[RFC]: Creating The Nexus Mutual Community Staking Pool

Governance Discussions Nexus Mutual DAO Proposals
1

On behalf of the DAO Teams, I’m sharing an update regarding the 57,607 NXM allocated to Option 4: Stake it against selected risks in the Nexus Mutual protocol from the February 2022 NMDP titled “How should we utilize the wNXM purchased during Operation TM-12?”.

Overview

To date, this earmarked NXM has not been allocated to stake against any risks within the Nexus Mutual protocol. As the Foundation and DAO teams work to scale cover sales and increase cover fees earned, the addition of a new staking pool with 57.6k NXM would be a significant advantage.

On behalf of the DAO teams, I propose that members vote to create the Nexus Mutual Community Staking Pool, where the 57,607 NXM can be staked and used to open Protocol Cover and Bundled Protocol Cover capacity. More capacity can help the Mutual achieve our current goal of scaling cover sales.

Specification

Members have already allocated 57,607 NXM for stalking within the Nexus Mutual protocol in a previous NMDP in 2022. I’m proposing that a 2/4 Safe multisig be created, where the 57,607 NXM can be held. Once the NXM is in the wallet, the signers can create a new staking pool, which would be managed by the Product & Risk team (Hugh and BraveNewDeFi) to open up capacity for Protocol Cover and Bundled Protocol Cover. The NXM in this multisig would be staked for a one (1) year period and the NXM Staking NFT would be held in the multisig.

I’m proposing that this Safe multisig be created with the following signers:

Rationale

In Q1 2024, the Mutual sold $75,112,320 worth of cover and earned $549,723 in cover fees. We’ve seen popular products like Pendle Protocol Cover, Spark Protocol Cover, and the Pendle Bundled Protocol Cover products see significant demand from members, while capacity has been constrained.

These three (3) products collectively represent 40.40% of all cover sales and 61.58% of fees earned in Q1 2024. If more capacity were available, there’s no doubt the Mutual could sell more cover for in-demand Protocol Cover products such as these and others.

Since Protocol Cover and Bundled Protocol Cover represent 66.67% of all cover sales and 82.34% of all cover fees earned, it would make the most sense to use the 57,607 NXM from the above NMDP to open up additional capacity on Protocol Cover and Bundled Protocol Cover products. For more information on the Mutual’s Q1 2024 cover sales, see the First Quarter (Q1) 2024 Insights Report.

With additional capacity, more cover can be sold, more cover fees can flow into the Capital Pool, and the DAO Treasury can generate more NXM.

Technical Specification

Create a Safe multisig with 2 of 4 signers, as outlined above
Send the 57,607 NXM to the Nexus Mutual Community Staking Pool multisig
Launch and manage a private staking pool with the 57,607 NXM allocated only to Protocol Cover and Bundled Protocol Cover products, as managed by the Product & Risk team

Proposal Status

  • Open for review

This RFC will remain open for at least two weeks before transitioning to a formal Nexus Mutual DAO Proposal (NMDP).

3 Likes
4

Supportive but would like to hear what protocols would be staked against and how pricing will be decided. Just want to ensure this isn’t going to be primarily just to subsidize cheaper covers for users - goal should still be at least break even

5

The intention here isn’t to underwrite cheap cover, so that’s not going to happen. I’m not looking to sell cheap cover just to boost sales. I think we’ve seen other cover protocols do that in past cycles and now they’re no longer profitable or even in business.

The primary goal is to open up more capacity where we’re seeing demand. The other important factor is cover buy distribution across staking pools.

If you have three staking pools underwriting cover and three decent sized cover buys come through, the pricing is going to jump up and it will decay down at the 2%/day rate, but this means that the pricing may be high for a week before the price comes back down to where users are willing to buy. Another staking pool will help spread cover buys around and meet demand at or above market rate.

I’ll work on a list of the most popular protocols that we see cover buys for and note where we’ve seen demand exceed supply. I should be able to post that here this afternoon.

1 Like
6

Makes a lot of sense to me, great context.

I’m wondering if it might be worthwhile to use some of these funds to also underwrite (at the right price) covers on protocols that are popular with users, but have NOT sold much cover on Nexus.

There could be a price discovery issue, whereby because noone is underwriting much cover, nobody is buying. Might be an interesting experiment.

7

Yup, I think we can do that, too. If this proposal is approved, I plan to provide bi-weekly updates on the community staking pool. With the new capacity request functionality in the updated Buy Cover UI, we can also see where people want more capacity and meet that need as it arises, as well.

There’s quite a lot we can do here to drive cover sales, adequately price risk, and, subsequently, drive some more revenue for the DAO Treasury.

Edit: I’ve added the cover sales data below. For a more in-depth look, you can review this spreadsheet with cover sales data for the year to date, as of today.

Below are the top 10 cover products sold year to date. For the top 6 products, we’ve had instances where people wanted to buy more cover, but either pricing or capacity proved to be an issue. An additional staking pool that can open up more capacity would help us solve this problem to some degree.

Cover Product Cover Sales Cover Fees Earned
EigenLayer + Ether.fi + Pendle $11,740,673.00 $196,332.91
Pendle $15,662,489.00 $183,332.64
EigenLayer + Swell + Pendle $6,971,258.00 $141,215.73
EigenLayer + Renzo + Pendle $6,851,019.00 $131,149.86
EigenLayer + KelpDAO + Pendle $5,966,707.00 $129,324.51
Spark Lending v1 $16,200,250.00 $71,475.58
Gearbox v3 $2,976,633.00 $29,242.40
Uniswap v3 $2,445,463.00 $23,396.49
Compound v2 $2,835,911.00 $14,991.62
Aave v2 $3,811,989.00 $14,122.62