NMDP 8: Establish karpatkey as the Treasury Manager for Nexus Mutual DAO

Summary

This proposal outlines a collaboration between karpatkey and Nexus Mutual, focusing on managing the Nexus Mutual DAO Treasury.

Upon approval, karpatkey will assume the role of treasury manager for Nexus Mutual’s DAO treasury. Utilising proven non-custodial solutions, karpatkey will manage the entire treasury’s assets, coordinating all actions with the Nexus Mutual DAO’s investment committee.

The asset management strategy will involve gradually diversifying out of wNXM and NXM to accumulate ETH, ETH derivatives and stablecoins. The targeted allocation will result in approximately $2M in ETH and ETH derivatives, $1.5M in stablecoins, and $3M in wNXM/NXM, totalling $6.5M under active management.

Karpatkey requests a 0.5% management fee and a 20% performance fee for its services. The management fee will be applied to the net asset value (NAV) of all funds under non-custodial treasury management, while the performance fee will be based on the yield generated by karpatkey’s strategies. The Nexus Mutual DAO will make service provider payments to karpatkey in monthly instalments denominated in NXM or wNXM.

Nexus Mutual DAO retains the right to terminate this agreement at any time through its Governance Mechanism.

Voting Options

• Option 1: Approve
• Option 2: Do not approve
• Option 3: Abstain

Specification

Services

The services karpatkey will provide, and their implementation has been previously outlined in the Request for Comment, but are summarised below:

Asset Management Infrastructure

• Deploy non-custodial asset management infrastructure.
• Implementing automated risk management tools, prioritising the safety of Nexus Mutual DAO funds.

Treasury Management

• Explore treasury diversification to create value and reduce concentration risk.
  • In particular, diversifying NXM may be an opportunity to improve the DAO risk management and capacity to generate yield. It is important to ensure alignment with the DAO on the amount of NXM to include in the scope, assets, and execution steps. Doing this in tranches will enable the speed to be adjusted to the market price and ratchet mechanism.
  • Initially, karpatkey suggests diversifying the first tranche into ETH, stablecoins and staked NXM.
• Allocate treasury funds into DeFi strategies that offer risk-adjusted returns. karpatkey interacts only with renowned and battle-tested DeFi protocols to minimise risks (e.g. technological, market, or governance risks).
• Provide detailed and regular reports on Nexus Mutual Treasury’s asset allocation and performance.

DAO-to-DAO Synergies

• Explore opportunities to expand Nexus Mutual product adoption through partnerships with other DAOs where possible.

Implementation and Reporting

Active treasury management will rely on the leading non-custodial asset management infrastructure solution based on Safe, a battle-tested protocol currently holding over $100Bn in assets, and Roles Modifier. Roles Modifier is a role-based access control technology based on Safe and Zodiac Modules that enables the definition of strict and granular permissions policy. More specifically, Permissions Policies consist of:

• a set of allowlisted contract addresses;
• a set of allowlisted functions within these allowlisted contract addresses; and
• a function-specific set of argument constraints.

Based on Nexus Mutual DAO’s preference, a new Safe will be deployed separately from the existing treasury safe. To ease the implementation, karpatkey will set up the Safe and the initial configuration. The initial deployment will include the Permission Policies reviewed and approved by the Nexus Mutual DAO. Once the Roles Modifier is fully configured and tested, karpatkey will transfer ownership back to Nexus Mutual using the set of signers in the existing treasury, and the Nexus Mutual DAO will fund the Avatar Safe. This will enable karpatkey to allocate treasury funds through the Manager Safe multisig without retaining custody of the funds. After a successful deployment, the commission destination address for the DAO would be updated to the new Avatar Safe address.

Contingent to further discussion with the Investment Committee, karpatkey proposes to actively manage approximately $6.5M worth of assets:

• ETH and ETH Derivatives for $2M;
• stablecoins for $1.5M; and
• $3M in wNXM and NXM.

karpatkey proposes to gradually diversify out of wNXM and NXM to obtain the balances of the ETH, ETH derivatives and stablecoins specified above.

As detailed above, defining the repository of DeFi strategies will result from an educated joint discussion between Nexus Mutual and karpatkey. As an example, the following is a list of DeFi strategies with potential application to Nexus Mutual DAO treasury:

• Stake NXM in Nexus Mutual Staking Pools
• Liquidity provision of wNXM in AMMs to increase market depth
• Stake ETH on reputable Liquid Staking protocols like Lido, and RocketPool
• Supply assets to battle-tested lending markets like Aave v3
• Provide liquidity to Impermanent Loss minimised AMMs, like rETH/ETH or DAI/USDC, in DEXes like Balancer and Curve
• Stake assets in yield aggregators like Aura and Convex
• Deposit stablecoins on low-risk native strategies like Maker DSR or Aave stkGHO (Safety Module).

Monitoring

The monitoring and alerts system is designed to enhance risk management and ensure timely responses to potential threats. Alerts are configured for various metrics such as prices, collateral ratios, and liquidity. Emergency plans and automated disassembly functions are implemented to ensure quick response to any threats. In-house developed protection bots (Guardians) enable automated position adjustments in response to specific triggers, including suspected exploits, abnormal pool behaviour, rapidly decreasing collateral ratios, and other predefined risk scenarios.

Reporting

As part of our efforts to maximise transparency and visibility to the DAOs karpatkey collaborates with, Nexus Mutual DAO will have access to a monthly report showing a detailed description of the treasury’s assets and DeFi allocations. Some of the key metrics that will be part of the report are the Net Asset Value (NAV), the value of assets allocated to DeFi positions, and the treasury annualized performance based on the analysed period. Similar reports for other DAOs can be found on karpatkey’s reports site.

Budget request

This proposal specifies the entire treasury will be managed by karpatkey non-custodially. The fee structure is explained below:

• A 0.5% management fee will be charged in NXM or wNXM and collected in monthly installments. This fee will be 0.5% of the Net Asset Value (NAV), which includes all assets in the DAO Treasury and considers asset prices at the end of the month.
• A 20% performance fee of the yield generated over the last month will also be charged in NXM or wNXM on monthly installments.