Proposal : Operation TM12

Needless to say i strongly support this proposal to grow the value for the mutual through multiple initiatives that would be highly value accretive to the mutual and members, especially buying back wNXM below book value of 0.025 eth per (w)NXM.

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I love everyone got together but still not convinced the capital pools should be used for this.

Wnxm price is at it’s level for a reason, we should mitigate that and put our collective efforts there. There is no guarantee wnxm nxm peg will be solved by buying wnxm.

The bots are not part of the problem, and I still don’t see how the Mutual benefits from this buyback using the capital pool. The community fund can be used but this funding was already approved and should not be increased purely for this buyback.

So overall against this proposal.

Pro further education, marketing and using any surplus generated by the investments made such as from stETH.

Thanks for your input.

First thing is that we the wnxm nxm peg is not the objective and won’t be restored with this proposal.

Second thing is bots are not the problem, they are part of any market. The leak of value is the problem and what we’re trying to prevent with this proposal.

Finally,

using the Community Fund will allow to minimize the amount of development resources so the team can focus on the product!

At the end of the day, the community will decide !

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@target I believe wNXM is at this level for the most part because it lacks liquidity. Just think of the Cream hack: the wNXM that was stolen was just dumped in a market that could not absorb it, causing the price to drop by 30%. The price did not recover until this proposal came out.

Pro further education, marketing and using any surplus generated by the investments made such as from stETH.

Investments from stETH and cover premiums are currently not accumulating to the capital pool: whilst the mutual is taking on extra risk with every cover sold it is not currently keeping the premiums!

Transferring just 5% of the capital pool to the investment committee solves this problem for the short to medium term: right now it is the only solution that will allow the mutual’s book value to begin growing again. I think a growing book value will go a long way to achieve all the goals you mention.

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We don’t need to care about liquidity of wnxm, it is not our market. We want people to use nxm and stake.

They are actually burning (w)nxm which is good for everyone. The OP suggestion does not guarantee any profits.

Those earnings and premiums don’t just vanish, they lead to nxm being burned! Capital in the pool remains the exact same. But yes, there should be a future diversion to get earnigns into a seperate pool.

Putting it back in LP is risky. We should not interfere in a that market and especially not putting it back in markets we provide cover for. We can actually be losing value, impermanent loss, if people use the extra provided eth (assuming we add symmetrically) to swap and get ETH for their wnxm. Or even worse a hack.

Community funding was already approved and we got plenty, we don’t need more at this stage.

Suggestion: still going ahead with part of the proposal and do a specified ETH transfer from the pool and burn the purchased (w)nxm. 2000 ETH would be more than enough for that. Keep things simple.

With performing this burn like many other players in this space, I could see a benefit as we reduce nxm supply and have relatively more nxm back in the eco system (as members have chosen not to use those provided wnxm what its utility is meant to do).

This is also totally risk free of above noted points (impermanent loss and hacks in markets we give cover for).

Another thing: how would we deal with front-running? The users / signers of the community fund making the large purchase of wnxm can perfectly front-run the buys (e.g. on the other DEX or CEX). We are not talking about small numbers here.

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A great proposal. Glad to see this move forward.

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Yes. However one bot buys 1 wNXM for 0.015eth, unwraps its, redeems it, and extracts 0.038eth out of the capital pool. This way profits are never accruing to the pool… they keep being leaked.
Why give away all this value to the bots if we could instead retain it for members?

I disagree. Currently because of the bots none of the other members are ever able to redeem their NXM. The only way for members to access liquidity whilst this is happening is via wNXM.
It is important to offer a way for members to exit when they wish to do so as not doing so keeps new investors away.

The proposal suggests the fund could be buying wNXM via the LP only when it is trading below book value so it would always be accretive:


I agree this is not the objective of the proposal.

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This proposal is not retaining value for members. Value is extracted from the pool, wnxm is bought. It does not guarantee any value for members as wnxm can still go down in price. This proposal is not allowing members to sell their nxm, and they could always sell wnxm. So this does not change anything.

Every non whale can perfectly sell now in cex or dex with almost no slippage. If we were to provide LP, we provide an exit to whales, hackers and the Mutual their eth (as part of the LP) would be swapped for the whales or hackers their wnxm, giving the Mutual more wnxm upon withdrawal but likely at a lower value. So again no gain here.

Hence whatever is bought should be burned, reducing the supply and giving more scarcity is the only way to have more tokens being used for what it should be and where we want it to be, and giving more eth value for every remaining nxm.

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I totally agree with this. However my understanding is that this is not possible in the short term for a number of reasons.

The current proposal ensures that in the meantime, value begins to accrue to the capital pool rather than being leaked away, so we will be in a better position when that option is available.

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If one looks to the standard insurance/investment world, it’s a no-brainer to buy back significantly below book value for the mutual, especially with such a discount as well as in such a growing insurance field.

Another interesting benefit is that once we move mcr beyond 100% our community fund would be extremely well funded for long-term initiatives to advance the mutual.

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Hi @target,
I really appreciate your comments and commend your pushing pack here with detailed arguments against specific points of the proposal.

I must say, I do find the replies from @Melvin, @vincentj and @Gauthier quite convincing, which shows the proposal has been well thought out.

I want to add an argument against one of the points you made:

This could have a second-order positive effect:
→ if whales realize they have a better liquidity to exit their NXM position, they may consider it less risky (i.e. illiquid) to invest in the first place, and thus it could reinforce the interest of larger investors to use Nexus…

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Others have noted some of the issues, so I’ll highlight one that other’s haven’t yet covered.

Community funding was already approved and we got plenty, we don’t need more at this stage.

If you review the Community Fund right now, we have:
235,969.03 NXM (~$41,643,814.41)
7,402.80 wNXM (~$514,467.17)
97,725.692792 LDO (~$407,516.14)
Which totals to $42,565,797.73

Now, if you take the NXM in our treasury and convert it to wNXM, you reduce the $41,643,814.41 to $16,343,215.018. Given the other values, we have a total of $17,258,119.25 in liquid capital.

The wNXM discount does impact our treasury funds quite a bit. Since I manage Mutant Marketing, I can tell you there are some expenses, such as advertising, graphic design, POAP creation, etc., that require USDC or ETH as payment. Other Hubs will have the same issue in the future. So far, I’ve paid for any stablecoin related expenses out of my own funds and effectively bought wNXM to prevent it from entering the market. However, this is a temporary solution.

The wNXM discount does affect every member of the mutual, and, as such, it affects the mutual on a whole since we all own the mutual as members.

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What is the advantage of LPing into a Uni V3 pool with WNXM/ETH rather than simply burning the WNXM?

Is it that WNXM and ETH should, in theory, rise and fall at the same rate so IL would be close to zero, and thus, this will be a steady income stream?

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@Gauthier had a great explanation in the Solving wNXM discount while maintaining reasonable MCR% forum post.

Essentially, we want to provide concentrated liquidity above book value up to the bonding curve price to create deep liquidity within that range. This would create somewhat of a price floor above book value.

I think it’s important to note that burning existing WNXM does nothing to stop current NXM holders from wrapping NXM to WNXM and selling on the market. Providing liquidity long-term would enable the mutual to earn trading fees over time. IL could be a concern in the short-term, and I’m sure we will incur IL. However, we’d be earning 1% of every trade and at least benefit from wNXM trading.

In addition, it’s important to note that our Community Fund (treasury) is primarily NXM. The NXM in the Community Fund is also subject to the same restrictions as every other member, so it cannot be redeemed through the bonding curve. This means a lower WNXM price results in selling WNXM to fund grants, pay operational costs for Hubs, etc.

Low liquidity for wNXM has been an issue for some time, and there is a benefit to offering deep liquidity. The Capital Pool is earning ~4 stETH/day. Projected yearly earnings are 1,460 stETH, if not more. Investment earnings plus cover premiums earned would offset any IL incurred by LPing. In the short-term, we will likely see IL from LPing but the long-term value is more important here.

It provides members deeper liquidity to enable both larger buys and sells through an AMM. It earns the mutual 1% of every trade. For those members who want to sell WNXM, it gives them a chance to exit at a reduced discount.

And if we’re buying WNXM below book value and LPing with it in Uniswap V3, then we can enter a position with 100% WNXM above the current trading range and diversify into ETH as the price moves upward, while buying WNXM as the price moves back toward the bottom of the range.

We’re essentially buying low, selling higher, and creating deep liquidity within a range to establish a price floor on the open market.

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I see (I think): liquidity below MCR allows people who want to exit to exit, correct? Whereas the situation today is that people only sporadically get to exit at their preferred prices.

Yes, it allows members to sell at a reduced discount. That’s important if we want to improve sentiment in the short-to-medium term. The discount is 59.74% right now, so anyone wanting to sell takes a large hit on price. More importantly, they are selling below book value.

In addition to solving for the above, we earn 1% on every trade within the wNXM/ETH pool. We would likely provide wNXM single-sided on Uniswap and diversify into ETH as the price goes up, while buying back wNXM as the price goes down–all the while earning 1% of every trade. Deeper liquidity within a price range set above book value reduces the capital that members can arb out of the capital pool as well.

Having deep liquidity goes both ways, though. People can buy wNXM and people can sell wNXM. More liquidity means bigger trades can occur without suffering from large amounts of slippage.

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Thoughts on impact of this MEV attack on Uniswap LP idea? I am not a MEV expert.

Thanks for sharing.
We can learn a lot looking at the replies below this tweet…

The Uniswap product guy (excerpt):

“how dare you improve the price of trades by providing liquidity just in time”

this is a powerful feature of the protocol, not an MEV attack

Another user sums it up quite well in a more neutral way:

JIT attack encourages sophisticated LP strategies,
which indirectly improves the capital efficiency
as well as offers better liquidity for end users.

It reinforces my belief that a sophisticated LP strategy is necessary for uni v3…

Interesting innovation to LP’s!

Let’s face it, this would be a benefit to wNXM holders… Not really an economic risk to a community fund liquidity pool, more of a signal (when the time comes) that it is no longer required?

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