Thanks @oSaaT
To briefly address you main questions.
The 2/20% model applies to profits, so I’d mainly describe it as quite incentive aligned. In the extreme some fees are taken even if no profit occurs, so it’s not fully aligned in all circumstances but pretty good on this front.
Yes, the investment and retro are linked. We can’t do the retro without the investment (though we could do the investment without the retro).
Thanks @oSaaT, and @Hugh - only thing that I would add here is that Re is also backing insurers supported by this proposal directly from our balance sheet, so there is significant alignment on generating underwriting profit.
As mentioned on the Community Call this week I’ve been discussing separately with several of the larger members over the past few days around selling ETH for stablecoins to fund this deal.
The general consensus amongst those I spoke with was that there is a preference for maintaining ETH exposure and therefore borrowing the stables rather than trading ETH. This was caveated by a desire to set quite conservative collateralisation ratios and having a plan to minimise downside should ETH price drop materially.
Given this feedback I plan to adjust the proposal to include the borrowing in the following way:
Borrow ~$12m of stables (with a cap of $14m) leaving at least $1m of stablecoins in the Capital Pool. Allocate $15m for the deal ($12m for the investment and $3m for collateral).
To execute this, the Mutual would transfer ETH from the Capital Pool to our Enzyme vault, where it can be deployed on Aave v3 as collateral. The position would be configured with a conservative liquidation point of around $800 per ETH.
The borrowing costs will effectively be covered by the expected investment earnings in the investment, but any interest earned on the ETH collateral will also be used to pay down the borrowing costs. We would aim to maintain a collateral ratio at high levels and therefore sell some ETH to pay down debt if ETH price drops to $1500.