Thanks for the comments everyone.
It seems like there are three main items to expand on further at this stage. 1) Would MakerDAO benefit from cover, 2) Pricing, 3) Claims determination
1. Is this beneficial to MakerDAO?
Obviously not my call to make, I’d just like to raise one main point and that is the negative reflexive nature of Makers mint/burn approach.
MKR minting/burning is basically designed to buy low and sell high. And while mcap is $0.5bn, that is a very long way from the debt that the protocol could handle in one go. If there was any significant debt accrued, then mcap would likely drop materially, and then more MKR are minted and more sell pressure is placed in the market. To be clear, I’m not being critical of the current model as I can’t see any other alternatives, I’m just pointing out that even $12m at a point where there is material debt will significantly dampen the impact.
This is about giving MakerDAO cash at a time of need. So while that appears to have negative EV on the surface, it is very likely to have positive EV if you consider the perspective of how much MKR is avoided being minted vs the cost of MKR not being burned by purchasing the cover. Cover is purchased using a high MKR price and MKR minting at a low price is avoided.
Nexus Mutual currently has a minimum price of 5.2% pa, which was increased recently. There is some discussion about lowering this price again, as it was increased in response to SAFE mining which has now ended. While I can’t guarantee anything, I think it’s reasonably likely that there is sufficient staking interest and the price is at or close to the minimum.
Pricing moves with staking, but not for existing purchases. So if you bought a years worth of cover the price may be different if you wish to renew but it wouldn’t change for that year.
One main reason I suggested the structure I did, effectively paying 60% of the debt (up to limits), is to ensure there still remains an alignment of interest between MakerDAO risk management and Nexus. If Nexus covered all downside that could cause issues on both sides.
3. Claims Assessment
Nexus Mutual operates as a discretionary mutual, this means all claims are at the discretion of members. There is also no specific legal recourse here like there would be for regulated insurance products.
Apart from the claims assessment staking mechanisms designed to prevent fradulent and/or malicious voting Nexus Mutual’s key objective in all it’s incentive structures is to encourage the payment of genuine claims. If Nexus members decline genuine claims there is no reason for Nexus to exist, paying claims is actually in the long term interest of the mutual.
I’m happy to attend a governance call or provide further info as required. Assuming there is interest in pursuing further it would be great to discuss with a few experts on your side to get into more details, but please guide me here as I’m not in the weeds of MakerDAO governance processes.