I would be interested to hear if you think the marginal returns from these new cover buys would outweigh the profits from a buyback. The last buyback generated profit equal to almost half of our annualized premiums in force, with 0 risk.
I would also like a comment regarding the risk profile of the cover we are currently selling. Since we are selling cover 60-70% below our modeled risk pricing, who is picking up the additional risk?
I would support this, but I just don’t see a better use of capital than buybacks if we are trading at more than a 5-10% discount to book.
I agree there is significant room to leverage up, but even if we lose some potential cover purchases, they simply cannot provide the same returns as a buyback.
due to the downward spiralling wnxm price and no cover price adjustment, we are selling risk increasingly low… i think there should be a mechanism in future upgrades to ensure cover prices are linked to wnxm price. it also doesnt make sense to me that cover pricing becomes exceedingly high when nxm is above 100% mcr…
even more so agree that there simply is no better way to return profit to the mutual than buying with 50-100%+ to book value, every rational investor would hand over fist vote for a buyback if the upside to book would be anywhere close.
Adding some extra flavour from my perspective here:
I’m personally against the buyback, at this point. With V2 coming out and the many conversation I’m having with potential large cover buyers I don’t believe now is the time to be handing back capital. We will need it for growth and we’re already fielding questions on why 95% MCR% is ok. I would have preferred ~97% for the first buyback rather than 95%, so quite strongly believe pushing it to 90% is not where we want to be. We’re building a fundamental product to support the mass adoption of crypto. Mass adoption is starting but the real volumes that require insurance like solutions haven’t entered yet. Giving up capital on the precipice of this adoption wave is strategically a very weak move imo.
This is not about a few extra covers here and there, it’s about giving confidence to big strategic buyers and potential distribution partners we can scale up and meet their demand. Their major question right now is on future scale, we don’t want to bring any further doubt to that.
this is a great point and I trust your judgement here more than any other.
still think it makes a ton of sense even then to buyback (given 100% upside to book, as well as still maintaining a gigantic capital pool almost as big as all outstanding cover), you also have to see the other side, i’m extremely comfortable buying cover here, but not comfortable at all staking at these prices (which i did with my whole stack before, 20x) and if there is no willingness to buyback at massive discount also not comfortable buying wnxm…
think its also key to start thinking about more strategic, long-term bonding curve / tokenomics rethink towards growing the capital pool, pricing risk better, and having a more intelligent protocol native exchange than at the bonding curve… for example similar to early fei, it should be possible to sell wnxm to protocol at a penalty to book value without impairing mcr… a different discussion that i think is needed to make tokenomics/bonding curve the best it can be and serve the adoption flywheel better.
Really appreciate your input and perspectives here.
re the bonding curve, I agree it needs to be looked at. It was released quite a while ago now and there are lots of other tokenomics experiments and experience we can learn from. So I do agree there are very likely other mechanisms that can achieve the desired goals. I’d love for a working group to be formed to do some research here.
This tends to change my view. We’ve been used to limited growth this past year but if Hugh is anticipating more growth I think it’s worth noticing.
It will always be time to re-evaluate the buyback later. We’re not in a hurry except those looking for exit liquidity.
not sure, what we need for growth is people being willing to stake massive amounts… many (incl me) have stopped staking giving the low prices/relatively high risk… i’d be keen to buy more wnxm and stake more if wnxm would be committed to get priced near book value…
We cannot grow until WNXM trades in line with bonding curve price and this decision is abysmal for the price of WNXM.
If someone can explain why the buyback limits the growth of the capital pool (Not just temporarily reduces it) I would love to hear it, but so far there has been no counter argument.
This last buyback took ~500k NXM off the market @.017 ETH and lowered the bonding curve price to .0335. Now, when this selling is exhausted, most ETH inflows above the price of .0335 will enter the capital pool. When the price returns to .038, we will have the same amount of ETH we started with in the capital pool with a significantly lower supply of NXM.
It is basic economics here that reducing the supply is beneficial for the price, but the buyback is also absolutely essential for the future growth of the protocol. If we do not indicate that NXM is actually backed by ETH, there is no justification for NXM to ever return to .038, and the capital pool will never grow substantially ever again.
To clarify my growth comments, I’m talking about cover growth, not capital pool growth. Longer term these are aligned, once cover is > 4.8 X MCR, but for now they aren’t.
In your opinion will the mutual ever need to raise new capital?
And if so, are we not making that dramatically harder to convince new entrants to deposit capital in the future?
Essentially we’re abandoning NXM in the short-to-mid term. With faith that the market will one day reprice NXM (while giving the market every reason not to attach any value to it). Or that some time years from now the team will reverse course and start accruing value to the token. Which I’m not confident will happen having seen how this has played out so far. There’ll always be an excuse for while it’s not the right time, later, we’re on the precipice something.
agree. ultimately its a bad signal for long-term token holders and stakers if the mutual is not willing to buy with 100% upside to book… and optics to some long-term cover buyers imo not a good reason, when we can make ~100% risk free-profit.
To reiterate Hugh’s point: it’s not risk-free profit since lowering the MCR% introduces risk.
What risk is being introduced to NXM holders by reducing MCR%? The risk that we will be able to sell slightly less cover? Every allocation of money has opportunity cost, that isn’t the risk we are talking about.
Whatever premiums we miss out on from this marginal decrease in cover sales will be significantly less than the profit made by buying back WNXM. If you look at the risk weighted returns, it is even more ridiculously obvious what the best choice here is.
The mutual is picking up pennies in front of a steam roller right now selling cover for 70% off while ignoring free money sitting in front of it.
Exactly this! buying with ~100% upside to book is way smarter than selling cover/risk with 60-70% discount to the original price it was intended at selling.
I’d bet that cover demand would be smaller if wNXM would trade equal to NXM price. So i’d argue we should do as much buyback as possible at current discount + price cover closer to intended price (for example dynamically adjusting the price in wnxm to more closely reflect price in eth for example)…
I would argue that the discount has a pretty interesting effect on business :
- Our main business asset is trust
- Due to the wNXM discount, we also offer the cheapest coverage on the market
→ There are no incentives for cover buyers to go elsewhere than Nexus. We are preventing competitors’ growth. Underlooked fact imo as crypto-native insurance could very well be a winner-takes-all market. There are big long-term benefits to this.
Agree on that we are taking most of the growth… but ultimately every insurance would lead if it would underwrite risk way too low compared to competitors… and i think Nexus case it would need to also scale the capital pool + staking… which it doesnt properly.
Trust is indeed the most important asset, cheaper coverage is certainly not beneficial to this.
From a thoughtful cover buyers perspective, the further the wNXM price drifts from book value, the more credible the dissolution of the mutual becomes, buying cheap cover for a year isn’t very useful if the protocol may not be around that long.
I have no doubt people with knowledge of behind the scenes have the utmost confidence going forward with v2 and partnerships, however this is definitely not the prevailing sentiment regarding the project among active Defi users.
The DeFi team (BowTiedBrain, BowTiedNightOwl, BowTiedIguana) have professional experience in private equity, investment banking, digital marketing and software. We understand the various token economic designs and incentives for attracting capital.
We now offer advisory services to DAOs, beginning with a two-year engagement with Synapse (SYN).
We’re selective about which protocols we partner with, preferring teams+communities who have a pressing need for our services and when we are confident our advice will be executed effectively.
Not sure a full advisory mandate is required with Nexus but could discuss a limited scope proposal around tokenomic improvements. We do accept performance based compensation, paid in protocol tokens to align incentives and are happy to discuss a vesting schedule, but fees are well into 6 figures/year for advisory work so a shorter term project would be priced commensurately.
if the community is ready to invest in improving NXM tokenomics let’s discuss.
What was arbitraged exactly? Was wnxm at a discount when we were over 100% MCR?