Thank you for moving this discussion forward. It’s important that members have the opportunity to review and discuss the circumstances of Claim 113, with the ultimate decision made by members through a Snapshot vote.
In the original Proposal: Reimburse Risk Assessors for Undue Loss from Claim 113, the case was made that:
- Risk assessors lost millions of USD in NXM more than actual loss.
- A partial payout was possible.
- The policy was automatically accepted with a small % of quorum before discussion concluded.
- The community fund has a history of compensating users for shortcomings of the technology.
As we revisit this proposal, it’s important to address each of these points. The mutual’s mission is to build an ecosystem in which anyone can protect anyone else by sharing risk.
All members value honesty and transparency, and in the spirit of this, I’ll provide a response that I hope will inform member discussion and the use of discretion regarding the payout for Claim 113.
Risk assessors lost millions of USD in NXM more than actual loss
No one disputes that Risk Assessors had NXM burned that exceeded the actual loss the member incurred. All members can review past staking burns for claim payouts on this Dune dashboard. There was a total of 78,986.22 NXM burned to facilitate the payouts for both Rari Capital claims.
However, because partial claim payments are not possible in Nexus V1, Risk Assessors have taken on the risk of having more NXM burned than the actual loss. This limitation was known when Protocol Cover launched and has been widely communicated within the mutual before the Rari Capital claim payout.
The technical limitations in Nexus V1 do introduce more risk for those underwrite cover and act as Risk Assessors; however, the “Material” definition in Protocol Cover wording v1.0, past statements, and documentation all present the risks of acting as a Risk Assessor and the technical limitations of the current claims process.
This guidance was included in both the Annotated Protocol Cover wording available in the Nexus docs and in past discussions such as this one with bobby3535 on Discord.
Source: Annotated Protocol Cover wording v1.0
The language that appears in the Supplementary Claims Amount Guidance section of Protocol Cover wording v1.0, as drafted and approved by members, was included to future proof Protocol Cover wording, so the supplementary guidance could inform votes once the technical ability to pay partial claims was enabled.
A partial payout was possible.
Contrary to this statement, partial payouts are not possible through Claims Assessment in Nexus V1. Throughout 2021 and 2022, members have asked about the mutual’s ability to pay partial claims, and the answer has always been that partial claim payments are not yet possible in Nexus V1.
You can find many instances of this, but you can see my answer to a member regarding the 20% loss requirement and partial claims (as of 29 April 2021) and Hugh’s updated roadmap (as of 30 April 2021) where he outlines that partial claims are in the future roadmap but were not the immediate focus at the time. Both of these statements were made after Protocol Cover was drafted, discussed, reviewed, and approved through on-chain Proposal 131–Protocol Cover launched on 26 April 2021.
The policy was automatically accepted with a small % of quorum before discussion concluded.
Defifrog submitted Claim 113 on 12 May 2022, and an announcement was made on Discord on the same day.
Claims follow the process as outlined in the docs, where:
The voting period lasts for a minimum of 36 hours. After this point the vote automatically ends on the earliest of either when:
- voting stakes of greater than 10x the cover amount have voted; or
- 72 hours have passed.
The stake weighted voting outcome then determines the claim result. A claim is escalated to a full member vote if either:
- Voting consensus is below 70%; or
- Voting weight is less than 5x the Cover Amount.
In the case of Claim 113, only 25,019 NXM (3% of Quorum) voted on the claim during the initial voting period. Since the voting weight was less than 5x the Cover Amount, the vote transitioned to a full-member vote, which lasts “for a minimum of 36 hours and ends when either the total voting stake reaches 10x the Cover Amount or 72 hours have passed, whichever occurs first.”
When the vote transitioned to a full-member vote on 15 May, an announcement was made.
The claim was accepted after the initial 72 hours passed and the voting weight was less than 5x the Cover Amount and the claim was escalated to a full-member vote that lasted for 72 hours. The claim was first filed on 12 May, escalated to a full-member vote on 15 May, and approved and paid on 18 May. Over the six days the claim was open for discussion and voting, members discussed the claim. On 17 May 2022, Robert began the discussion regarding Claim 113.
In my view, all members should be treated equally. Denying a claim where the cover holder had provided proof of loss that confirmed they held an impacted account, suffered a loss, and met the losses as required by the “Material” definition in the Protocol Cover wording would not be equal treatment.
The proposed work around would have required cooperation on the member’s behalf, where they had to:
- Buy another Rari Protocol Cover policy
- Pay a higher premium (as NXM had been unstaked at that point)
- Assume their claim would be paid, even after having a legitimate claim denied through the established Claims Assessment process
The community fund has a history of compensating users for shortcomings of the technology.
Claim 102 was used as the precedent for providing Risk Assessors with compensation, but the situation in this case was different. Unlike Claim 113, the member who filed Claim 102 provided proof of loss that confirmed they held an impacted account, suffered a loss, but did not meet the losses as required by the “Material” definition in the Protocol Cover wording. Because of this, their claim was denied.
However, members recognized that this member suffered a genuine loss, and members put forth a proposal to use funds from the DAO treasury to compensate this member. In the case of the CREAM Finance exploit, the likelihood of compensation from the CREAM team was high and reimbursement was provided to the mutual once reimbursement was announced.
I provided my thoughts ahead of this vote given that other claims where a genuine loss had occurred were paid. From my viewpoint at the time, all claims should be treated equally and I shared this with fellow members.
In the case of the CREAM Finance exploit, the likelihood of a compensation from the CREAM protocol team was high, the member held an active cover policy and experienced a loss of funds but did not meet the requirement to have their claim paid through Claims Assessment, and compensation would offset the payout from the DAO treasury.
In the case of the Rari Finance exploit, compensation from the Tribe protocol team will not occur, the member held an active cover policy and experienced a loss of funds as well as met the requirement as defined in the “Material” section, the risk of paying the full claim amount was communicated previously, and there will be no compensation to offset the payout from the DAO treasury.
These two claims are quite different given this context.
The community fund should compensate risk assessors for their undue loss.
In the last section of the proposal, two statements can be highlighted for this discussion.
“It’s extremely important to be fair and follow the terms in this situation.”
Past claims that met the 20% loss requirement but did not represent 100% of the total cover amount were paid to cover holders who provided proof of loss that confirmed they held an impacted account, suffered a loss, and met the losses as required by the “Material” definition in the Protocol Cover wording.
Those claims followed the Claims Assessment process as outlined in the Nexus docs, just as Claim 113 did.
All claims should be evaluated and assessed equally, according to the cover wording. Making an exception in the case of Claim 113 to stop the on-chain claims process and handling this claim in a different manner would not be the same, equal treatment members have given to other claims, including other Rari claims.
“The community fund has all the means to compensate stakers.”
In the proposal, there is a request for 43,940 wNXM be allocated from the Nexus DAO treasury (formerly referred to as the “Community Fund”) to make Risk Assessors whole.
To give some context on the funding available in the Nexus DAO treasury, there is 550,681 NXM currently held in the treasury with 441,771 NXM reserved for existing activities, as determined by the “How should we utilize the wNXM purchased during Operation TM-12?” Snapshot vote:
- 327,219.7797 NXM allocated for Foundation funding
- 60,000 NXM reserved for staking in Nexus Mutual
- 54,551 reserved for long-term aligned (LTA) member group
The DAO treasury has 108,910 wNXM and 107,367 LDO in assets. The two active Nexus Hubs will be due for renewal in August 2022, and the budget for those two hubs are not included in the above allocation.
An allocation to Risk Assessors for Claim 113 would reduce DAO treasury funding by 40.34% in wNXM terms. The current USD value of the treasury as of 11 July 2022 is $1,784,846.69, which includes the value of the wNXM and LDO noted above. Reimbursing Risk Assessors would result in a 38.79% reduction of the DAO treasury from $1,784,846.69 to $1,092,442.21 USD. This funding is the sole funding for the DAO going forward.
Next Steps
Members can review and discuss this proposal for the next 7 days. Once members have discussed this issue, it will transition to a Snapshot vote, where members can voice their opinion through a vote that will occur once the 7-day discussion period has ended.