Yesterday, our team published a proposal on Nexus Mutual’s governance forum to pause MCR growth. You can view our post and community feedback here, but we’ve included our rationale for this proposal below.
Full Disclosure: Delphi Ventures holds NXM.
The purpose of programmatically growing MCR was to increase Cover Capacity. Individual covers are limited to 20% of MCR in order to minimize concentration risk to any individual cover. This growth schedule was put in place early on to satisfy the overwhelming mismatch between demand for cover and existing capacity.
MCR currently sits at 157,648 ETH, meaning individual cover capacity is 31.5k ETH (over $11m USD). Scrolling through the cover purchase menu will show you that none of the individual contracts are currently capped by MCR. On top of that, there’s about $180m in cover expiring over the two weeks (out of a total $230m) which will significantly open up capacity. The reason we’re seeing so much capacity expiring is because a lot of it was purchased to farm SAFE about a month ago. The shortest time period one can purchase cover for is 30 days, so we’re starting to see all of those purchases expire.