Using WNXM from Operation TM-12 to capitalize the foundation

After the recent WNXM buyback, the community fund has acquired 441,771 WNXM ($15.8M at current prices). Since these tokens were acquired below the book value of the mutual, the buyback was value accretive. In other words, all NXM holders now own a slightly higher percentage of the mutual. We could formalize the removal of these WNXM from circulation by burning them, but that is really just a cosmetic upgrade that removes optionality. Alternatively, if we believe that we can generate a positive net return – in other words, the return on using the WNXM after factoring in the minor dilutive impact of reintroducing them to the circulating supply – then it makes sense to reinvest them somehow.

I would like to suggest a use of this wNXM that I believe has the highest ROI for the mutual: use it to capitalize the foundation.

The foundation employs a team of 8 very talented people that lead protocol development. I believe it would benefit significantly from more funding. Relative to other DeFi protocols, the Nexus foundation is very undercapitalized and is constrained on hiring and investing in growth, which I would argue is a competitive disadvantage that we should address now. We remain the market leading insurance provider and best insurance brand in DeFi, but as more well-funded teams step into the arena, we need to defend our position by being aggressive. Early in the life of a fast-growing technology business, it is almost always best to reinvest earnings directly in R&D. However, unlike a traditional company, the foundation doesn’t earn anything, so the mutual has to proactively choose to fund it.

Today, the foundation has 50k unallocated NXM (~$1.8M at current WNXM price) and ~$3m in cash. While the foundation wallet contains a total of ~141k NXM, anything above 50k NXM is either reserved for previously granted options or team allocations, leaving the foundation with under $5m in assets at current prices.

The foundation’s current capital position makes it difficult to hire in what is already a very competitive hiring market. It also adds a barrier to raising additional funds from strategic partners, as a mint would likely be required for any reasonably sized fundraise.

Some may point out that the Community Fund could be used for this (as it has been used to hire in the past). However, hiring core developers through the CF is inefficient and adds friction to the hiring process – the foundation is much better suited for this.

Given this, I propose we use all of the acquired wNXM to capitalize the foundation. $15.8M is in line with the raise size for a typical Series A financing, and is arguably a small amount of funding when you consider the strength of Nexus’ business. This will put the foundation in a significantly stronger capital position and will allow it much more flexibility in hiring.

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It’s clear that the foundation should not be selling NXM / WNXM below book value, to do so harms the WNXM market price, NXM holders and leaves a tremendous amount of potential value for the foundation on the table by selling at a steep discount when there’s already cash on hand.

I agree that the team needs sufficient funding and that more funding is needed to recruit talent in a competitive hiring market. That’s precisely why greater priority needs to be put on improving the WNXM price so that the foundation can realise the value of it’s NXM assets and improve capitalisation.

The second buyback should be put to a vote as soon as possible and ideally in the coming days.

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