Thread by @DorKonforty

@NexusMutual's recent change to the mechanism determining MCR%, and therefore NXM token price, will lead to a runoff decrease in MCR% and decrease in token price due to the $SAFE effect. Read on >>

Until today, MCR% increased by 1% per day as long as the Capital Pool had enough funds. This provided a steady increase in available cover, whereupon every 1ETH extra in MCR floor translated into 10ETH of more cover ready to be utilized. >>

Thanks to $SAFE and its "incentivized insurance farming" (yeesh), every last drop of cover was snatched to stake in $SAFE pools. This triggered the new MCR determining mechanism to take over, one that relies on a simpler formula: cover taken divided by a "gearing factor". >>

(You can read about how the gearing factor is determined in this excellent Delphi piece:
delphidigital.io/reports/how-nx…)

Current gearing factor, as seen after yesterday's MCR change, is ~4.61. >>

With cover at a record high of 633k ETH, tomorrow's MCR will jump from ~130.4k to 633k/4.61 = 137.3k, lowering MCR% by ~5% and price by ~10%. >>

But that's not all. Because there's now 7k more ETH to stake on cover, and each NXM token can be staked up to 10 times - and they will, because degens want NFTs for $SAFE farming - coverage will increase by 70k. And so: 703k ETH / 4.61 = 152.49k, and a great decrease in MCR%. >>

This assumes no new money enters the pool, which, while on most days would have been a bad assumption considering the explosive growth of Nexus due to its otherwise great and innovative product, is here in fact conservative, since when people realize what's happening, they'll >>

Cash out even before the new MCR changing mechanism goes into play again, dropping MCR% further and destroying the price.

If this reminds you of anything, this is exactly what happened when the previous algo change came into effect, with MCR% decreasing by 6% a day. >>

To add insult to injury, should the mutual wish to fix this quickly, it would have to struggle to convince the happily farming wNXM farmers to unwrap and use their NXMs to vote to reach a quorum. >>

I don't think a vote should be made, however, aside from for making the gearing ratio determined through governance rather than automagically and opaquely as it is now.

Let the price crash, wait out the fake coverage purchases for farming, and return to business as usual. >>

In conclusion:
There's a lot of energy moving around the space, much of it into nigh-useless endeavors, and "few understand" how it might affect the actually useful and beneficial projects.

Not to say that these aren't fun experiments, and I'm still bullish on the outcomes.

P.S. I'm working on a new project that will seek to direct and leverage all this plentiful energy into something sustainable and useful for all, DeFi degens and beyond. Stay tuned to this space.

@Delphi_Digital @HughKarp