- In the above pool, price goes up when people buy NXM from the protocol, and goes down over time. There isn’t really a spread to speak of unless you’re very close to the NAV (i.e. book value) - once the price is above NAV + buffer, only the above pool really gets used and there is no ‘spread’ to speak of, just a single price.
That price staying high depends on two things:
- Market values NXM above book value and the open market price sits high somewhere. That means whenever the Above Pool of the protocol drops the price sufficiently, someone buys that NXM, wraps it and sells it on the open market at a profit.
- Liquidity in the RAMM is low enough for that arbitrage effect to win out, instead of just pulling the price down.
The parameter discussion has just started, and expecting that second bullet point to be a major goal of setting liquidity levels.
- That basically just relies on Nexus Mutual being a competitive entity.
- sell profitable covers in large volumes. Typically large tradfi insurance companies expect a return on risk-adjusted capital of around 8-10%, no reason why Nexus Mutual can’t achieve at least a similar amount. Also bear in mind that stakers only take on 50% of the risk of the covers, the rest is carried by the mutual itself.
- Make good investments with the float (e.g. we already have ~37.5% of the capital pool in ETH staking ourselves).