Nexus Mutual ($WNXM) is the most undervalued token in digital assets & it's not even close. Trades at just a $23mm net market cap despite being one of the most utilized #DeFi projects.

A thread on valuation and upcoming catalysts 👇

(h/t @arca head of research @KatieTalati )
First, why does Nexus Mutual exist?

Digital asset builders are trying to build the car while simultaneously driving it. Fine in theory, but in reality, not laying key pieces of infrastructure early on can stymie growth & innovation.

For #DeFi, insurance is infrastructure
Insurance is a sleepy, boring business, but insurance in the case of #DeFi is also crucial to an ecosystem that is still being built yet already holds a massive amount of assets and is still growing (current DeFi TVL: $43 Billion).
But insurance is also a huge, profitable business

In 2020 the global auto insurance industry reached $709 bn insured & the global P&C insurance industry reached $1.6 trillion.

If Nexus captured 10% of that market, it would have $160 billion of coverage (vs current $500mm).
Nexus Mutual foresaw the need for insurance in the fast-growing Ethereum ecosystem, launching a year ahead of 2020’s #DeFi Summer.

DeFi summer proved that Nexus has the number one element that all early stage companies and projects must have: Real product-market fit
Case in point: #DeFi TVL grew from $906mm to $7.1bn (+683% increase) by the end of August, while active cover on Nexus grew even faster from just over $3mm to over $55m (+1,674% increase).

Product market fit + operating leverage = a strong investment
Defi’s TVL is currently $43bn of which Nexus currently only covers 1.28% of the market.

Imagine if cover expanded to 10-20% of Defi’s TVL - that would mean Nexus would have to grow 10-20x!

So how do you grow that coverage further?
To start, you can argue Nexus isn’t even going after the right audience yet. Imagine having this much success & not even targeting the correct point of attack.

Once coverage is built into the system, instead of optional --> 🚀🚀🚀

h/t @RyanWatkins_
While other projects rewarded users with liquidity mining campaigns & gimmicks, Nexus grew its user base organically through its in-demand product offering & token design.

Again, that's product market fit, which leads to the next most important startup trait: Traction & growth
To date, 2 smart contract hacks resulted in successful claims payouts:
- bZx for $90k
- Yearn Finance for $2.4mm

Claims temporarily lower the $NXM price as ETH is withdrawn from the capital pool to repay claims, but it shows necessity of insurance & the soundness of the system.
Nexus has generated $17mm+ in revenue, $11mm of which goes directly to $NXM token holders via the sell spread fee & premiums (net of what stakers make).

2021 revenue is on track to 3x that amount
Compare vs other #Defi projects where most revenue goes to users:

$UNI: 0% of revenue goes to tokenholders (100% goes to LPs)
$AAVE: 6% of revenue goes to the protocol
$COMP: 16% goes to token holders

$NXM: 50% of premiums go to tokenholders as does 100% of the sell spread
Compared to many other top dapps, $NXM has a far lower P/S ratio of 2.1 (calculated using the Net NXM market cap):

NXM is clearly undervalued and has not participated in the 2021 Defi rally

(NOTE: @tokenterminal data uses gross market cap which inflates numbers).
A technical aspect many miss is that Nexus' TVL is actually a subset of market cap -- the market cap is driven by the $ETH in the capital pool. Most other DeFi protocols have these completely separate.

TVL isn't everything, capital efficiency and actual revenues matter too.
And it gets even better. Nexus Mutual has yet to utilize this large Capital Pool, which contains 162,413 $ETH worth over $290m.
The mutual will begin investing its $ETH assets soon & we can assume that they will earn a rate > or = to the staking APY on ETH 2.0, a low risk contract.

Using the staking rate on ETH 2.0, $WNXM can earn ~7.5% annually which would add ~$20m of revenue, lowering the P/S further.
But if Nexus Mutual was liquidated tomorrow, all of that ETH in the capital pool belongs to NXM holders. The $NXM token is fully backed by the ETH in the capital pool.

That means the true risk of NXM / $WNXM is the mkt cap of the token ABOVE (or net of) the ETH balance.
How can $NXM be undervalued if its priced on a bonding curve?

$WNXM is a freely tradable version of NXM that represents the market's assessment of Nexus' true value.

WNXM trades at 72% of NXM's value, creating a temporary arb that is hindering growth

The Math:

$WNXM is trading at just a $23 net market cap (value in excess of the book value of the ETH).

DeFi has $59 bn in token value, yet the company that supports this growth trades at just 0.40% of that value.

A P/B ratio of 1.1x is criminal for a company this successful
Book value matters for insurance companies

More mature insurance businesses have a P/B of 3-4x while newer tech-focused solutions such as @Lemonade_Inc have P/B of 10x representing the larger opportunity set for growth companies.

$WNXM can go up 10x and still be cheap vs peers
All of this creates a positive feedback loop:

Demand for insurance --> Higher revenue --> more ETH in the capital pool --> More investment earnings

As the capital pool grows, & the market starts to assign Nexus w/ a higher growth multiple, $WNXM & $NXM take off
At worst, buying $WNXM is just buying $ETH exposure via the 1-for-1 backing by the capital pool, but you also get a a super cheap call option on Nexus’ growth for virtually nothing.

Optionality is key to investing - and this is an insanely cheap, mispriced, perpetual call option
Over and over again we've sounded the "fundamentals matter" alarm while others continue to chase layer 1 protocols with nothing built on them.

The next hot thing isn't what's next, it's what's already here, is working, and is being mis-priced or ignored.


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More from @jdorman81

14 Jan
Anyone want to buy $BTC at a 47% discount to current prices? Here's how you can do it.

I can't believe I'm saying this, but $EOS might actually be the best risk/reward in digital assets right now due to their massive #Bitcoin holdings.

Thread time 👇
First, let's talk risk/reward. Over the past 2 years, $EOS is the only well-known token other than $XRP that is not higher. In fact, it has underperformed by a LOT.

Even other zombie projects are up 300-1000%

That's a nice start for an investment -- low downside, relatively
Next, the math:

Block One owns 140,000 $BTC. At $2.77, the market cap of $EOS is $2.6 bn, which is only 47% of the value of their BTC holdings.

That means by buying $EOS, you are actually buying $BTC at $18,771. Huge discount.

The question is "can you unlock this value"?
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7 Jan
Here's the problem. #DeFi can be valued based on cash flows. $BTC $ETH & layer 1s can not be. When something can be valued, it also creates a theoretical ceiling. That's why VCs often tell startups not to generate revenue - b/c once you have revenue, the valuation model changes.
That's why 80% of the Top 25 digital assets by market cap are such a joke, dominated by Layer 1s and cryptocurrencies with almost no chance of success - because this industry was founded by a VC mentality of "huge upside, low probability of success, but no way to prove me wrong"
$ETH and $BTC have already proven to be successful -- whether they are cheap or expensive is hard to know, but they have undoubtedly succeeded. Many DeFi tokens are definitely cheap, but price gains are somewhat limited by current revenues or multiples on future revenues.
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29 Dec 20
Anyone like great risk/reward setups w/ high upside, low downside & tangible floor value? @NexusMutual $NXM $WNXM

WNXM now trades at a NEGATIVE net market cap. So how did NXM go negative?

A lesson in book value & optionality 👇
2) First, h/t to @DegenSpartan who nailed the "sell call". Investors who focused on $NXM price & the MCR completely misunderstood how Nexus & the NXM token works (myself included).

But the short thesis is completely over and it's now an "all-in buy"

Nexus Mutual, like all insurance companies, has to keep a certain amount of capital in their pool to pay out future claims. What they do with this capital is how insurance companies make money.

Profits = Yield on float + premiums paid > claims paid & inv losses

Simple business
Read 6 tweets
30 Nov 20
"That's Our Two Satoshis" is out! This week, we take a look at the institutional adoption of digital assets…
Was it Paul Revere or Satoshi Nakamoto himself who said "The Institutions are Coming! The Institutions are Coming!"

Regardless, they are currently playing stickball in the parking lot while the pros are playing under the lights of Yankee Stadium.…
The growth in #Bitcoin products like the CME futures and Grayscale's trusts shows that institutions are here already, but these products have limitations, including not being open during volatile trading hours. This manifested itself during Thanksgiving.…
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20 Nov 20
Five random Digital Asset and #Bitcoin thoughts heading into the weekend

1) Actively managed hedge funds and passive indexes built around high allocations to $BTC have a very short shelf-life. Investors now have the knowledge & means to buy $BTC themselves. Very soon, investors will specifically seek out digital asset HF strategies that own $0 in BTC.
2) Decentralized governance is less about ideology or risk transfer, & more about capitalism. Historically, there has been nothing in digital assets worth governing, but now, as #DeFi protocols are generating real revenues, there is something worth fighting over.
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17 Nov 20
Love the "Uniswap liquidity plunges" clickbait.

Facts: 4 Uniswap pools had more liquidity than needed to facilitate trading, & the excess liquidity left once $UNI farming ended. This doesn't affect volumes. TVL is pointless for Uniswap when there is more capital than needed.👇
Uniswap's TVL started going up at the end of August, & has now "crashed" back down to where it was 3 months ago.

But Uniswap's volumes peaked BEFORE TVL even increased, & volumes went down while TVL went up.

Volumes & TVL are not correlated when there is excess capital.
Yes, LPs are critical to Uniswap's success, but go look at CoinFlex if you think incentivizing market makers is the secret to success (hint, it isn't). You need customers too, and Uniswap's customers are much stickier than the LPs.

As long as customers show up, LPs will stay.
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