Again I understand your point and appreciate the illustration. I think what you were originally talking about isn’t correctly termed “excess.” That was the point that I was originally reacting to; that in almost every scenario, even if a recovery is made by the DAO/SAFU there will be a deficit between what the SAFT paid out and what was collected.
I believe you want to talk about what to do with an amount of money that may be recovered over and above the value of the liquidated balance of the SAFU at the time of the default and the legal administrative costs (~$3MM and $1MM in your example). Let us agree to call the original SAFU balance and the legal costs the “Net Costs” and any amounts recovered above those two amounts the “Net Recovery” (in your illustration, it would be $11MM). If participants in the DAO’s governance want to vote to send that back to TRU stakers they have that option. It can be proposed and voted on at any time.
Even though DAO governance could vote to return any theoretical amounts of the Net Recovery to TRU stakers, here is why they shouldn’t vote to do that - diversification of the insurance pool.
As your illustration outlines, if the SAFU sells the original seed assets and immediately dumps ~$16MM TRU on the market, the price of TRU will immediately plummet given today’s liquidity. As the recovery plays out, even assuming the recovery rates in your illustration, the platform will issue more loans that don’t default, and hopefully, the price of TRU rebounds. The smarter thing for the SAFU to do with the ~$11MM Net Recovery would be to restock the SAFU’s asset buffer with non-TRU and uncorrelated assets, and to manage an insurance portfolio that can grow over time and lower the chance of needing to slash stakers in the case of a second default. That is what would have the most overall benefit to the platform and to holders of TRU (both stakers and non-stakers). Sending the Net Recovery to the individual stakers who were slashed during the first default encourages a death spiral for the platform. Instead of growing a reserve in the SAFU and lowering the chance of needing to perform a 10% slash in the future, it keeps leaving the SAFU at a bare minimum level. This would mean each successive default will likely require another slash. That hurts stakers over time and they will unstake. It hurts the price of TRU over time as it continues to need to be dumped on the market. And it hurts the platform as a whole because it has a lower and lower balance of reserves to pay liquidity providers in the case of a default. If this was put to a vote, I would encourage a vote against it.
(An aside - I think an 80% recovery estimate is wildly optimistic and not correlated to recovery rates in real legal action by an unsecured creditor, which is where the recovery will take place, the real world court system. I would highly recommend everyone do their own research into the recovery rates of unsecured creditors who bring legal actions. Based on my experience it is much more likely that the DAO wouldn’t recover the original balance and legal fees, i.e., it would recover less than $4MM in your illustration.)