BIP #9 - Nexus Mutual cover for B.Protocol v2 smart contracts

EDIT: Changed this thread from [Proposal] to BIP #9 and added it to the BIPs sub-category.

Intro

This proposal suggests B.Protocol DAO to allocate 10,000 BPRO (~$75,000) from its reserve to a Shield Mining campaign on Nexus Mutual in order to increase cover capacity and lower cover cost for B.Protocol v2.

Background

The Shield Mining Campaign is a tool created by Nexus Mutual as an additional incentive for underwriters to stake their NXM on specific contracts (e.g. B.Protocol-Liquity integration) which can assist in bringing the insurance cost on Nexus Mutual to the lowest target rate possible of 2.6% annually.

As TVL is growing, and as security and safety of users’ funds remain at the top priority of the community, insurance coverage seems like the right step at this stage.

Nexus Mutual is the leading insurance provider for DeFi protocols with nearly $600m of active covers currently.

Motivation

Insurance provides users, mainly big accounts but not only, the needed reassurance that their funds are safe. This can increase the stickiness of funds in the protocol as well as attract new users.

As the main growth focus is towards B.Protocol v2 integrations, this proposal suggests having a cover for V2 integrations to attract more new users to v2 (currently Liquity integration).

Details

After discussions with the Nexus Mutual team, the proposal is to distribute 10,000 BPRO (~$75k) as part of the Shield Mining Campaign. This should be enough rewards to keep the campaign running for 4-6 weeks and to attract sufficient capital to bring the price down to 2.6% annually (a minimum of 50k NXM is required to be staked to get the minimum price for cover).

Result

If the Snapshot vote will pass, 10k BPRO from the DAO reserve will be deposited into a Nexus Mutual Shield Mining Campaign to incentivise risk assessors to stake their NXM on B.Protocol v2 protocol cover. Dates of the campaign as well as the listing of B.Protocol on Nexus will be finalised with the Nexus team if/once passing the Snapshot vote.

I put this daft proposal for discussion of the community for a few days before putting it up for a Snapshot vote.

5 Likes

I’m a newbie to how Nexus works, and I’m not sure if we have some representative here? I’ll ask the newbie questions anyway.

  • I’m reading that the mining will bring down the price. But is this reduction purely for the 4-6 week period? I.e., are we really only giving large stakeholders a 4-6 window to get their insurance in order, and then the price will increase? Are there any mechanisms to keep NXM stakers to stay, or can they jump ship at any moment?
  • Just out of not knowing the protocol: Are the NXM stakers risking their NXM? I.e., do they get their NXM slashed upon a valid insurance case?

Anyways, getting added and having this opportunity is a great addition!

2 Likes

Hi @TragedyStruck :wave:

I’m BraveNewDeFi, the Marketing Lead over at Nexus Mutual. I’m happy to answer your questions :turtle:

Nexus Mutual is owned by members, and members are able to participate in a variety of ways. One of the ways members can get involved is by acting as Risk Assessors, or members who stake NXM against protocols, custodians, or Yield Token Cover products to create open capacity. As more NXM is staked against a protocol, the annual cost of cover is reduced to the 2.6% per annum minimum. When loss events occur and claims are paid out, members who have staked against affected platforms/products have their NXM burned. Risk Assessors socialise risk, so the losses can be minimal. For large claim events, Risk Assessors can have up to 100% of their staked NXM burned to facilitate claim payouts.

Shield mining campaigns help bootstrap NXM staking against a protocol. This creates an added incentive for Risk Assessors to stake against a protocol, as shield mining rewards consistently attract stakers and drive down the cost of cover. Here’s some data I put together recently on the long-term efficacy of shield mining campaigns:

The average shield mining campaign incentive is $0.3455 per NXM staked, and the average long-term cost of cover is 2.68%. This data range starts at the very first shield mining campaign up until the Pangolin shield mining campaign in mid-October. Once Risk Assessors stake NXM, they tend to leave it staked. There’s a certain risk/reward factor Risk Assessors take into account but as cover policies are purchased, Risk Assessors earn 50% of cover premiums; those rewards are shared proportionally among Risk Assessors who stake against a protocol, custodian, or Yield Token Cover product.

Risk Assessors can unstake NXM and if enough NXM is unstaked, this can cause an increase in the cost of cover. However, it takes 30 days to unstake your NXM before it can be withdrawn or reallocated to another platform/cover product. This ensures that members cannot unstake after a loss event occurs. Risk Assessors only earn shield mining rewards if they are currently staked; if a member unstakes during a shield mining campaign, they no longer earn shield mining rewards.

But our data shows that the long-term cost of coverage after a shield mining campaign is 2.68%. Let’s say that the incentive is $0.25 of BPRO/NXM staked: you pay $0.25 to incentivise $370.38 worth of open capacity for B.Protocol. The capacity factor for new protocols is 2x, and the Specific Risk Limit determines the open capacity for a protocol.

Specific Risk Limit = capacity factor x net_staked_NXM

You can read more about Cover Pricing in the Nexus Mutual docs.

Hopefully that wasn’t too long! Let me know if I can answer any other questions or clarify any information for you :slightly_smiling_face:

5 Likes

:wave: Hey everyone,

I’ve BraveNewDeFi from Nexus Mutual. I’m happy to answer any questions about Nexus Mutual, Shield Mining Campaigns, or anything at all. Always happy to help!

3 Likes

Thanks for the great explanation. I think this sounds great as a additional offering for users and a great partnership! Looking forward to the vote.

1 Like

A bit in delay, but just to have it “on protocol” -
BIP #9 didn’t reach the required quorum of 250k BPRO for a YES vote.
Further discussions are welcome to see how to move forward on providing cover for B.Protocol.

https://snapshot.org/#/bpro.eth/proposal/0x47a6be7cf67d8636caf751b54e1e6c13e2c6de2c425c23fd8c43708695b0ff92