Scaling Nexus - December 2020

Over the past 5 months our TVL has grown from $4m to $100m. Cover outstanding has grown from $5m peaking at $245m and is now roughly $60m.

We have completely switched from being supply side capital constrained, to having meaningful capital that we now need to put to work.

This post is all about how we can stimulate demand for cover purchases and start scaling the mutual.

The Big 30 List
To really scale vertically we need to sell ~$500m worth of cover spread across at least 30 protocols, so we want 30 risks that are likely to attract demand in the $20m-$50m range at least. At this point, the mutual starts growing organically and the big flywheel really starts turning.

Flywheel: cover -> MCR increase -> attract more capital -> more capacity -> more cover

The Big 30 list is likely split as follows:

  • top 10 - 12 DeFi platforms for Smart Contract Cover
  • 10 - 15 custody providers (lenders, CEX, regular custody providers)
  • up to 3 ETH2.0 staking providers
  • up to 5 other uses of Stacked Risk Cover

To achieve this, we need to deliver:

  1. Distribution Network
  2. Building Stacked Risk Cover
  3. Coordinating staking & incentives

1. Distribution Network
We need to place cover purchases as close to the primary product purchase/interaction as possible. This means building out distribution networks like Armor.fi and other partnership integrations. There is a lot of work going on behind the scenes here, both on the technical side to make integrations easy, as well as discussions with user facing applications.

If you’re interested in building something here or if you’re from a centralised exchange and are interested in getting your users protected please reach out: [email protected]

2. Stacked Risk Cover
This is targeted for early 2021 and will allow us to more comprehensively cover risks, especially on stacked protocols, but also on tokenised ETH2.0 staking.

3. Staking & Incentives
To really scale we also need to align staking with demand, so users can easily purchase cover when they wish. Staking 3.0 will help (as it makes a lot of the mechanisms more fluid) but we can also take some actions in the meantime to ramp up staking.
a) reduce lock up period to 30 days
b) consider minting some NXM and have the community direct bonus rewards in the right places
c) longer term divert some of the sell spread to boost staking rewards overall
d) provide more insight on demand

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Sounds good. Looking forward to the delivery of this!

(Where) does dynamic pricing fit into this plan?

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Dynamic pricing is still in our plans, was actually sketching out a simpler version last week. It definitely helps the above but probably isn’t absolutely required (so didn’t highlight it).

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This puzzles me. Better (meaning dynamic) pricing (whether it stimulates more covers being bought, by lowering the price, or sells the cover at a higher price if too much demand) will lead to more capital in.

EDIT: For further clarification, total capital in equals number of covers sold times cover price. TC = nr_covers x cover_price
Dynamic pricing finds the sweetspot where cover_price is such that TC is maximum.

Don’t get me wrong, I think it’s important, we just have to be very brutal on prioritisation.

We have enough capital right now to sell almost $500m of cover. So we’re prioritising items that will get cover amounts up to this level. If cover prices aren’t quite right we can tweak min pricing until we get dynamic pricing. So we have an imperfect solution in the meantime.

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