By transitioning to a fully DAO-governed model, Nexus could expand its userbase and iron out tokeneconomic friction.
In a move that could point towards greater decentralization and wider access, the Nexus Mutual community is currently considering a proposal to sunset the coverage protocol’s legal entity and lift Know Your Customer (KYC) burdens currently necessary to interact with the platform.
The proposal was announced yesterday in a Tweet by investment fund 1kx co-founder Christopher Heymann. In it, Heymann notes that Nexus originally launched with a “a UK-based limited company” in order to protect the team from legal liabilities and tax-related issues.
However, Heymann argues that the DAO, with over 3,500 global members, is now sufficiently decentralized and no longer needs a “legal wrapper” in the form of a limited company.
In addition to shedding a superfluous legal entity, the proposal also argues that the requirements under the entity to KYC users have grown onerous and are limiting Nexus’ growth:
As a result, in the proposal 1kx requests up to $50,000 to perform “legal due diligence” on sunsetting the legal entity with the help of law firm Norton Rose Fulbright. This would result in a legal memo outlining a strategy to wind down the entity, which would then be voted on by the DAO as well.
KYC meets DeFi
Up to this point, Nexus Mutual has been a case study for the complications that can arise when semi-centralized real-world legal entities attempt to interact with or provide services to the decentralized finance (DeFi) marketplace. While Nexus’ membership token, NXM, is tied to a bonding curve and can only be bought through Nexus and by KYC’d members, WNXM is a wrapped version that can be freely traded on decentralized exchanges.
This has led to a curious tokeneconomic oddity where NXM and WNXM can — and often do — trade at vastly different prices, and WNXM has long been considered a burden on NXM’s price, dragging it down via arbitrageurs whenever WNXM sits below parity with its parent asset.
Despite the user and trader friction, the use case has a clear product-market fit. Nexus Mutual’s platform is currently offering 285,153 ETH and 67,497,888 DAI worth of cover across nearly 4000 policies, worth an aggregate $721,332,712. These policies are earning NXM stakers a total of $20,350,781 in annual premiums.
Lifting the KYC burden could grow these metrics considerably as privacy-focused users can gain access to policies without revealing their real-world identities. Likewise, it could be a boon for NXM’s price, as the market for WNXM would presumably shrink as speculators could purchase exposure more easily directly through the Mutual.
In a statement to Cointelegraph, a representative for Nexus declined to take a side on the proposal, and called on the community to weigh in:
NXM is down 12% on the day to $88.72 amid a wide market rout, while WNXM is also down 12% to $69.30.