Nexus Mutual – the discretionary mutual known for its alternative DeFi insurance products – is proposing a potential revenue stream for the Foundation.
Nexus Mutual’s Foundation is a Collective Risk Services CIC (CRS) operating as a non-profit which is responsible for employing the core team in addition to paying other operating expenses including website, marketing, audits and more.
The initial proposal requests that the current 2.5% sell spread on any NXM redemptions (i.e. Mutual members selling NXM) is allocated to the Foundation rather than being burned.
While today the potential revenue is not too substantial, the funding mechanism would provide more flexibility and options to support Nexus Mutual’s Growth. In the future, as the Mutual grows, the revenue model could sustain the foundation, ensuring there’s a dedicated team working on the growth and adoption of the Mutual at large.
For those unfamiliar, the initial funding of the Foundation was sourced from an initial grant of 1,000,000 NXM tokens where the Mutual launched back in May 2019.
Given the Foundation is running as a non-profit and in the interest of the Mutual and its members, the core team also disclosed their current funding position as of the end of March 2020.
In short, the Nexus Mutual Foundation’s financial position is as follows:
- $927,000 in Total USD
- 598,693 USDC
- $328,000 USD equivalent (bank accounts)
- 335,428 NXM
- Valued at $848,570 as of writing
With all of that in mind, the estimated burn rate for the Foundation currently stands at approximately $72,000 per month.
With the proposal, Founder Hugh Karp released historical NXM burns from redemptions in order to model the potential revenue stream. Generally speaking, the 2.5% sell spread has averaged around ~1,000 NXM in burns per month.
At today’s price of $2.5 / NXM, this would generate an additional $2,500 per month for the Foundation or about 3.4% of the approximated monthly burn rate.
It’s important to note that while this doesn’t seem substantial now, the Mutual is still in the early stages and has plenty of room to grow in the coming future.
As such, in order for the 2.5% sell spread to cover the monthly burn rate, the Mutual would either need to (1) average 28.8k in monthly NXM burns at $2.5 per NXM or (2) the price of NXM would have to rise to $72 – a 2,780% increase from today’s price.
Obviously the most likely outcome for the Foundation covering its burn rate is a combination of NXM price appreciation and an increase in trading volumes.
Key Takeaways
By having a core team dedicated to the growth and adoption of Nexus Mutual, it should lead to price appreciation in NXM in the long term, allowing the Foundation to expand its runway and allocate additional resources to other efforts supporting the growth of the Mutual at large.
That said – it may be in the best interest of Mutual members to vote “Yes” on this upcoming proposal in order to establish a sustainable mechanism for the Foundation’s operations.
As the revenue increases from this mechanism and the Foundation is able to sustainably support itself, the Mutual’s members could elect to open up the funding to other teams outside of the Foundation.
We can envision the 2.5% sell spread acting as a future “slush fund” for the Mutual’s growth, allowing different teams to draft up proposals for funding – perhaps for development, marketing, and other initiatives that would improve the product or adoption of Nexus Mutual.
All in all, it’s exciting to see DeFi projects exploring different options for long-term sustainability. We can expect this trend to continue as the proliferation of DeFi unfolds and teams look for revenue options in the coming future.
