[wNXM] MIP6 Collateral Onboarding Application

[wNXM] MIP6 Collateral Onboarding Application for Wrapped Nexus Mutual Token

  1. Who is the interested party for this collateral application?

@monet-supply

  1. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

Nexus Mutual describes itself as a people powered alternative to insurance. Mutual members can take out coverage on a smart contract in order to protect against technical risks, or stake NXM on a smart contract in order to underwrite some of the risk of coverage in exchange for earnings. The NXM token is used both to stake on cover (which allows more customers to purchase cover and at a lower price) as well as to adjudicate claims.

Nexus requires KYC for membership in the mutual, and NXM tokens are subject to a whitelist which restricts their free transfer. However, a wrapper contract (wNXM) without whitelisting functionality has been created to allow non-members to own NXM tokens. wNXM can be freely used on decentralized apps and transferred between users, and any Nexus member can redeem wNXM for NXM through the contract.

NXM has a unique token model based on a bonding curve that controls issuance of NXM tokens based on the financial health of the mutual. This helps ensure that Nexus has enough funds to cover outstanding cover written, without impacting capital efficiency by having too much money on hand.

NXM tokens are effectively partially backed by the Nexus Mutual capital pool, which is currently made up of ETH and some DAI. This may provide some level of price stability to the NXM token (and wNXM by extension) relative to an entirely unbacked token or one fully reliant on future cash flows.

  1. Provide a brief history of the project.

Nexus Mutual was started in 2017. The project continued developing the protocol and legal framework until it launched on main-net in May 2019. 6 weeks after launch the initial capital had been contributed and the protocol went fully operational allowing cover to be bought. More recently the project has seen material growth, increasing the capital in the mutual from around $5m to over $60m, off the back of DeFi growth and yield farming.

  1. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.

Whitepaper: https://nexusmutual.io/assets/docs/nmx_white_paperv2_3.pdf

Documentation: https://nexusmutual.gitbook.io/docs/docs

Website: https://nexusmutual.io/

Source Code: Nexus Mutual · GitHub

wNXM Code: GitHub - peppersec/wrappedNXM

NXM token contract: https://etherscan.io/token/0xd7c49cee7e9188cca6ad8ff264c1da2e69d4cf3b

wNXM token contract (this is the token that would interact with Maker): https://etherscan.io/token/0x0d438f3b5175bebc262bf23753c1e53d03432bde

  1. Link any available audits of the project. Both procedural and smart contract focused audits.

Solidified audit report: audits/Audit Report - Nexus Mutual [22.04.2019].pdf at master · solidified-platform/audits · GitHub

G0 Group audit report: Audits/G0Group-NexusMutual2020Jun.pdf at master · g0-group/Audits · GitHub

Bug bounty program: Announcing the first Nexus Mutual Bug Bounty | by Roxana Danila | Nexus Mutual | Medium

  1. Link to any active communities relating to your project.

Twitter: https://twitter.com/NexusMutual

Telegram: Telegram: Join Group Chat

Discord: Discord

  1. How is the applying collateral type currently used?

NXM is used for mutual members for risk assessment (underwriting) purposes. By staking NXM on a cover contract, members can earn some of the fees for issuing coverage and increase the maximum coverage limits.

If a claim is made, NXM holders vote to approve or deny the claim - Nexus is a discretionary mutual so there is NO OBLIGATION to pay claims, it is entirely dependent on NXM vote. NXM is also used to vote on governance proposals.

  1. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

wNXM is a decentralized token, no organization bears legal responsibility for it.

NXM represents membership rights in Nexus Mutual Ltd, a company limited by guarantee in the UK. Nexus Mutual Ltd doesn’t bear legal responsibility for NXM, but NXM holders have legal rights as per the Articles of Association and Rules of Nexus Mutual Ltd.

  1. Where does exchange for the asset occur?

wNXM is traded primarily on decentralized exchanges such as Uniswap and Balancer. However, it was recently listed on Binance and is also listed on Huobi, so centralized exchange coverage seems to be increasing.

NXM can be bought and sold directly with Nexus Mutual via it’s bonding curve (only for members who have passed Nexus Mutual KYC).

  1. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.

I am not aware of any publicly available legal opinions addressing the project or token’s regulatory standing.

  1. (Optional) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.

None as far as I’m aware.

  1. (Optional) List any possible oracle data sources for the proposed Collateral type.

Centralized exchanges from (9) may offer price feeds.

The on-chain price feed for NXM as determined by the bonding curve formula may also be used. On the assumption that wNXM price should converge to NXM due to arbitrage opportunities the bonding curve price would provide a robust price feed for liquidation purposes.

  1. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.

n/a

Disclosure: I hold wNXM

9 Likes

Neat! interesting to see this coming through, however does the wnxm token converge to nxm?

NXM price is determined internally while WXNM is the trading version subject to supply & demand, arbitrage is subject to KYC mostly from members within NXM, so basically price determination is centralized within NXM, perhaps I’m mistaken to be concerned about this but isn’t it an issue?

Sidenote: Very interesting project non the less, from what I’ve seen majority of claims were dismissed by the community, including maker’s black thursday.

1 Like

The prices have stayed pretty close to each other so far.

If wNXM > NXM, Nexus members can deposit ETH to bonding curve to mint NXM, wrap into wNXM, sell wNXM for ETH, and then repeat the cycle until the arbitrage opportunity is closed.

If wNXM < NXM, Nexus members can sell ETH for wNXM, unwrap it to NXM, redeem NXM for ETH, and then repeat the cycle.

If the value of the capital pool is too low compared with the minimum coverage requirement (MCR) to pay for potential claims, redemptions are halted until the capital pool grows. Without the ability to redeem NXM for ETH, the second arbitrage loop above becomes infeasible, so wNXM might trade below NXM. In this case, any Nexus members wishing to acquire NXM would receive better execution by purchasing wNXM on the market instead of from the bonding curve, so the prices should still converge over time.

2 Likes

So the price of WNXM is consistent as long as market forces outside NXM control are below NXM arbitrage power correct?

My general understanding:

If Nexus is well capitalized, wNXM and NXM should trade very closely together. Any single Nexus member with moderate capital should be able to arbitrage the prices to rough parity (within a few %). There is a 2.5% fee to redeem NXM for ETH, so the prices should track each other within ± 3%.

If Nexus has insufficient capital, wNXM could trade farther below NXM, but shouldn’t trade at too much of a discount because any new inflows into Nexus would go to discounted wNXM first before purchasing from the bonding curve.

2 Likes