[RFC]: Investing the Mutuals Assets

Similar to regular insurance companies Nexus Mutual needs to invest its assets to earn yield on the float.

We’re currently working on some updates the will allow this to happen, so we’re after feedback and ideas on where we should invest the assets. This will be an ongoing topic of discussion as the mutual grows and will need adjusting over time, but to start off we’d like to gather ideas on potential assets to include.

We can then progress to discussions on allocations etc.

Some items to consider:

  • Assets must be ERC-20 with enough liquidity on Uniswap, we won’t be able to make smart contract calls at this stage.

  • Accumulation of risk is a very important aspect for the mutual. If we cover eg Compound and are at max capacity we probably don’t want to put more assets in Compound to earn yield, if there is an issue we pay claims and potentially lose assets.

  • As the mutual grows larger we should aim to match assets with liabilities more closely. eg if 30% of cover is in DAI, we should probably have close to 30% of assets denominated in USD.

@Rei @Yan_Delphi @gyoung10

Asset Ticker Currency Adequate Uniswap Volume Rough Yield Accumulation of Risk Comment
Lido staking bETH ETH No 3%-10% No Not live yet
RocketPool Staking rETH ETH No 3%-10% No Not live yet
CHAI CHAI USD ?? 0% Mostly no Unlikely to go above 0% for a while
Arcoin ?? USD ?? Low? No Tokenised US Treasuries so likely low yield for a while
yUSD yUSD USD Yes ?? Yes
yETH yETH ETH ?? ?? Yes
Tinlake Assets ?? USD ?? ?? No Tokenised trade-finance
RealT Assets ?? USD ?? ?? No Tokenised real-estate
Yield Tokens ?? USD Not yet 3-4% Yes Zero coupon DAI bonds
Notional.Finance ?? USD Not yet ?? Yes (if cover offered) Zero coupon bonds
Uniswap ETH:DAI LP ?? ETH:USD ?? ?? Yes Impermanent loss
Balancer Smart Pool ?? ETH:USD Not yet ?? Yes Create a tailored Balancer pool for part of the mutuals assets and then list the LP tokens on Uniswap

Can consider barn bridge by allocating the asset to lower risk tranche? But I’m not too sure when their product is going to get released.

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i propose yearn.finance 3pool vault

  • cover already exists in nexus mutual
  • extremely good risk/reward investment – only risks are yearn smart contract risks and curve smart contract risks, both of which 1) have cover and 2) are audited by top auditing firms. APY is 20-30%.
  • active development community, new strategies and vaults v2 pretty much guarantee sustainable, good APY
  • yearn’s treasury has over $1.5m, and yearn multisig/govt is known to be very benevolent if something goes wrong (see EMN fiasco)
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The only two things that would be low enough risk and could satisfy our volume would be ETH2.0 staking and the DSR, or? What else wouldn’t be an accumulation of risk in DeFi?
Both have problems:

  • ETH2.0 staking basically locks up ETH until ETH2.0 phase 2 is live. Using a derivative like Rocketpools rETH would be an accumulation of risk again.
  • The DSR is at 0% right now.

@Hugh what percentage of cover is currently in DAI vs ETH?

I also don’t see this as a very high priority. ETH and DAI yields are relatively low and it should be obvious how at this stage NXM outperforms either over a 1-year period.

And while I see that operating Nexus Mutual more like a traditional insurance company might sound appealing, starting to invest the assets of the mutual doesn’t sound like a meaningful enough differentiator to me at this point. Certainly not an improvement that would set us far apart from potential competition.


Big fan of this idea.

I agree with @bearhead’s comment on using the 3pool vault for DAI exposure. Since the mutual predominantly holds ETH, the new yETH vault (when that launches) would be a great place to park that capital. Could also supply that ETH in Lending protocols to generate additional yield (albeit likely smaller) to reduce concentration to any single venue


I think the most important thing is we don’t want to be implementing our own strategies but rather depositing into a protocol that specializes in automated strategies and doing the work for you. The biggest name in that business is yearn. They are getting ready to roll out their new vaults which will allow for multiple strategies on a single vault which can help diversify yield and risk. I wouldn’t be surprised if yearn eventually adds ETH 2 staking strategies to diversify yield further on some of its vaults.



RocketPool and/or Lido don’t accumulate risk if we don’t offer cover for them. So there is a choice to be made here.

Current Cover split is roughly 30% DAI and 70% ETH.

I think it’s worthwhile tinkering around the edges with some small allocations to start. I don’t see any rush here, but it’s a very important aspect longer term so my main aim here was to start a discussion and slowly build up the process. I think this is an area where the wider community can add a lot of value.

To avoid accumulation of risk, a solution might be to lend using more centralized services like BlockFi, Nexo and Celsius. APY is around 4 to 10% for Ethereum.

Storing value in DAI or USD in the next 5 years is like storing ice in a sauna.
If the idea is to avoid being too much exposed to Ethereum volatility, a gold token might be an alternative (and this gold may also be lent).

How about spreading our assets around to a number of protocols to reduce risk? Balancer pools should be explored as we can create a customized weighted pool or join an existing pool with dai and/or eth. Also, Uniswap eth and dai pools would be solid options while not exposing ourselves to risk to Yearn vaults.

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I am in full support of deploying the DAI into the 3pool vault. Returns aside interacting with the vaults will also have the highest liquidity eg yUSD. @Hugh what % of the 30% makes sense to start with? If we want to cap this exposure to YFI the DAI jar within Pickle is another option to consider.

With regards to ETH, I think the best starting point will be the yETH vault once that is up and functional again. Here there is minimal capital risk vs impermanent loss risk in providing ETH to an AMM, and the strategy has multiple safety mechanisms built in to protect principal. The yield is also not reliant on farming and dumping new tokens. Again I think we should start with an allocation capped relative to the exposure of YFI.

Further down the track once there are more automated impermanent loss mitigated farming strategies for AMMs available I think this will be another area to consider deploying ETH, alongside providing ETH to option/ derivative protocols.

Are yearn vaults or the Picke DAI Jar tokenised?

Initial implementation won’t allow smart contract calls. Just swapping tokens.

I would prefer to keep the assets in ETH for now. Everything else seems too risky (except obviously staking ETH 2.0). I’m willing to have single-asset volatility for the short term (~1 year) and then diversify to lower volatility longer term.

I also think this should be a lower priority than figuring out how to get more customers.

They are not tokenized yet unfortunately. yUSD is, but the 3pool option from yearn at the moment is not integrated to yUSD. How long do you think it may take to be able to deposit into contracts? It is likely yETH develops a liquid market in the same way yUSD did (it was already collateral on CREAM) so we may just have to wait until either NXM can deposit into contracts, or a liquid swap market is provided for yETH in the same way yUSD has developed.

We’re unlikely to prioritise smart contract calls before other releases like Staking 3.0, so it’s not coming anytime soon.

Sounds like we keep an eye on it and see what happens first. I’d expect yETH to develop a liquid market in time as well.

I’d like to advocate ArCoin for consideration. ArCoin is a low risk asset with potential for yield, which would not accumulate risk in DeFi. ArCoin are digital shares of Arca’s US Treasury fund and are transferable on the Ethereum blockchain. Their value is struck in accordance with Net Asset Value (NAV) and yield on the underlying treasuries are returned to investors in the form of ArCoin. NAV is $1.00.

Addressing the questions that @Hugh laid out above…

  1. ArCoin is an ERC-1404 token and thus is compatible with Balancer. For ArCoin, liquidity on Uniswap (or any exchange for that matter) is not germane to Nexus’s requirements. Because the underlying of ArCoin is a portfolio of short duration US Treasuries (historically a very stable asset), there will be limited to no need for liquidity of ArCoin in Nexus’s Balancer pool. Nonetheless, ArCoin can be purchased and redeemed on the ArCoin Web Portal and transferred peer to peer at present.
  2. Arcoin isn’t part of the defi stack/isn’t insured by Nexus Mutual right now and therefore an investment in ArCoin won’t expose the mutual to additional insurance risk.
  3. ArCoin can also help with liability matching. ArCoin could match the eg 30% of DAI held within Nexus as it is close to a USD equivalent. However, unlike USD, US Treasuries and thus ArCoin offer the intrinsic potential for yield. Currently NAV sits at $1 and has not strayed since our funds inception on July 6th. Yield and rates fluctuate, however, economic and political factors have begun shifting and currently US Treasuries are being shorted in record numbers - indicating an anticipated rise in rates. As our team has said many times, we can’t forecast UST yield, but we are definitely keeping a close eye on this activity.

In short, ArCoin is a low volatility cash alternative with the potential for yield, offering the highest customer protections through its regulated security status and the ‘40 Act. ArCoin will diversify Nexus’s Mutual’s Balancer pool and help assets and liabilities to be matched. Let me know if you have any questions - I’m happy to field them.

To diversify risk you could also consider investing in loan pools that are collateralized by real-world assets (e.g. invoices, trade finance txs, mortgages). Those are uncorrelated to ETH and can be diversified across industry and jurisdictions. We have launched several rwa backed pools on Tinlake (https://tinlake.centrifuge.io/) that generated 10% on average for risk averse investors. There are two tranches for each pool: senior (stable, lower returns; first-loss protected by junior) and junior (variable and potentially much higher returns, takes first loss in case of a default). You could even invest in both tranches to optimize your risk/return profile.


Thanks @Lea, great to have you posting here!

Are Tinlake assets available on Uniswap at all, and if so what’s the volume like?

Thanks @Hugh, excited to see this conversation here! The pools are revolving pools where investors can liquidate their position claiming parts of the loan cash-flows for their redemptions but they are not on Uniswap.

Yield Protocol tokens fyTokens look particularly interesting as they can lock in DAI yield over a longer timeframe. https://yield.is/

Needs enough liquidity on Uniswap to develop, especially for longer duration bonds.

A Balancer Smart pool could be a good option for some of the funds as it allows for asset allocation updates without any need for active management. You can set weights to change gradually (the same dynamic as an LBP, like the one used by Perp.fi) and arbers will poke the smart pool to make it change to the desired exposure as they trade. So you could for example easily change from a 70/30 ETH/DAI pool to a more conservative 40/60 ETH/DAI one. Smart pools also allow for the addition or removal of tokens.

Another very interesting benefit of using a smart pool is that it allows for adapting the trading fee to the market dynamics: in times of high volatility (= high demand for trading) you can simply turn up the fee and lower it in times of low volatility. This allows smart pools to be like Uber while conventional pools are taxis.

Happy to discuss in more depth on other channels as well (like hopping on a call).