Potential next steps for continuation of Operation TM12

With the wNXM purchases close to completion it makes sense to think about what steps, if any, would make sense to help the original aims of Operation TM12 and be value accretive for the mutual. There has been some discussion on Discord but I think there are some questions that would be useful to address here:

  1. Is there room to allocate further capital pool to the buyback? / What is the MCR% that members are comfortable operating at which enables the mutual to be able to cover existing potential liabilities whilst also considering future growth enabled by Nexus v2 etc?

The capital efficiency ratio is currently considerably lower than during the late 2020 - early 2021 period and I struggle to see the catalyst for this increasing pre v2 but I don’t have a good feel for how far below MCR we could go without endangering the long-term health/potential of the protocol so will defer to those who have thought about this more deeply.

  1. If it’s deemed too risky to lower the MCR% further, would it be beneficial to allocate investment earnings from stETH towards continuing the buyback on say a quarterly basis?

Related to this, any update from the investment committee in relation to what needs to happen for additional capital pool to be staked would be gratefully received.


I’ll add my thoughts:

At the time of writing this, we have used about 5900/8000 of the allocated ETH for the TM12 proposal. While we have not completed all of our goals for the original proposal, I think it has overall been a success.

Here are my unofficial stats:

  • Total WNXM bought: 312,269 Wnxm
  • Total Eth Spent: 5,900 Eth
  • Average Price: .01889 Eth
  • Total Profit: 1463 Eth (Assuming a pre-buyback book value of .02358 Eth)

At current prices, this is a net profit for the mutual of about $4.68m, or ~.9% gain for the capital pool and NXM holders. This is more than the mutual earns in an entire year of Lido staking, and with very little additional risk.

Here is a dashboard to take a look at some of these stats yourself: Buyback Statistics

Pure profit aside, there were multiple benefits achieved by this buyback:

  • Long time holders were provided with liquidity to exit if desired. This is essential for creating a healthy and attractive market
  • The Bonding Curve Price was lowered. Until the wnxm price trades in line with the bonding curve, ETH will not flow into the capital pool from the bonding curve. Lowering the bonding curve price means the bonding curve can start contributing ETH to the capital pool again sooner to refill the pool.
  • The MCR% was lowered, which closed the arb opportunity between WNXM and the bonding curve temporarily to prevent value leakage.

What we have not yet completed:

  • Creating additional liquidity for WNXM. We need to move the price closer to book value to be able to do this via Uni v3.
  • Funding new grants. This is now possible, but none have been proposed yet.

The main question for allocating additional ETH is what MCR% is possible without hurting the mutual’s ability to provide cover. Up to this limit, it is a no-brainer to continue the buyback.


agree that it has been an overall success… and think it might make sense to potentially think about a new buyback proposal but potentially with a smaller amount to buyback below book

I think the buyback has been very successful for long term holders and we should keep buying back as much as is prudent below book value.

I’m happy to defer to the insurance experts about what MCR% number is prudent. I wonder if we should focus on using the capital efficiency ratio as the main metric to guide our decision making instead of MCR% as the MCR seems kind of arbitrary to me.

I had not initially thought about this… there are two ways to restore the peg: increase wNXM price or decrease NXM.
I’m just throwing this thought out there… don’t bite, I haven’t thought it through yet:

Let’s imagine we reduced the MCR% to bring the bonding curve price to book value, by transferring ETH to the investment committee (I have no idea how much MCR% that would represent).
Some of that ETH would be spent by the investment committee to purchase wNXM up to book value, and to set up a one-sided Uniswap V3 pool to provide liquidity below book.

This would achieve re-establishing price parity between wNXM and NXM, without purchasing wNXM above book value.

Whilst the mutual asset pool will have been reduced and some may see this as reducing the mutual’s potential, the ETH is not gone… just moved temporarily to the investment committee which could unwrap a large part of the wNXM’s to become a whale staker, and spend some of the unrealised profit from the buyback on growth activities such as marketing, layer 2 integrations, whatever… (Vincent’s ideas)

With the peg restored, the newfound transparency and liquidity in the token would enable members to easily move in or out of their position… IMO something which is a requisite before demand for the token can come back. (just like a bank run, depositors want to exit when they are told their funds are locked, but are happy to stay and may deposit more when their funds are freely accessible!).

This would see the price of wNXM natually trend up as interest grows, by which time the investment committee will probably be returning funds to the capital pool to grow MCR%…

I really think we need to clear out the positions that want to get out to regain a healthy ecosystem. The best part? That can be achieved for a profit to the mutual.

At this point, we’d like to increase our allocation to ETH2 staking options, but there are a few things holdings us back:

  1. Wartortle. Until the first stage is complete (Late February, Early March, hopefully) we cannot transfer any assets from the capital pool, other than for normal business operations.

  2. Our allocation to Lido is too close to our max exposure limit, so, we’ll need to look at other options which adds complexity and time.

  3. We’ve been looking heavily at other options, including Rocket Pool and StakeWise, but haven’t been able to get comfortable yet. Our confidence is improving every week, but we’re not quite there yet. Our goal is to be ready to make multiple investment recommendations, including ETH2 staking, for when Wartortle finishes so that we can be full steam ahead.


Agree with many of the points made above.

In some respects Operation TM12 has been a great success, growing adjusted book value per token more than core operations would have and it would be better for long term holders to buy as much as possible below book.

The reality of Operation TM12 is that we undersized it to achieve its ends. We still need to clear out this backlog of disengaged token holders who are trapped to really allow the mutual to grow again.

Ideally we’d initiate Operation TM12 part 2 with more than 8k ETH (e.g., 10k or 12k) to show our seriousness about turning things around and then if that is not enough initiate Operation TM12 part 3 with even more ETH, though we do of course need to be prudent about the capital required to cover potential claims and it would be useful to discuss the analysis on how low MCR can prudently go.

At a minimum, we should instantiate recurring buybacks with investment earnings to prevent MCR from getting >100% to prevent value leakage from the mutual members to the bots.

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