Assuming your model construction is adequate, I updated the treasury inputs on for deposits and daily treasury earnings which are much higher today. In the expected base case you outlined, I calc the impact to 5 year earnings as roughly 5% on a going forward basis. In my mind that is an adequate risk to self insurance if we have confidence in this being a once in 5 year type of event.
However, I think its worth calling out the probability of tail risk events, especially because we have reached your models future state already with the top operators with 9.9 and 10k and Lido market share of 32% with obvious potential to continue growing until the merge.
Of note, I do not believe your model addresses the probability of slashing from a technical issue or bug. Realistically this might be impossible to truly quantify. However, your model makes it clear that such a tail risk event is catastrophic If anything more than a single big operator is slashed 30% occurs. Even the most likely scenario of 1 operator, 30% slashed wipes out nearly 65% of the treasury’s stETH.
Of equal importance is the approach of assessing risk by 5 year treasury revenue. I am not sure this approach is logical given the fast paced environment. Running it by 1 year, we see the risk is much more severe with the treasury spending annually 5x > revenue, accounting for emissions.
Couple of actionable items:
- Have we seriously searched for alternative insurance options? Competitors like Block Daemon offer 100% coverage to their stakers and I am sure they are not doing it out of the kindness of their heart. It obviously makes economical sense too…
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Could we reopen the tranche conversation with one or more tranches accepting these tail risks and others not.
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Could we offer a 3rd party insurance tranche where the fees are deducted from staker revenue instead of the DAO treasury?
Overall, it seems like this risk has not been adequately explored or mitigated… which is a risk unknowingly accepted by stakers.