NIP: $BTCN, $GLDN and sDeFo assets design
Absorbing volatility of highly unstable assets requires an efficient mechanism of overcollateralization. In this proposal, we introduce new mechanics that would allow for issuing BTCN, GLDN, and other speculative DeFo assets based on Neutrino protocol. The basic underlying concept is to create a collateralization algorithm that could generate autostaking BTCN and GLDN (or other highly volatile assets, or sDeFo — “speculative DeFo”), utilizing USDN as a basic collateral, and also NSBT as an overcollateralization token to back the synthetic peg.
Let’s overview the algorithm using BTCN as an example. The system uses three tokens: USDN, NSBT, and nVault — an NFT token that signifies a right of ownership for locked USDN and NSBT.
Let’s assume the price of 1 BTC to be equal to $20 000, and the price of 1 NSBT — to $100. In order to issue 1 BTCN, one needs to deposit 20k USDN and 800 NSBT into an nVault on the smart contract. C-Ratio (CR — Collateral Ratio) is 100% for the USDN share and 400% for NSBT (example: (4 * 20 000 / 100 = 800). The issuer receives 1 BTCN and some nVault NFT tokens.
Since BTCN is backed by assets that generate staking income on their own, BTCN staking is implemented in a similar way to USDN staking, i.e. locking it on a smart contract, taking regular snapshots and conducting mass payments. ETH and other EVM-based chains have the auto-staking feature, which is included in ERC20 USDN.
The USDNs & NSBTs that form the collateral are also staked.
The process of generating new BTCN for staking payments is as follows:
- all staking payouts for USDN & NSBT are converted to USDN.
- 1/5 remains in USDN, 4/5 are converted at the current exchange rate into NSBT, diluting the share of NSBT in all nVaults and replacing it with USDN
- new BTCNs are issued via the mechanism described above, ready to be paid out to stakers
- nVaults that were received automatically remain on the smart contract, where they can be redeemed by any user for USDN
- USDNs received from the sale of nVaults are again credited to the contract as a staking reward
In order to exchange BTCN back to USDN & NSBT, one needs to send the requiredBTCN, as well as nVault itself, to the smart contract. The profit for closing the collateral position, or RedeemValue, is calculated as RedeemValue = lockedUSDN + lockedNSBT * priceNSBT — requiredBTCN * priceBTC.
Motivation for Participants
BTCN is expected to have massive liquidity, staking profitability and speculative potential. Issuers are betting on the growth of NSBT surpassing the dynamics of the BTC rate, taking RedeemValue as profit.
Holders of BTCN bought on the market can simply store it as regular bitcoin, receiving staking payments in BTCN.
The proposed scheme has a number of advantages:
- BTCN is backed by a liquid token, USDN
- BTCN has large quantities of excess collateral, protecting against BTC’ volatility
- NFT tokens and Waves infrastructure that will support them is going to develop rapidly
- The algorithm is suitable for any type of speculative assets: GLDN, TSLN, SNPN, etc.
- With the Waves blockchain, it is simpler to implement and maintain such an algorithm, however, BTCN can also be issued as an ERC20 token by analogy with ERC20 USDN.
- A significant demand for NSBT is expected, which stimulates the growth of its market cap and secures its role as the token of Neutrino recapitalization