Nexus Mutual – the discretionary mutual for smart contract covers – has had a major onboarding hurdle removed by its community through an NXM wrapper.
Some of our community members have created wNXM. Which is 1 for 1 redeemable against genuine NXM.
There is now a Balancer pool and wNXM is available via @1inchExchange and @paraswap
— Nexus Mutual 🐢 (@NexusMutual) July 17, 2020
Prior to this feature, NXM could only be acquired by undergoing KYC to join the mutual. While this has a fair share of benefits in regards to organic growth and transparent distribution, it also limited the number of users keen to get involved but apprehensive about doxing themselves.
Now, the wNXM token wrapper allows for a freely tradable version of NXM which can be acquired on AMMs like Balancer and Uniswap in a permissionless fashion. In practice, only KYC’ed mutual members have the ability to wrap and unwrap NXM, keeping the core token supply compliant with regulatory standards. They even put together a sleek interface to do this here.
Pool Staking Spikes Demand
Since launching pooled staking less than a month ago, Nexus Mutual has seen parabolic growth across pretty much every key metric. Whether it’s the size of the capital pool, the number of new covers being purchased, the total amount of NXM staked on those covers, or the price of NXM itself, it’s clear that the community is starting to take note of DeFi’s favorite tool for hedging unforeseen risk.
In essence, pooled staking allows mutual members to put their total holdings to work across multiple smart contracts, amplifying the cover capacity which can be allocated by a factor of 10. This change also shifted the incentives by giving stakers 50% of the fees earned from covers, as opposed to 20% in the previous model. Backed by a new pooled staking interface, Risk Assessment has never been easier or more opportune than it is today.
Despite this, Nexus is continually reaching its maximum capacity to keep up with the rapid demand for smart contract coverage amidst the yield farming mania.
Adjusting the MCR Increment
As it stands today, Nexus maintains a Minimum Capital Requirement (MCR) of 130%. This means that the maximum amount of capacity it can take in covers is equal to at least 130% of the ETH in the capital pool. Whenever this amount of capital in the pool exceeds this amount (like right now) that capacity increases by 1% per day. Unfortunately, this has basically created a bottleneck in which Nexus’s capacity is unable to scale in tandem with the rapid influx of capital coming from new participants purchasing NXM.
As CEO Hugh Karp illustrated in the forum discussion “new capital is coming in quicker than the mutual can effectively use it.” This is where Proposal 83 comes into play.
As I learned in this excellent synthesis from NXM Chad, Proposal 83 requests that the MCR increment is reduced from 1 day to 4 hours, essentially allowing the mutual to increase it’s cover capacity 6 times a day instead of 1. This temporary measure to scale is meant to reach an MCR of 100,000 ETH (from its current amount of 15.5k ETH), at which point it will revert back to once per day.
“This is proposal is really about sacrificing the potential for sharp short term price increases for faster capital scaling, so we can access demand for cover much sooner. It would also likely drag down the MCR% from the current mid 140% levels to 130%. So there is likely a short term sacrifice for a much greater medium — long term benefit.”
Basically, the price of NXM will not increase as rapidly due to it’s positioning (or lack thereof) on the bonding curve. However, this change will still allow for growth while inherently meeting Nexus’s desire to fulfill demand. After a formal governance poll, it looks like this change will pass and take place tomorrow.
Closing Thoughts
Nexus Mutual is experiencing more demand than the system can handle. This is just about the best problem possible and thankfully it has a strong, educated community to help move these changes forward in an efficient fashion.
With the newly issued NXM wrapped in tandem with a reduced MCR increment, things are really starting to heat up for the rising DeFi token.
If you haven’t done so already, follow Nexus Mutual on Twitter or join the discussion on Discord to stay up with the latest discussions.
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.