With Operation TM-12 in progress, the Investment Hub has been considering the best uses of the wNXM acquired by the Community fund. The entire 8k ETH allocation has been used to purchase wNXM (see this great Dune dashboard by @Muir).
There’s been a lot of alternative suggestions from the members and community in general for using the wNXM and we’ve narrowed it down to 4 potential options to discuss.
It seems unlikely that the whole membership community will agree on which approach to take, so instead of getting the community to agree on a single use, we suggest:
holding a snapshot vote with members picking their favourite use
allocating the wNXM to those uses in proportion to the votes
any individual option that does not reach 10% of the vote is allocated to the other options in proportion to their vote share (quorum necessary to reduce complexity of implementation)
Suggested Options
Discussion of the pros, cons, support and opposition for each option would get very messy in a single forum post, so this post should be reserved for comparing the options and expressing preferences. Implementation specifics for each option can be discussed in their individual forum post, with links below in no particular order:
Stake it against selected risks on the Nexus Mutual platform - Link
Have another idea? Feel free to create a new post!
LP Option
Quickly, we wanted to discuss why we don’t think that LP’ing the wNXM is a good idea, currently. In the original proposal, it was suggested that we could LP between the book value price, and the bonding curve price. Currently, wNXM continues to trade far below book value, so LP’ing in the range isn’t going to generate any fees. LP’ing below book value in our view doesn’t seem to be more valuable than any of the suggested options listed above.
Great ideas! I agree that all of the suggested options could be worthwhile to explore. Would be great if snapshot had ways to introduce voting on multiple options… which i think Scattershot (fork of Snapshot) is providing but might be not worthwhile to have another community fund presence there…
I like all 4 ideas!
Vincent’s idea of allowing to vote on multiple options is a good one, although will that result on 25% allocation to each idea?!
However voting on just the favourite might provide most of the allocation to just one idea rather than a representative split.
While it wasn’t quite the explicit purpose in the proposal that went to vote, the use case mentioned in the proposal and most discussed during the preceding discussion was the creation of one sided liquidity on Univ3 from book to bonding. It seems a little odd to completely dismiss that as a option after the vote and subsequent successful buyback.
Of course fees won’t be earned while wNXM is trading below that point but this was obvious before the buyback. While LPing may not provide a direct and obvious value increase in the short term, I believe fees should be a secondary consideration or simply a bonus to the creation of a healthy amount of liquidity on chain, which allows future options currently impossible with the bulk of liquidity on centralised exchanges.
I would advocate for a Univ3 LP to at least be an equal option for consideration with those listed.
Of the alternative options, I would be most agreeable to staking on the platform on high demand/low available capacity protocols but I would be concerned that the less risk adverse nature of the community fund compared to an individual staker could raise issues.
I would be firmly against a burn of the wNXM, as I strongly believe that would offer little to no benefits to the mutual.
Increase foundation funding and stake against selected risks are clear winners to me as they create clear value to the business which I think we should prioritise over trying to extract value for NXM holders. The faster we can grow the market and our share of it the better off the mutual will be and there is plenty of time later to extract value for holders.
My vote is for a 50 / 50 split between staking and foundation funding.
If the Nexus Foundation can actually use all of the funds from the buyback, I would be in favor of splitting this buyback 50-25-25 between the Foundation, staking, long term alignment respectively. With the next buyback we could use the same or similar percentages to provide the foundation with adequate funding.
LTA definitely needs some ideation, but there is a lot of potential to increase inflation in key areas to spur user acquisition and long term alignment. While we don’t have exact details yet, I think there are enough options there to warrant an allocation.
I agree that LPing is not actually the best option right now. The way I see it, single side LPing is just selling our WNXM at less than the bonding curve price. The benefit would be if we were trading between book and bonding curve price for a long time so we could accrue fees to make it worthwhile, but ideally we trade to bonding curve price as quick as possible so we can grow the capital pool and us selling WNXM inhibits this.
Overall, I am in favor of reinvestment into ops, growth, and talent. Burning at these prices and during this market environment is not as high of an ROI as investing in improving the mutual. As some above have mentioned, the optics are not really there in this market environment. Rather, it makes sense to understand this as a great opportunity where the mutual acquired wNXM at a significant discount and will use it to finance future endeavors when the price could be higher. This is right out of the corporate equity ‘repurchase at bear / use to finance during bull’ playbook (best exhibited by CEOs like John Malone).
Let’s use wNXM as currency to finance talent retention and acquisition (the foundation, long-term aligned group) and growth (indirectly through the foundation).
I am open to learning more about the staking option, however, I am concerned of the ability of a group of individuals to price risk better than the market. That being said, if there is a strong grasp of the fundamentals, and mispricing opportunities are identified, then it could be valuable.
Paying for talent in wNXM is not advantageous: it costs the mutual “book value” but gives the hired talent “market price” … (up to 50% haircut unless we can establish a floor for wNXM at book value).
Burning at these prices or other prices makes no difference… it simply reduces the number of NXM so each NXM has a greater share of the capital pool - but I understand the point you’re making and agree.
I agree with @Melvin , and think allocating bought back WNXM for the foundation to use while below book value is value destructive. I’d have no problem using voting in favour of that after WNXM discount has been resolved.
Reading through the proposal discussions for the other options, @Hugh seems to have suggested that both LTA incentives and staking with Nexus Mutual would be better suited or more appropriate in V2. Please correct me if I’m wrong and have misinterpreted you.
I also don’t expect burning the full amount bought back to pass a vote at this time and buyback and burn is a somewhat contested model these days.
With all that in mind it seems like either we might be unlikely to reach consensus on how best to use the WNXM soon, or that if we do reach consensus it might be on an option that requires waiting for V2 before we can utilise the WNXM.
In which we should not delay on the second buyback proposal until this discussion is resolved, and should move to a vote as soon as possible. I’d argue the second buyback is probably more time-sensitive than the deciding how to use the WNXM already bought.
Reading through the proposal discussions for the other options, @Hugh seems to have suggested that both LTA incentives and staking with Nexus Mutual would be better suited or more appropriate in V2. Please correct me if I’m wrong and have misinterpreted you.
All I’m saying is any bonus rewards can be implemented much more efficiently once V2 is live. I don’t think this should influence the vote, it simply impacts the timing of when it could start.
I’d argue the second buyback is probably more time-sensitive than the deciding how to use the WNXM already bought.
I’ve heard the time sensitive nature of a second buyback be mentioned a few times, what’s the rationale here?
Market Sentiment
We keep talking about the market being inefficient/irrational for not pricing WNXM at book value after the first buyback, but we’ve given market participants who aren’t regularly keeping up with the mutual very little reason to be confident in WNXM price.
Rather than highlight new cover buys, revenue growth or the many positives; most external discussions of Nexus are along the lines of whether contributors will rug, are in the process of soft rugging or will eventually be forced to dissolve.
The longer we drag our feet on addressing the issues around WNXM and the more time between the first and a possible second buyback, the worse that gets and the larger the amount of ETH that might eventually be needed to close the gap.
Using WNXM in the foundation
The foundation has what like 40% of it’s value in NXM/WNXM, value it can’t realise without selling at a steep discount (and it shouldn’t receive more WNXM below book); meaning funds available to attract new talent are limited.
Raising new capital through the bonding curve
There’s zero incentive for anyone to add new capital to the bonding curve and the mutual as you’re immediately hit with a massive haircut on market value once you do. So we’re limited in our ability to raise new funds.
Leaving the door open for competitors
If any new project or well funded DAO enters the insurance marketplace without having to struggle with our token baggage, then they’ll have an easier time attracting funds and competing with the mutual. Possibly unseating Nexus as market leader, or at least forcing us to compete with them on cover pricing and reducing margins for the mutual.
What’s the rationale for a second buyback not being times-sensitive?
Awesome work on this, team! We (1kx) appreciate the thoughtfulness put into both Operation TM-12 and the listed options provided by the Investment Hub.
We would be strongly supportive of using the repurchased wNXM to increase the Nexus Foundation’s funding. We agree with @aleks that if we can generate a positive net return then it would be value accretive, and thus preferred, to reinvest the funds back into the Mutual as opposed to burning them. The Nexus Foundation is currently constrained around hiring and growth due to being undercapitalized, sitting on only $5m in assets that are unallocated according to @aleks’ post. This is likely the most value-additive option of those listed.
We would also be supportive of creating a long-term aligned group via a ve- style staking model per @gauthier’s post that could ultimately take over the Advisory Board’s powers once it is fully operational/viable. Staking wNXM across selected risks for specific protocols, yield tokens, and custodians (option 4) is also an excellent choice for providing additional capacity and pricing control on cover.
The only option we are hesitant to support is the burn option itself since we feel there are better uses for the capital.
We would also like to note that it would be strongly preferred to allow individuals to select multiple options for the vote, since if people only pick their most preferred option, the others might not receive enough support even though they would still be preferred by the community. We would like to diversify our votes across multiple options rather than the potential winner-takes-most outcome that might arise from picking a single choice.
My 2 cents here are that we should vote trying to maximize :
Value creation (60%)
Optionality (40%)
Based on this framework my personal preferences are :
1. Funding the foundation
If increasing the funding can help to hire only 1 more dev, it’s already worth it. It would increase dev resources by ~20%.
This is time-sensitive as we need to stay ahead of competition as much as possible. Also, due to the shortage of devs on the market, being unable to make a hire due to a lack of funding would be a terrible thing. So the sooner the better!
For those worried about selling those wNXM on the market, they would most likely be sold in a private sale to VCs.
2. Boosting rewards for a long-term aligned group
Less impact than funding the foundation because there is no urge, however this option provides more optionality.
These funds would stay in the Community Fund until we figure out how to properly set-up this long-term aligned group. It would be months away at the very least, as the dev team has higher priorities.
3. Staking
Maybe this will change with v2, but most demanded protocols are already at max capacity (with 1 or 2 exceptions). I think the impact here is limited. We should also be cautious here about reducing yield for other stakers.
4. Burn
Destroys all optionality and - in this inefficient market- destroys value
Talked internally, agree that having multiple selections makes sense. So, when this goes to vote members will be allowed to vote for multiple options if they wish.
Kind reminder to all: there will be a 10% minimum threshold. If an option fails to reach 10% of the total vote, it will be ignored. This is to reduce operational burden for options which aren’t popular.
Sure an OTC deal with VCs isn’t going to add sell pressure like the foundation market selling would, but that’s still releasing WNXM back on to the market below book value and counterproductive to the buyback…
Unless VC are signing up to be constrained to selling only after reaching book value, but obviously that’s pretty damn unlikely.
Honestly the fact that this is time-sensitive is a positive. The need to increase foundation resources and need to the repair market confidence in WNXM and market price are one and the same. Fixing WNXM helps foundation capitalisation; and they fact that it does actually helps align incentives between token holders and contributors. If recruitment needs are time-sensitive, let’s treat the WNXM issue as time-sensitive as well instead of delaying further.
Giving more WNXM to the foundation which they plan to sell below book value, would only cause those incentives to be further unaligned.
Mostly in favor of using it for rewarding long term stakeholders and increasing Nexus foundation.
Having said that, any option that caters to long term stakers should take into consideration the mechanics of V2, otherwise we are leaving many possible good money lego scenarios out on the table.
While I think it’s a good discussion to have right now, and some signaling could def give more context as to what people are thinking, I think any actionable decision should be held off from using wNXM until V2 is out, unless the community decides to allocate this to the foundation and the foundation can clearly see a use for the funds before V2, otherwise again it should be held off. So wen V2?