Nexus Mutual Shield Mining

Summary
Nexus Mutual is the leading insurance protocol for DeFi today. With its protocol support for BarnBridge, users can now purchase coverage on their deposits into BarnBridge to protect against smart contract risk. The amount of coverage available to users to take out is determined by a) how much ETH value is available to the mutual in total, and b) how mutual members stake their NXM tokens in order to allocate that coverage.

Vote
This SnapShot vote is to determine whether the BarnBridge DAO will set aside 11,000 BOND to be paid out pro rata in shield mining rewards to Nexus Mutual stakers at a rate of 212 BOND per week.

Rationale
These figures are based on what it would require for NXM stakers to earn a ~1.25% yield on staking in favor of BarnBridge, pre-compounding, assuming a BOND price of $50 and $45,000,000 worth of NXM staked (i.e. near BadgerDAO’s amount).

BarnBridge will benefit from the extension of insurance coverage for depositors as it will allow more risk-averse users to participate in SMART Yield, the DAO, and subsequent applications with appropriate safety. Moreover, shield mining rewards can be calibrated in the future as needed.

Consider the following resources:

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Not sure I fully understand what the payouts of BOND tokens for shield mining gets us (I did read the primer and viewed the other links)

From what I understand this opens up initial onboarding of BarnBridge as a protocol Nexus mutual will provide coverage for.

Does this also automatically provide blanket cover for all depositors of SMART Yield, the DAO, and subsequent applications, or would individual depositors have to purchase individual coverage themselves after this is enabled?

It may help myself and others if you explained the process in a bit more detail.

There was also some discussion in discord around other insurance options. Are we deciding on Nexus as the provider of choice or are other options still being considered as well?

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Shield mining provides NXM stakers an incentive to back BarnBridge over another covered project. NXM staking determines what percentage of the mutual’s cover is available to a given project.

While Nexus won’t be the only insurance provider for BarnBridge, it currently has the most coverage to offer. Given the nature of our products, we should expect large deposits to seek this insurance, and therefore need to optimize for total coverage available.

Individual depositors would need to purchase coverage themselves after this is enabled. I think it would make sense to offer rebates to seniors for such purchases as a way to incentivize them (as the cost of 2.6% will be prohibitive for them), but that’s a secondary conversation.

Thanks for the added clarity.

I think your third paragraph is pretty material to this decision.

If you think we would need to provide a subsidy, in addition to funds expended for shield mining to get seniors to purchase cover, then a proposal to enact shield mining alone does not get us there.

It would be helpful to provide some insights into what you think the additional subsidy costs would be in light of how much volume you estimate may enter senior positions.

I also think the relative cost/benefit of various insurance solutions would help us make a more informed decision overall.

As an example how will a solution like Sherlock compare to Nexus mutual vs bridge mutual vs risk harbor?

Are we better off creating a direct rebate to seniors (perhaps a fee moratorium paid in BOND) and give them the option to procure their own insurance from the myriad of options?

I personally do not know enough and have questions that pose a challenge on deciding on this in isolation.

I’d love to see what other community regulars think about this.

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Is this mean that basically we will pay the insurance for the seniors?

No competitor that I’m aware of has coverage availability on the scale of Nexus. I do not think 11,000 BOND total for a year is an onerous proposition for getting access to the leading provider.

I think any conversation around insurance subsidies will need to take that competitor landscape into account, but again, that would be a secondary conversation. Nexus’s coverage could be valuable for DAO depositors and junior tranche users as well, and in those use cases, there wouldn’t be a need for subsidization.

That is what I was suggesting, but it is not what this snapshot would be for. This snapshot would be for incentivizing Nexus Mutual users to vouch for BarnBridge, such that there is more insurance available for users to access.

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Considering Nexus has the best coverage availability and is the leading provider, I think it makes sense to incentivize Nexus users to vouch for BarnBridge.

Has anyone on the team happened to touched base with InsurAce Protocol to see what they can offer? It would be interesting to see a comparison of other providers coverage/benefits.

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If we have to subsidize the insurance provider and subsidize the insurance purchaser, this seems like an improper use of funds at the moment. I think this should wait until we have sufficient liquidity that a Senior holder could buy insurance without needing subsidy.

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Do you think there would be no demand for insurance for DAO deposits or junior tokens?

The main problems we face with cover are capacity, subsidization and diversification.

Long-term, aggregate capacity is the by far the most important to support Smart Yield, BarnBridge and future products at scale. If we expect to reach significant TVL BarnBridge will possibly need to expand the available cover capacity dollar for dollar with our TVL.

Subsidization crosses into another discussion all together as it potentially could upend our current BOND incentive path. Max hinted at the possibility of subsidizing cover for seniors in the future. I don’t see any difference from subsidizing rates, they are effectively the same. (I would love to see us offer 1 year seniors a fixed % subsidization to be used however they see fit.)

Diversification will naturally occur as other cover protocols mature and gradually gain market acceptance.

Personally, based on product dominance and scale, I don’t see any large liquidity providers using any on chain cover other than Nexus Mutual for the foreseeable future. 11K BOND to jumpstart/incentivize NXM stakers to build capacity is a very low lift (probably too low) for the DAO. Per Akins previous posts, this is a partial solution to solve low senior participation. It should be noted that it’s the most critical component for cover, as just offering cover without scale is pointless. If BarnBridge is successful, its my opinion cover capacity will never meet demand. Strong support for shield mining with Nexus Mutual.

What really excites me is the opportunity to cover jtokens and any other leveraged positions BarnBridge offers in the future. Their coverage could open the door to more risky pools. Nexus yield token cover for our assets would be a huge addition for the protocol.

I do think there will be demand, but is the demand there now? I’ve seen Tyler note that big investors are waiting for BarnBridge to simply exist for longer to prove that it works. Is now the right time to incentivize? Personally, I think we wait and incentivize when we know our utilization of cover is outstripping supply.

The short answer is there is far more than SY seniors at stake here. DAO deposits, SY juniors both on mainnet and Polygon, SMART Exposure on mainnet and Polygon, and then SA and SS over the coming year.

Paying 360,000 USD for that coverage today is a no-brainer in my opinion. Especially when you consider one of the key use cases of SA will be treasuries taking downside protection via the senior tranche.

We’re paying for coverage we don’t know we need. Maybe in the future we’ll need to incentivize more coverage due to the overwhelming demand, but in this proposal no evidence was provided that juniors or seniors are clamoring for insurance and can’t get enough. We think we need more insurance, but I’m concerned the end result of this proposal is enriching a bunch of NXM holders and providing a ton of insurance liquidity that goes unused.

I would rather supplement the cost of insurance and allow the coverage liquidity to increase organically since that would be directly tied to fee generation in the BB protocol.

There are no DeFi blue chips without insurance coverage, full stop.

Consider the following scenarios

  • Prospective BOND holder who held off because they couldn’t enter the DAO without insurance and didn’t want to get diluted

  • Smart Exposure or Smart Yield user who would want to move to Polygon but has their concerns about L2

  • Smart Yield junior depositor who won’t stake for rewards because of security concerns

Insurance can make a clear impact today, especially for users managing other folks’ money.

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I think we are all aware of chars of our potential users. So we can all agree that having such a target group without possibility to buy insurance is a no go.

We should open door to Nexus as a top insurance provider in crypto which also could play an interesting role in BB future. Moreover they have been here for a while and have built up some reputation in the industry comparing to brand new projects like Bridge Mutual or New Harbour. They will still have to prove themselves, gain some reputation, build community etc.
Generally insurance in crypto still has a long way to go and is still too far from being ready for mass use, but from what we can see now, Nexus is a good start imo.

By subsidizing shield mining and therefore having enough coverage on Nexus Mutual, users will have an option to purchase the insurance if they want to. Lets ignore the costs of insurance for now and lets focus on what we can manage ourselves and do for our users.

As discussion about investing our DAO funds went quiet and Max came up with the idea to purchase BOND from the markets using funds received from SY fees, seems like a good alternative to previously investment thoughts. We invest our funds, which are currently sitting in our treassury doing nothing, to improve users experience with our products. Love it.

Once Max’s figures are correct, i think we should go forward and do it.

(If the proposal with buybacks pass, we should figure out how to buy those Bonds from the markets)

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