NMPIP 224: Divestment Framework

NMPIP 224: Divestment Framework

Overview

The Investment Committee proposes a framework for keeping a target amount of “cash” assets in the Capital Pool, totalling 1m in stablecoins and 12,500 ETH.

We propose delegating the ability to convert stETH and rETH back to ETH in the Capital Pool to the Investment Committee, aided by the Advisory Board in technical implementation, in order to maintain the target amount of “cash” assets.

Rationale

The reasons for requiring this are as follows:

  • ETH liquidity is required for ongoing redemptions from the RAMM
  • A large portion of the existing ETH in the capital pool will be used to borrow USDC on Aave for the purpose of executing the Cover Re deal. All Cover Fees generated in stablecoins are best used to pay off the USDC loan. Some ETH will need to be set aside for topping up the collateral on the loan if required to avoid liquidation.
  • Through investment gains and the redemptions from the Capital Pool, stETH has become a disproportionately large part of the assets.

Based on the average changes in the Capital Pool since August ‘23, the following projections (source) can be made about the future progress of the Capital Pool:

This shows the overexposure of the capital pool to stETH and the concern that ~4-5 months from now (around late September) the RAMM may be short of ETH liquidity if RAMM redemptions continue at the current rate of ~3,000 ETH / month.

Specification

The Investment Committee proposes a framework for keeping a target amount of “cash” assets in the Capital Pool, totalling 1m DAI and 12,500 ETH.

The target cash assets consist of the following:

  • 1m in Stablecoins and 500 ETH to be used as immediate liquidity for claim payments
  • 9,000 ETH as liquidity for the RAMM
  • 3,000 ETH to be used as emergency collateral for the USDC loan associated with the Cover Re deal.

A successful governance vote would result in no immediate on-chain action.

It would, however, give the Investment Committee, assisted by the Advisory Board, the authority to exit positions in stETH and rETH in order to maintain the target amounts of cash assets:

In order to maintain investment returns, we propose that the conversions occur to restore the target cash assets once they have reached a value of 6,500 ETH and 1m in stablecoins, i.e. the claims liquidity, the collateral reserve for the Aave loan and one month of maximum RAMM liquidity.

The Investment Committee will, only if necessary to meet the target cash assets, perform the following actions, in order.

  1. Incrementally exchange the stETH in the pool for ETH if required to meet the target cash assets. Only stETH would be exchanged up to the point where we have the same value of stETH as rETH in the pool.
  2. Incrementally reduce the stETH and rETH to 15% each as a proportion of the Capital Pool.

The first transaction under this proposal - converting stETH to ETH - is expected in July.

The transactions would be performed directly in the Capital Pool using the existing CoW Swap integration.

Proposal Status

Open for review and comment until Tuesday 18 June.

After Tuesday 18 June, this NMPIP will be eligible to be put onchain for a full-member vote.

See the previous RFC proposal for community comments and questions.

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