up more liquidity than needed, everybody who wants to exit, exits, the RAMM removes the excess liquidity afterwards.

Set up less liquidity than needed, and there’s an exit queue, a process that drags for weeks or months, and nexus maintaining their reputation of not letting holders or investors exit. Which will make harder for the mutual to attract capital in the future.

There’s just no reason not to provide more liquidity than needed for this. Nobody will exit if they are long term aligned just because the liquidity is there. But the long term aligned holders who want to keep capital in the mutual, are asking to keep in the mutual the capital that corresponds to the bv of the tokens belonging to the holders who want to exit. That goes too far, that is not their capital.

About “giving some time to the protocol to achieve growth”, I want to say that we have already given several months since v2 started, and the amount of active covers continues to drop month after month, but also, even if just 3m NXM tokens remain, the capital pool will be above 67k ETH, so the amount of active covers could increase 65 times before reaching the limit. That leaves significant room for growth, after letting everybody exit, who is not the foundation, team, vc or treasury. If you reach that limit, you’ll have capital lining up hoping to enter the mutual.

Set up more than enough liquidity now.

[NxmMaxi]

Thank you for putting this together! Seems the Mutual team was underestimating quite heavily with these numbers…

@BraveNewDeFi seems 30% makes a lot of sense here I would love to see your data to understand where the 15% figure is actually coming from.

I also still do not understand what the downsides are for providing ample exit liquidity / overshooting by a small 5% margin… Have yet to see a valid point to this.

[adambenayoun]

Thanks to @Rei and @BraveNewDeFi for working on this for a while and exploring way to provide liquidity for people wishing to exit from the Pool.

Thanks everyone else for providing their views on how this should be implemented. It’s always tricky to craft a solution that work for the different stakeholders of a project since the incentives and motivation of these stakeholders may be completely different from each others.

Just to provide some additional data points, we’ve invested in Nexus Mutual at different points in the past (Seed, Led the Series A) and also bought significant tokens from the market too. We’re long term holders because we believe in what the Nexus Mutual is trying to achieve. Additionally we have some significant holdings in wNXM and NXM and we are definitely not looking to exit them at the foreseeable future. So even thought we hold wNXM, we never really had any incentive to unwrap them and thus we sit on the bucket of wNXM that will not exit.

My personal inclination is to err on the side of caution in allowing NXM to exit at this point (both in size and velocity) because I wouldn’t want to hurt the mutual prospect of achieving its goals. On the other hand, I do want to make sure we reach a balance where there’s not too much capital in the pool, so NXM holders can start earning a better and more competitive APR. Because the prospect of a competitive APR will likely attract more investors, which will in turn attract more buyers and partners.

Having said that I am not sure this can be achieved strictly with a bonding curve, and we will have to tune the parameters as we go along.

With that in mind, I would prefer to allow 15% to exit immediately (with an additional buffer of 5%) and then allow the rest of the capital to exit over a period of 2.5-3 years.

I would also encourage the Mutual to be attentive to the need of the community and see the pace and velocity of the NXM trying to exit and re-adjust if needed. This could potentially be done by adding more liquidity and thus accelerating the pace at which the capital will exit in the first 6-9 months and then reverting to a slower exit over time.

[Rei]

Thanks everyone for your contributions - probably the most important conversation we’ll have as a community throughout this process and really pleased to see the engagement and debate it has sparked.

Wanted to weigh in with some personal opinions to add to the mix.

Question 1: What is the amount of NXM/ETH that should be able to be redeemed and exit in the short-term at a price close to book value (BV)?

I think the consequences of undershooting here are more severe and easy to imagine than overshooting. We’ve been bogged down by this long enough and a good narrative change is needed.

I’d be supportive of putting 25%-30% of the capital pool into the RAMM in the short term, or about 30-40k ETH.

Some thoughts:

• 10% or so seems very lightweight - pretty convinced that the wNXM arbitrageurs of the past few months alone would fill this up, so not convinced we’d fulfill the objectives of the tokeomics project.
• Appreciate rationality is not exactly big in crypto markets, but if we’re writing lots of covers & generating a competitive return for our members, they should be willing to provide capital in the future to replace what we’ve lost in the short term.
• ~37.5% of the ETH is in ETH staking at the moment, (with I’d say 5-10% more in the pipeline) and would rather not have to convert that back to ETH before it’s really needed.
• It’s an uncertain world out there, so keeping some extra buffer to pay claims is important without having to remove it from the short-term liquidity.

All in all, I think there needs to be a balance between allowing locked members to exit and allowing us to keep saying “we’re the biggest DeFi coverage provider, and we’ve got capital to deploy on risks, come work with us”. 25%-30% feels like the right level to me.

Worth noting that more liquidity will come in on an ongoing basis anyway.

Question 2: Over what timeframe (the initial exit period) should this NXM be redeemed?

No strong preference here other than ‘short’ - 1 month seems fine.

I think this is likely to be more impacted by actual revealed member preferences (are the sales going to happen mostly around 90% of BV? 95%? 99%?) & the interaction of parameters like ratchet speed and target liquidity - but that’s one for the Stage 2 conversation!

Question 3: In the long term, how long should it take to get down to the Minimum Capital Requirement (MCR) based on the current cover amount, assuming everyone exits at maximum speed?

2-3 years seems like the right amount here.

Again - “we’re the biggest DeFi coverage provider, and we’ve got capital to deploy on risks, come work with us” is a strong proposition and has already attracted syndicates like Sherlock and Uno Re, as well as non-blockchain clients like the Retail Mutual.

Giving the mutual some time to achieve its objectives under different market conditions is sensible, and as per above I’m in support of setting the parameters in a way that the vast majority of NXM remaining after the initial phase of the tokenomics revamp launch will be long-term aligned anyway.

[BraveNewDeFi]

@NXMBull

Thanks Brave, to be honest, there really is a difference between actually wanting members to share their opinions and subsequently listening to said views, and tossing out jolly, well-gestured but ultimately vapid requests for members to comment.

All fair points, @NXMBull. I don’t think I clearly expressed what I meant to say yesterday, so to clarify:

• 13 people have participated in the conversation so far, myself included
• There are 9,000+ Nexus Mutual members

I want the signalling vote options to be representative of as many members’ input as possible, and if there’s disagreement on the answers to these questions, that’s all right at this stage. Everyone can participate and signal their support during the signalling vote next week.

I also wanted to clarify that my views don’t represent the team’s views. I speak for myself, as someone who has been a member since the end of December 2020. In my view, this entire project is essential to the future of the mutual and people who want to exit should be able to exit when the RAMM launches. At the end of the day, I don’t think anyone can say for sure what these various NXM and wNXM holders will do. We can just take a best guess.

I do appreciate the time you’ve put into this discussion and your analysis of wallets, too. I went through wallet holdings, activity of the wallet and associated connections to other addresses, certain holdings associated with people who would be short-term sellers, and their historic participation in the mutual and when they have purchased NXM or wNXM.

After considering your points and others, I have changed my view and would support an initial liquidity amount of 30% for the RAMM. It is better to have a decent buffer and allow those who want to exit to do so in the beginning and additional liquidity will be provided to the RAMM to maintain the target liquidity. Any remaining capital that isn’t redeemed in the initial exit period will trend toward the target liquidity, which we’ll talk more about next week.

Agree with Rei’s post that this is the most consequential discussion we’ll have during this process. I’ve put a lot of time into preparing educational resources, having consistent updates shared on tokenomics, and trying to drive engagement here because I want everyone to have a chance to share their views and express their opinions. I genuinely do appreciate the effort everyone has put into the discussion this far.

[Gauthier]

Hi all, lots to unpack already!
Here are my toughts :

Question 1: What is the amount of NXM/ETH that should be able to be redeemed and exit in the short-term at a price close to book value (BV)?

I did my own analysis a few months ago and my estimated number was 2M $NXM, which I think still holds today. So that means 30% of the Capital Pool.

That being said, I tend to agree with @Hugh and @rchen8 that undershooting is better than overshooting. As a result, somewhere between 20-25% feels like the right number to me.

Question 2: Over what timeframe (the initial exit period) should this NXM be redeemed?

I just want to raise something that I haven’t seen so far in this discussion :

The longer the initial exit period, the higher the opportunity cost for short-term holders/traders. Therefore, a higher likelihood of them selling at a discount to Book Value, which in turns increases Book Value to long-term holders. I think this is a valid option.

Or maybe we just want to be done with it?

Question 3: In the long term, how long should it take to get down to the Minimum Capital Requirement (MCR) based on the current cover amount, assuming everyone exits at maximum speed?

In support of a 2-3 year timeframe like Hugh and Rei mentionned. I don’t see a need to make it shorter.

[Wazzup]

Question 1: What is the amount of NXM/ETH that should be able to be redeemed and exit in the short-term at a price close to book value (BV)?

Ideally all of willing sellers should have opportunity to exit at BV in short-term. Artificially limiting exit amount/speed will lead to not resolving issues that this whole tokenomics revamp aims to resolve.
It should be cathartic event for mutal where everyone who doesn’t want to be here leaves and everyone who stays is long term aligned and happy to be here.
From comments here and other estimations I’ve seen 30% looks like it should take care of initial sell pressure but we can’t be sure of that. It’s unclear how much capital from early days of mutal is still waiting to exit at fair valuation. In case it won’t be enough there shouldn’t be hesitation to refill and repeat for another month (or whatever duration we end up with). Imo good way to measure if it was enough or not would be twap during last week of initial exit period. If it won’t reach BV +/- 1% it means that sell pressure has not been exhausted and there is still capital that wants to exit in short term.

Question 2: Over what timeframe (the initial exit period) should this NXM be redeemed?
Short is good just not too short. One month seems like perfect balance of reasonable and fast.

Question 3: In the long term, how long should it take to get down to the Minimum Capital Requirement (MCR) based on the current cover amount, assuming everyone exits at maximum speed?

It’s a big tradeoff. If this happens fast there is no time to build new partnerships and find buyers for more covers. If this happens slowly yield for members will remain at low levels.
I think 2-3 years is very reasonable schedule but I don’t think it should be linear speed.
Reduction of capital pool has increasingly negative impact on possible growth/partnerships the closer it gets to MCR but initial reduction has no or negligible impact on it. So far we didn’t find any opportunities that would require 50k eth to execute and honestly I don’t think we will get those any time soon. By front loading some of this reduction we can achieve better yields faster without noticeable negative impact on growth.

[BraveNewDeFi]

Now that the first week has concluded, this discussion is moving to the Snapshot signalling vote phase.

Thank you to all of the community members who shared their views—the proposed answers shared on the forum were used to create the choices for the signalling votes outlined below.

Timeframe for voting

There are three (3) non-binding Snapshot signalling votes, which will be open for voting from Monday (21 Aug) at 1pm UTC until Saturday (26 Aug) at 1pm UTC.

The results of these non-binding signalling votes will be used as key input for the specific parameter packages discussed in more detail during the Part 2 discussion.

Edit: the Part 1 Snapshot signalling votes have closed. You can find a breakdown of the results in the sections below.

Results of the Snapshot Signalling Votes

Over 1.3m NXM voted in the three (3) signalling votes last week, which represents 20% of the total NXM supply and 31% of the NXM supply that isn’t held in the wrapped NXM contract.

Thank you to all of the members who participated in the signalling votes!

Below, you can find the results of the three (3) signalling votes.

Liquidity Parameters Discussion (Part 1) Signalling Vote: Question 1

Question 1: What amount of NXM/ETH should be able to be redeemed and exit in the short-term at a price close to book value (BV)?

Members signalled their support for the following options:

• Option A: 15% | 1,014,000 NXM, 21,900 ETH | 20.12% (272k NXM) signalled support
• Option B: 25% | 1,690,000 NXM, 36,450 ETH | 11.52% (156k NXM) signalled support
• Option C: 30% | 2,028,000 NXM, 43,750 ETH | 46.34% (627k NXM) signalled support
• Option D: 40% | 2,704,00 NXM, 58,300 ETH | 22.02% (298k NXM) signalled support

In total, members voted with 1,353,088 NXM to signal support for the choices above.

Liquidity Parameters Discussion (Part 1) Signalling Vote: Question 2

Question 2: Over what timeframe (the initial exit period) should this NXM be redeemed?

Members signalled their support for the following options:

• 2 weeks | 0% (0 NXM) signalled support
• 1 month | 79.41% (1.1m NXM) signalled support
• 2 months | 20.59% (279k NXM) signalled support

In total, members voted with 1,353,089 NXM to signal support for the choices above.

Liquidity Parameters Discussion (Part 1) Signalling Vote: Question 3

Question 3: In the long term, how long should it take to get down to the Minimum Capital Requirement (MCR) based on the current cover amount, assuming everyone exits at maximum speed?

Members signalled their support for the following options:

• 1 year | 14.28% (176k NXM) signalled support
• 2 years | 9.1% (112k NXM) signalled support
• 3 years | 76.63% (944k NXM) signalled support

In total, members voted with 1,231,476 NXM to signal support for the choices above.

[MartinKrung]

Missed that discussion and snapshot vote, but I think the outcome of this votes reflects what I’m thinking of this.