IndexCoop Shield Mining

iip:
title: IndexCoop Shield Mining
status: Proposed
author: Luciano (tw @Luciano_vPEPO)
created: 2021-01-04

Simple Summary

Enable INDEX Shield Mining incentives for the IndexCoop protocol for 10 weeks with an issuance of 0.05 INDEX per NXM per week targeted (target 12,000 INDEX total or 1,000 INDEX per week to attract 40,000 NXM enabling about 1.6M USD worth of covers to be bought at a reasonable rate of ~6% per year)

Abstract

Allocate 12,000 INDEX towards Nexus Mutual’s Shield Mining program for the IndexCoop smart contracts with the following parameters:

  • Shield Mining program runs for 12 weeks.
  • Shield Mining program will leverage Nexus Mutual’s Shield Mining contracts.
  • 12,000 INDEX represents 0.12% of the total issuance and about 0.24% of the unallocated issuance.

The low_cost_risk_limit is set to 50,000 NXM which would enable a ~2.5% cover rate per year, this could be achieved either organically or by increasing the proposed Shield Mining incentives allocation.

FOR

  • Allocate 12,000 INDEX towards Nexus Mutual’s Shield Mining program

AGAINST

  • Do not allocate INDEX towards Nexus Mutual’s Shield Mining program

Motivation

The DeFi Pulse Index has attracted more than 100 million USD in assets, it’s critical we give users multiple options to protect themselves in case of an incident. Protocols like ours and DeFi as a whole are in such an innovative phase that I think it’s in the users best interest to acquire insurance.

Nexus Mutual is the leading provider for smart contract insurance with over 600M USD coverage bought in their insurance programs.

Nexus Mutual’s Shield Mining details: Shield mining is here!. Staking with Nexus Mutual is quite… | by Kayleigh Petrie | Nexus Mutual | Medium

Additional Motivation = Set Protocol is currently full and no further covers can be emitted, either enabling more covers to be bought directly through IndexCoop or Set Protocol would enable users to protect themselves from the downside of an smart contract incident.

Specification

  1. We would precise the team to submit the Nexus Mutual’s form to enable coverage buying on their protocol: https://forms.gle/CDKrEyR9PJUBSdu78

  2. Once IndexCoop has been added on Nexus Mutual, the team can coordinate with NM team when to begin the Shield Mining program.

  3. Marketing launch of the IndexCoop Shield Mining program.

Gathering sentiment for this RFC
  • Allocate 12,000 INDEX towards Nexus Mutual’s Shield Mining program
  • Do not allocate INDEX towards Nexus Mutual’s Shield Mining program

0 voters

2 Likes

I think this should be done.
Audits cannot guarantee 100% security.
Protecting DeFi-users as much as possible is a good thing.
Maybe we should add a bug bounty for Index/DPI smart contracts.

1 Like

@Luciano what would insurance for INDEX cover exactly?

If we are only doing it to cover $DPI risk, then perhaps enabling more cover for DPI makes more sense here?

Do you know, by any chance, if PieDAO or PowerPool have shield mining or insurance available for their protocols?

1 Like

Just to clarify, I’m not from Nexus Mutual team, I’m just a dedicated DeFi user (if one could say so). If IndexCoop lead team submits the form and gets IndexCoop (the protocol) added on the Nexus Mutual protocol, then all the smart contracts created for the protocol will be insured against losses caused incidents on the smart contract logic.

So basically, let’s say IndexCoop right now gets added, it would cover:

  • DPI
  • Staking Rewards contracts

and in the future if more Indexes are launched, these indexes would be insured as well.

Neither PieDAO nor PowerPool have insurance available on Nexus Mutual, although the 3 projects (INDEX, CVP and DOUGH) have available markets on COVER (which are currently disabled and are on average way more expensive since its a prediction market for insurance).

2 Likes

Yea I think its cool to allow DPI holders insurance against Set/Coop SC risk.

Taking a glance at pricing, it seems like the economics don’t make sense for the Coop to provide insurance for the underlying components (Example: $400k in available protection for SNX costs 6% for the year)

Perhaps we could target insuring well under 100% of assets under mgmt, but needs analysis to see if its even attractive.

What kind of claim does the NXM insurance cover? 100% of lost funds? Can’t be, right?

1 Like

NXM covers 100% lost funds (or partial, depending the situation).

Regarding how possible it would be to provide insurance for all the TVL, in theory it would be possible and the max cost would be 2.6% per annum (that’s the lowest cost of insurance on NXM – only at scale).

To achieve this, we would have to attract around 850k NXM (30M USD) to stake into IndexCoop contracts in order to be able to buy that amount of cover. I think that not every single user wants to pay that “insurance fee” as a de-facto decision (example: yaLINK vault of Yearn Finance). For reference I will post a few stats on how much NXM would be necessary to achieve lower rates on the insurance cost:

  • 25k NXM (1M USD stake) = 20% per annum (cost)
  • 30k NXM (1.2M USD stake) = 10% per annum (cost)
  • 40k NXM (1.6M USD stake) = 7% per annum (cost)
  • 50k NXM (2M USD stake) or above = 2.6% per annum (cost)

The rates above show why I proposed that amount (12k INDEX incentive over 12 weeks), although 40k NXM target is not enough for the best insurance rate, it is in some terms, the best R/R for such a small incentives program.

Also, take into consideration that currently there is a discount on the wNXM-NXM rate so users that decide to buy coverage can buy wNXM from the market to afterwards unwrap it and choose that to pay for their insurance (at the current 30% discount).

1 Like

Seems like a good idea

@Luciano Welcome to the Index Coop community - we are happy to have you!

This RFC is really interesting. There has been some discussion in weekly meeting on Mondays about including insurance for DPI and/or INDEX.

I consider myself a newbie on DeFi thought I have been tinkering with different applications / protocols. I am abstaining from this vote because I don’t understand DeFi insurance to have a well-informed opinion.

What resources would you recommend to get up to speed on understanding DeFi insurance?

Thanks,

Thomas

1 Like

Hey @TenaciousTerrier, there isn’t much resources available regarding DeFi insurance so I will give a basic introduction to it; there currently is 3 types of insurance based products on DeFi:

  • Options (insurance vs price)
    This type of insurance is already available for DPI on Opyn but it hasn’t attracted much traction. This type of insurance is mainly to hedge your invested capital in DPI (or other indexes) against a possible downside movement, the cost is the premium charged at the time of buying the option (its really dependant on the liquidity available on the market and the permisionless nature of each market since this will be key for a better suited hedge product for each particular user)

  • Prediction Markets (insurance vs X outcome)
    This has become more popular lately, because of the launch of COVER markets (particular for Smart Contract exploits predictions), the basic explanation here is that liquidity providers create markets with a question: “Will there be an exploit claim within X period?” and the liquidity provider gets 2 tokens “CLAIM + NOCLAIM”, now the market is created and the user could acquire CLAIM tokens in order to protect himself from a possible exploit on the protocol.
    But there are 2 big issues with this, the cost of this insurance is really high (30-40-50% per annum) and its really dependent on the users’ upkeep of paying regularly for insurance (as these markets last for 2-3 months on average).

  • Insurance (currently only Insurance vs Smart Contract Exploits)
    The only product available on the mainnet market for the closest to real world insurance is Nexus Mutual, I found this cool infographic that explains everything:


    Core point here being: the NXM staker is taking all the risks of a potential exploit in that particular protocol by allowing other users to buy insurance; if insurance was bought on a protocol and that protocol gets exploited causing loss of funds, then NXM stakers will be the ones to pay up the losses of those users.

2 Likes

bumping this thread, if no further comment is necessary on this proposal I will push for a formal governance proposal + a governance vote on it.

1 Like

@Luciano, can you DM me on Discord

I think its a good idea because it makes the whole product more mature and safe.
I will vote for it.

Where in discord etc would the formal governance proposal + governance vote be published at?

@bluehills there’s a governance section with all the IIPs

Is the IIP for this one already one of the ones published? I had looked there but maybe I missed it

No, there is no IIP for this yet.

apologies for the inactivity on this thread, got hooked on another improvement proposal for another protocol.

I will formalize this proposal within early next week.

Hi what is the intended potential start date of the shield mining campaign?

That’s a matter of coordination with Nexus Mutual’s team and within INDEX’s forum/discord.

New shield mining campaigns launch on Monday’s as the contract is automated to distribute rewards only once a week. Based on the outcome, I can coordinate with Nexus Mutual’s team all the details.

The IIP isn’t up in the discord currently yet correct?