I agree with your original post that opening up discussion to the scope of parameters makes sense. The RAMM is working quite well and consistent with its technical design. I think even after just a few days we have quite a bit of data and a better understanding of the dynamics here, having studied etherscan and speaking to holders.
We are seeing some large wallets line up (compete, really) for exit liquidity and taking large haircuts. Each time a large swap of this nature happens, most other potential redeemers will typically wait a few hours before trying again or alternatively take a significant haircut.
There are three considerations I see, in order of importance. I won’t make number recommendations at this point, rather just address the dynamics at play.
1. Amount of capital provided for redemptions during initial period - more total capital available in the initial “fast” period would provide more peace of mind for holders that they will not “lose out” because they don’t front run the queue for a large haircut.
The give and take here is that the mutual captures any discount taken by holders. Query whether there is a way to underwrite the appropriate level of value accretion.
I would argue that redeeming holders already bear an excessive oracle buffer (2-3x actual risk), as well as price impact from a constant product AMM curve, and that it is not appropriate for the mutual to capture dramatic discounts (some swaps seem to be >10% from book) from holders that may have been waiting multiple years. Yes, this is a reverse dutch auction in form, but it is playing out to be somewhat of a game of chicken, with the mutual being the clear winner. I do not deny the mutual’s right to a house edge, I just believe it is being exacerbated due to panic.
2. Speed of deploying liquidity - swaps are occurring somewhat regularly a few times per hour, except when a large wallet swaps, after which there are no swaps for quite some time. It seems like the speed of liquidity becoming available is probably driving some dissatisfaction and concern with the process. Again, the give and take is as described above. My view is that once it has been determined that the mutual will provide X capital for redemptions in Y period, that it should be made available quite rapidly.
3. Price impact/depth of liquidity - this is a byproduct of using a constant AMM swap mechanism and cannot be avoided entirely without removing the RAMM. I suggest we do not explore such an option.
I am confident we could make everyone happy by addressing 1 and 2 above but not this item 3 - however I will address #3 as it is an unnecessary cause of frustration. Redeemers can avoid issue #3 by making smaller transactions over a longer time period. The cost is of course more transaction gas and more frustration.
If price impact was determined to be a meaningful issue that the members wanted to address, the solution would be to increase the virtual liquidity available at a given time. For example, doubling the virtual liquidity would reduce the price impact significantly. I made a pretty picture in excel to share.
With limited human capital and in hoping to address this quickly, I think time should be spent focusing on making concrete recommendations to address #1 and 2.
Finally, beyond quantitative factors there is also a soft factor. The mutual is either open ended or it is not: the current parameters make it feel like it is closed unless you get out the door first. I feel a more liquid RAMM can make for a significantly improved holder experience and drive long-term alignment: it is easier to hold NXM long-term with more certainty that significant liquidity stands behind the RAMM, ready to be deployed all times. I can tell you from tradfi experience that when pooled investment vehicles put up a “gate” or “slow-pay” redemptions, panic and dissatisfaction become significant.
This is an excellent post, in full agreement. I think despite insistence that the Re investment is totally separate, I do think there is some synergy in timings; these issues with RAMM parameters should be addressed prior to, or in tandem with, the Re investment to give current NXM holders peace of mind that the Re investment does not materially impact their options, which could cause a further rush to exit and excessive discount race if people think they cannot exit in time prior to the change of assets held.
There is 1 large account that is swapping 5k - 10k NXM at a time that is causing most of the larger slippage drops.
3-5 accounts that seem to be waiting until price gets to 0.02 or more and exiting at reasonable time frames
Several smaller accounts exiting at various prices.
Some trades that would have had better execution on wNXM markets
A new mechanism that has been live for less than a week and participants adjusting behaviour.
I don’t see any major reason to adjust things at all, we have only a handful of material accounts interacting with the system so far. Much more data would be required in my opinion before making changes.
The mutual is either open ended or it is not:
By definition the mutual isn’t open ended, it can’t be. It needs “permanent” capital to support writing covers.
I agree with Hugh, a mutual or any insurance project cannot be open ended by default.
With regards to adjusting parameters, I think it’s worthwhile waiting as the ramm has been live for less than a week. When people state that “there won’t be enough capital”, they should support reasoning with estimates of how much liquidity you deem to be needed and how they get to that estimate.
The OP has a clear chart of why the current liquidity may be insufficient for large holders to exit with size. I’m happy that the mutual captures some discount, but I doubt that inducing FOMO will be beneficial on the long run.
Given that several whales have accumulated large amounts NXM/WNXM with this redemption is mind, I’m not convinced that the target of letting holders exit at >95% BV is a guarantee.
Of course, this is still early, but everyone is watching this process closely for an obvious reason. Maybe we could set do reviews at certain points (ex: every 25%) to see how it is going, and if corrective action is needed.
I agree with @ngmi that capital amounts and liquidity speeds would be the two parameters that should be increased as a way to assure NXM holders that RAMM won’t run out of capital and that a swap close to BV can be achieved within a reasonable timeframe.
Hugh, I also agree with you that more data is needed to make a decision on those changes. I think for everyone involved in the conversation, it would be great to get clarity on how much time needs to pass before revisiting the issue, 2 weeks? After 30 days, the RAMM enters a long-term state, and the parameters change (possibly for the worse depending on the appetite for redemptions). I think revisiting after 14 days from the RAMM’s launch makes sense.
As a smallholder, I’m a bit dismayed by the results of the RAMM since whales have been exiting extremely large positions of NXM which negatively affect my redemption price and runs contrary to one of the goals of the RAMM which is:
allow members who wish to exit to do so directly from the protocol at a reasonable price
To me, exiting at 0.0200 and below is not a ‘reasonable price’ in my view. At any given time I’d have to take a 7-10% haircut from book value which makes a meaningful difference to my portfolio. Of course, ‘reasonable’ is a subjective term, but that’s my perspective.
Using the ‘live for less than a week’ metric is quite unfair in this context as the fast phase is supposed to be fast. Put more relevantly, we are almost 20% through the fast phase, and the average obtained exit has been 91% of BV. I understand that you want to then lean on ‘it’s just a handful of people’, but that doesn’t do much to provide assurances to those wanting a fair exit. If these people are anomalies to be discarded from the data, then surely this anomalous volume should also be discarded from the data and a fresh 43k ETH loaded once the anomalies are out? The argument can’t be spun both ways here.
I think the next step here is for someone to do some rough calculations on estimated exit demand, and put a number forward for a new ratcheting speed and allocated resources in an official NMPIP. As has been pointed out before, the Re investment has some contextual ties to this topic, so really the votes for the two should occur close together so people are voting for a complete and holistic path forward.
Available wNXM is worth currently 49.5k ETH (at BV). It’s likely that at least 80% those holders will want to exit, which amounts to around 40k ETH.
We can add to this the NXM held by funds, which is an unknown amount, but likely > to 10k ETH from what we have seen lately.
Current available capital is equal to 38k ETH, per the Dune dashboard.
As you can see, we have by a wide margin a shortfall of capital. Increasing it by 50%, to 67.5k ETH in total would allow every willing holder to exit orderly and won’t endanger the mutual, especially as right now, the cover/capital ratio is pretty low (14%) and allows for plenty of room to grow.
nice way of telling the community that they have no chance of passing proposals unless we find a way to get VC, team and whales on board. Appreciate the honesty. Also makes me wonder what the point of engaging with the topics at hand is, and makes me more likely to exit the mutual. But maybe that’s just me.
Yeah it can be, as long as the gearing is conservative, which since we reduced the MCR floor, we already know and agreed that NXM is geared much more conservatively than need be, still is even after 40k ETH is up.
Have you been following any discussions over the past two years?
Late to this discussion, but wanted to weigh in here.
Based on what we’ve seen so far, I think we’re on track to see ~2M NXM redeemed, which is within the initialBudget amount. One large address has made ~60% of the redemptions so far, and the second largest address has made ~14% of the redemptions.
While there are address among those reading and commenting on this thread that have NXM and plan to redeem it, they have another 24 days to exit during the initial exit period and they can redeem any time after it ends as well. The RAMM is working as designed, and the time for folks to raise concerns about the mechanism design have passed now that members voted to approve and implement the RAMM.
I understand that there are members who want to redeem but do not want to wait for the ratchet to move back to book value after other large holders make redemptions. If that’s the case, I’ve shared below that the fastRatchetSpeedb param is the one you’ll want to focus on.
My assumptions on the wNXM supply are based on unwrapping activity over the last six months, which I’ve shared below. People with wNXM are just going to sell or place limit orders on DEXes, like we’ve already seen addresses doing on-chain.
While I don’t think there’s anything wrong with how the RAMM is working and performing, I am open to a productive discussion with clearly defined values. I’ve shared my thoughts on what parameters folks should focus on and how it impacts the RAMM below.
I’ve also made some assumptions based on comments in the thread to date. If anyone has definite values for the parameters they’d like to see changed, please share those below my comment so we can keep the conversation focused.
Determining Consensus of Community Members in this Thread
It’s been roughly six (6) days since the RAMM launched and the ratchet first moved near book value, with the ratchet target within 5% of BV on Wednesday (22 November).
We’ve seen 365,805 NXM burned as a result of people exiting, with ~7,207 ETH redeemed through the RAMM as of current data.
Right now, there’s 36,662.05 ETH allocated for the initial exit period, which would allow another 1,690,820 NXM redeem and exit the Mutual at book value (0.021683 ETH per NXM); if members exited at 95% of BV, then a total of 1,779,810.52 NXM would be able to redeem and exit the Mutual. That’s ~26.5% to 27.8% of the current NXM supply redeeming for ETH.
If folks here think we’re going to see the appetite for redemptions exceed that within the next 24 days, then you’re correct, the two points you’d want to focus on are:
Amount of capital provided for redemptions during initial period
Speed of deploying liquidity
Amount of capital provided for redemptions during initial period
Members signalled their support for releasing 30% of the capital pool during the initial exit period in this Snapshot signalling vote, which is where the 43,835 ETH value for the initialBudget came from.
On this: if these holders wanted to exit, wouldn’t they have unwrapped to NXM by now? I think it’s fair to say there’s wNXM waiting to exit, but if people hold wNXM and aren’t members, they are just going to sell on the market and not redeem through the RAMM. Anyone can look at Uniswap V3 and browse the wNXM limit order history to see what addresses have placed limit orders.
Based on your comment above, @Pankookas, are you suggesting an additional 23,665 ETH be allocated to the initialBudget amount?
Again, just trying to parse out where we’re at in this discussion so far, since there’s been quite a bit of back and forth but not much in any suggested figures so far. @ngmi & @Pankookas, I appreciate the context you’ve provided, as it gets the discussion closer to having a potential answer to the first point you’ve posed and commented on.
Speed of deploying liquidity
Based on comments, I think the speed portion is both the fastLiqSpeedin and fastRatchetSpeedb parameters.
fastLiqSpeedin is roughly just initialBudget divided by the # of days in the initial exit period. Liquidity is released on a per-block basis, so liquidity is always being injected into the RAMM and if params are updated, it will still be injected on a per-block basis.
If people are unhappy with the fastRatchetSpeedb, what would be the proposed update to that speed?