The status quo
The current mechanic described in the Base Forth article allows for the recapitalization of the Neutrino Protocol system at the times when the collateral coefficient (BR) is adjusting, allowing for some additional NSBT to be released and increasing the level of overcollateralization in the Neutrino Protocol. When NSBT is bought from the contract, it increases the value locked in the USDN contract. At a certain value of BR (backing ratio), the reserve price starts to rise, so users have an incentive to buy cheaper, at the targeted BR value. However, I believe that this recapitalization effect can be increased, leading to a more robust system and a more attractive token.
The proposal: Moon Factor 🌚
After an in-depth research, and numerous simulations and calculations, I propose a concept that can amplify this recapitalization effect by improving the Bonding Curve. I call this the Moon Factor. By slightly tweaking the current bonding curve, we can introduce a theoretical maximum limit on the supply (MaxSupply) of NSBT. This maximum supply cannot ever be attained because the proposed factor is a hyperbolic curve based on the following simple formula:
where MaxSupply is the max available supply of NSBT (e.g. 2 millions), and S is the current supply (~500k). When S ->M, this factor goes to infinity. When the BR is fixed, the dependency of the NSBT issue price is hyperbolic, as present on Fig 1.
The issue price will depend on the BR and supply and utilize the MoonFactor:
This means that as the supply tends to its max value, the IssuePrice and the market cap of NSBT should grow:
At the moment, the IssuePrice is determined solely by the ExpCurve(BR) factor, which allows traders and investors to issue cheaper NSBTs and support USDN overcollateralization in WAVES tokens when the BR of the Neutrino Protocol goes down.
The modifications suggested in this proposal, i.e. the Moon Factor, will only amplify this effect, as each successive fluctuation in BR will require more WAVES per 1 NSBT. The same effect will be forming an expectation of a maximum possible Total Supply for NSBT token, making it similar to YFI.
The name Moon Factor is a somewhat humorous reference to the fact that if the NSBT token’s Supply increases, its IssuePrice might “fly to the moon”.
Depending on the market situation and Supply at the time of release of this NIP, the following options of MaxSupply are proposed: 1, 2 or 3 million. This is a debatable point, as each option may have its pros and cons: for instance, if MaxSupply is too low, it can lead to a sudden change of dynamics, a strong centralization and a large governance power of existing holders, whereas if its value is too high, it can only produce a very postponed effect.
I, as the author of this proposal, am leaning towards 2–3 million MaxSupply, which is supported by simulations.
The proposed scheme has a number of advantages:
- No major changes to the bonding curve formula and the overall smart contract architecture are needed, it remains identical and still depends on the BR
- The more NSBT is released and used, the more value in the contract => more waves are attracted as collateral to Neutrino
- A capped max supply is attractive to current and potential holders because it provides predictability
- In addition, it solves the incorrect display of supply in Waves Explorer, Etherscan and various trackers
- This will help with sustainability of proposed BTCN token design as well
- No reason for 1$ NSBT liquidation anymore
I hope this will spark a discussion and lead more liquidity and trading activity around $NSBT!