Our first product has been out there for about 10 months, we’ve paid our first claims, rejected some and now have quite a lot of feedback to work from. Here is my summary of what’s working well and what needs improvement and the general direction I think we should head.
- Demand for the product - especially for lending protocols like Compound, dydx etc. But also for projects that want to cover their own code, they want lots of cover eg $1m+ and often many times greater. This is honestly a huge positive for Nexus.
- Pricing level - most protocols hit the minimum price of 1.3%, this generally works very well for lending protocols or any other protocol that earns yield (when interest rates are 5%+).
- Claims Assessment - voting process is providing clear results, even when submitted claims have complicated and quite technical aspects.
What Could be Improved:
- Pricing Dynamics - pricing would benefit from more differentiation by protocol, current model is too sensitive to staking and it drops from uncoverable to minimum price too quickly.
- No link to actual loss - great for a simple first product but harder to make it long term sustainable.
- Width of Coverage - users want to know they’re covered for bad unexpected events where they lose money, whatever that is.
- Capacity Dynamics - if perceived risk of a protocol changes materially (eg like bZx) then we want the capacity limits (and pricing) to be more responsive, rather than the Advisory Board shutting off quotes and asking members if they should be opened again.
- Staking for new protocols - it’s sometimes challenging to source enough staking for new protocols. Pooled Staking will help but higher rewards are also likely required.
- Upgradeable Contracts - the original product was designed for “pure” smart contracts, like Uniswap, with no upgradeability. Upgrade exclusion is really bad from a customer point of view and impacts sales.
- Stacked Risk - money legos involve layers of systems interacting together. Cover needs to be bought on all for complete coverage.
General Direction on Solutions
- Revamp pricing model to make it more flexible and dynamic.
This would also enable cover to be widened as we push the difficulty of wider Risk Assessment on to the stakers (taking it away from the end consumer). Which is where it best lies. Doing so can address the following issues:
- Dynamic Pricing
- Capacity Dynamics
- Width of coverage - additional risks handled by Risk Assessors
- Upgradeable contracts - additional risk handled by Risk Assessors
Increase Risk Assessment Rewards
We need an active Risk Assessment network to enable cover purchases. Pooled Staking will increase reward potential materially, but a substantial increase in base rewards is likely required. Probably from current 20% to 50% of cover price. This also syncs quite nicely with the plan for wider coverage and more expertise. This can be changed at any time via Governance.
This is trickier, though we do have some ideas on how to make it work for token based protocols. We’re going to explore more over the coming month or so.
Link to Loss / Partial Claims
I believe a link to actual loss incurred is needed for a long term sustainable product. Having the ability to gamble is nice, but experience tells me it is much better to align incentives. Also, to increase the flexibility on the types of products we can offer we need the ability to pay partial claim amounts (rather than the full amount or nothing). We started without both of these items for simplicity reasons so we could launch earlier.
While proving loss absolutely can be challenging there are ways of doing this that can work and I strongly suggest we move in this direction.
Appreciate this is a long list of items but they are all quite related. I wanted to set the context for the direction we intend to progress but am very open to feedback.