The NXUSD Genesis Event
The NXUSD Collateralized Stablecoin is now live, bringing a highly capital-efficient and fully collateralized Stablecoin to the Avalanche Blockchain. NXUSD possesses market-leading utility, leveraging the affiliation between Nereus and Wirex to deliver pioneering features which aim to be at the forefront of the innovation of the DeFi 2.0 era. This article will cover the NXUSD genesis event and all the remaining details regarding the mechanisms & characteristics of NXUSD.
NXUSD’s Genesis
The Genesis event of a Stablecoin is the minting of the initial token supply. Genesis events transpire to inject liquidity into the Stablecoins ecosystem to ensure the functions & mechanisms of the project are operational from Day 1. Stablecoin Genesis events are often opaque occurrences, as numerous Stablecoin project’s genesis events are experimental in nature: Hence, the genesis supply of a token is very often difficult to assess.
A pertinent example of this is the SDT Stablecoin Reserve which was issued by Terra during the genesis of its Columbus-1 mainnet, with zero collateral backing. This reserve was composed of 1 billion SDT (a Stablecoin pegged to the International Monetary Fund’s SDR). The SDT reserve was used as a Stablecoin denominated stability reserve for the Terra Stablecoins (MNT, KRT, UST, SDT) to reinforce the initial volatility absorbing reserve of Luna tokens. Specifically, the SDT Stablecoin reserve was used to help create and support the first Terra Stablecoins when Luna’s liquidity was still in its infancy.
The SDT Reserve was retired in late 2021, with the remaining supply of 711,003,512 SDT set to be burned over the next 7 years. This represents approximately 390 million US dollars of SDTs which were effectively minted & burned to help support the parity of the Terra Stablecoins, with no collateral backing. The Terra-Luna protocol’s Genesis was certainly over-engineered, solely based on a virtual supply of SDTs, but a success, nonetheless. If the initial success of the Terra Genesis was due to its participants over-confidence, the loss of confidence eventually precipitated its demise. This is a reminder that the cryptocurrency market is not mature enough to rely on confidence alone. With a bear market and a stablecoin confidence crisis, launching an undercollateralized Genesis supply is inconceivable.
The Fei protocol’s genesis event was deemed a failure by early adopters as it failed to adequately assess the initial demand for its Stablecoin. Consequently, it can be concluded that the Genesis Phase of a Stablecoin comes with its fair share of uncertainty, with some protocols employing overly complex mechanics to hide the true origins of their Stablecoin project.
NXUSD’s Genesis event was transparent & verifiable: 15 million NXUSDs were minted and collateralized with 4 billion WXTs. This WXT collateral equates to 40% of the total supply of WXT, meaning that a significant proportion of WXT’s circulating supply will now be locked within NXUSD as collateral. Additionally, the NXUSD Stablecoin will be overcollateralized from genesis and no significant control will be surrendered to VC/Mercenaries.
The 15 million NXUSD’s are being utilized to seed the NXUSD/3CRV and WXT/NXUSD Liquidity pools and to fund the Liquidation Bots. These will ensure that NXUSD returns to parity with the US dollar during periods of market volatility. This investment demonstrates the commitment from the Nereus team to push Nereus and NXUSD towards the principal goal of achieving a community-oriented decentralised finance protocol which provides competitive products to its participants.
NXUSD’s Liquidity Pools
The NXUSD Liquidity Pools (LPs) are the fundamental elements of the Nereus ecosystem. They are the most liquid markets for NXUSD and will serve as the primary oracle for the NXUSD price. The existence of the NXUSD Curve StableSwap LP should significantly enhance participants experience when exchanging NXUSD, as StableSwap LPs enable participants to exchange their Stablecoins with minimal slippage.
Curve Finance StableSwap LPs have been precisely designed to enable exchange between assets/tokens of similar value (e.g., USD-pegged Stablecoins) with minimal slippage via the mathematical concept of the StableSwap invariant. The StableSwap invariant is a mathematical function that squeezes the exchange price into a narrower margin, enabling the swap of 1 NXUSD for approximately 1 CRV. In other words, the exchange rate based on the StableSwap invariant has a much lower sensitivity to the NXUSD-3CRV reserve composition than an exchange rate determined by the Uniswap constant multiplier invariant. The diagrams below illustrate the efficiency gain of the CRV StableSwap Invariant function VS the Uniswap invariant function, with the StableSwap Invariant both offering less slippage and better Pricing at sub-optimal inventory levels.
NXUSD employs the NXUSD/3CRV StableSwap Liquidity Pool on Curve Finance to enable exchange from NXUSD to DAI, USDT & USDC with optimized exchange constraints. This enables participants to exchange NXUSD at a fair market price with minimal slippage. It will also ensure that recursive leveraging is economically viable with minimal capital base erosion on each iteration. The Nereus Protocol will also incentivise the NXUSD/3CRV LP stakers with WXT rewards, which will be allocated via a FIFO Liquidity Provider Model. This model will actively adapt to assign proportionally higher rewards to the longest standing liquidity providers that stake LP tokens, rewarding providers that have been present in supporting the NXUSD/3CRV LP for the longest period. NXUSD/3CRV LP token staking rewards currently sit at 124.55% on the Nereus Protocol.
Additionally, NXUSD employs the NXUSD/WXT liquidity pool on Trader Joe to enable the exchange of NXUSD to WXT. This Liquidity pool will ensure that WXT holders can benefit from the innovative features of the NXUSD Stablecoin and ensure there is sufficient liquidity within the WXT market to absorb natural market pressures. WXT participants will be able to buy/sell WXT at a fair market price for NXUSD with minimal slippage using this pool provided sufficient capital exists within the LP. The NXUSD/WXT Liquidity pool will also be incentivized with WXT rewards being allocated to liquidity providers who stake their WXT/NXUSD LP tokens within the Nereus Protocol. This model will operate akin to the aforementioned NXUSD/3CRV LP staking model, assigning proportionally higher rewards to the longest standing liquidity providers that stake LP tokens. A full guide on how to provide liquidity to the NXUSD Liquidity pools and stake the LP tokens can be found in the Nereus Finance Documentation. WXT/NXUSD LP token staking rewards currently sit at 328.75% on the Nereus Protocol.
NXUSD’s Redeemability — Creating a Natural Hard Peg Mechanism
The team at Nereus have been continually researching & scenario testing NXUSD’s peg mechanisms to ensure that the NXUSD peg can withstand the significant volatility inherent within the cryptocurrency markets.
Building upon community discussion regarding the NXUSD Stablecoin, the Nereus team has improved upon the algorithmic peg mechanisms outlined in prior medium articles by adding direct redeemability of NXUSD via its longstanding relationship with the Wirexapp. NXUSD will be directly redeemable at $0.995 (post 0.5% fee) within the Wirexapp, creating a Natural Hard peg mechanism further strengthening NXUSD’s Parity to the US dollar. This will provide arbitrageurs with the economic incentive to buy NXUSD on the open market when it falls below 0.995 and redeem it within the Wirexapp for other Assets/Tokens. This creates a strong ‘Hard peg’, a natural floor value for the NXUSD price and will also have the cumulative effect of improving the overall NXUSD system health, as the least collateralized positions will be the first to be redeemed against. In the situation where a participant’s position is redeemed against, they will not experience any net loss, although the protocol would essentially swap the proportion of their collateral exposure for the redeemed NXUSD.
Redeemability will provide the opposing ‘Natural Floor Peg’ to the ‘Natural Ceiling Peg’ mechanism which was already implemented within NXUSD. The ‘Natural Ceiling Peg’ has been designed to economically incentivise arbitrageurs to open borrowing positions within Nereus when the NXUSD price is above $1.12. For example, let’s say that NXUSD is trading for 1.15 in the NXUSD/3CRV liquidity Pool. The arbitrageur will deposit 100 DAI, borrowing 89.5 NXUSD (including fees). The Arbitrageur can now sell this 89.5 NXUSD within the NXUSD/3CRV LP for $102.985, a profit of $2.9825.
Additionally, Nereus’s strong relationship with Wirexapp has been further leveraged to make NXUSD the first and only fully collateralized Stablecoin which can be spent on a Debit card at over 50 million merchants in 200+ countries. This will bring a new age of capital efficiency to Nereus’s consumers, who can now maintain upside exposure to their cryptocurrency assets whilst being able to lend & spend against these assets at a competitive LTV. This synergy will differentiate NXUSD from all other stablecoins on the Avalanche blockchain, as NXUSD’s utility will extend far beyond typical Yield Farming based Stablecoins.
NXUSD’s Isolated Markets
Nereus will provide NXUSD participants with 4 Asset token lending markets, operating upon the battle-tested and risk-mitigating framework of Isolated Markets. Isolated Markets is a framework introduced by SushiSwap which isolates the risk of each lending market, meaning the solvency of a single asset market cannot systematically impair the solvency of the entire protocol. Implementing the Isolated markets framework was carefully contemplated by the Nereus team as the framework will enhance the security of the Nereus Protocol, providing a supplementary layer of security against malicious actors.
Isolated Markets will provide substantial protection against the Flash Loan Attacks & Oracle Manipulation attacks which have unfortunately become commonplace within DeFi. This will be achieved by the isolated nature of markets preventing malicious actors from being able to manipulate the price/supply of a single thinly traded collateralizable asset to deplete the reserves of highly liquid assets such as WETH or WBTC. This fact substantially reduces the systematic risk posed by manipulation attacks; as a worst-case scenario, a malicious actor could damage a single asset market, which would pose a much lower systematic risk to the protocol.
Isolated Markets will also enable NXUSD to accept ‘risker’ collateral tokens when compared to tokens available on the variable interest rate markets within Nereus. This fact is significant as it will let NXUSD borrowers deposit flexible collateral types such as LP Tokens, illiquid Assets and DAO/Governance tokens as collateral. The Nereus Protocol is currently working on testing & integrating these additional collateral types within NXUSD, with many new token markets being considered including AAVE v3 yield-bearing tokens, and LP tokens from Trader Joe, Benqi & Platypus.
NXUSD’s Markets & Minting Logic
NXUSD will initially accept DAI, WAVAX, WETH, and WBTC as Collateral tokens. Each token/asset market will operate on the NXUSD minting logic which has been specifically designed to prevent NXUSD from experiencing drastic capital fluctuations and promote protocol stability. NXUSD will be minted in batches every 24 hours, with a maximum Mint size of 15% of the Total NXUSD market Supply. Burning/Redemptions will also follow this logic, with Redemption of debt only being possible 24 hours after the initial mint and a maximum burn/redemption size of 15% of the Total NXUSD market Supply. This minting logic will promote organic growth of the NXUSD ecosystem and will be supplemented by Minting limits which will be implemented on a per market basis. These minting limits will ensure that the NXUSD’s collateral risk profile is adequately diversified across risky and non-risky assets. The Nereus team will then follow its strategy of implementation of the Variable risk markets by adapting these parameters over time to fit the participant trends observed within the protocol.
In the coming weeks, NXUSD will further take advantage of its isolated markets framework to bring the NXUSD/3CRV LP token as collateral for NXUSD. The ability of NXUSD to accept illiquid collaterals is a testament to Nereus’s risk management framework, which will prevent the solvency of a single asset market from systematically impairing the solvency of the entire protocol. Accepting NXUSD/3CRV LP tokens as collateral will provide Nereus’s highly capital-efficient product to the Liquidity providers who play a fundamental role within the Nereus Ecosystem.
Rewarding WXT Holders & Lockers
WXT will remain as the fundamental utility token of the Nereus Protocol and as such the Nereus Team would like to extend Nereus’s highly capital-efficient fully collateralized NXUSD Stablecoin to all Nereus-Locked WXT holders. WXT holders will be able to receive 20% rewards on Staked NXUSD within the Nereus Protocol when they Lock WXT within Nereus. This will further increase the current utility of WXT on the Avalanche blockchain, providing WXT holders & lockers with substantial rewards for remaining part of the Nereus & WXT ecosystems.
Conclusion
In conclusion, over the prior medium articles, we have comprehensively covered all the fundamentals regarding Stablecoins & their ecosystems. Our Medium articles have been working to rationalize the mechanisms we will implement within NXUSD and introduce the Nereus community to many of the complex topics within DeFi. We hope the community has enjoyed our discourse and is as excited to be a part of NXUSD.
Nereus has launched the fully collateralized NXUSD Stablecoin, and we look forward to all feedback regarding NXUSD’s parameters & user experiences on our Official Nereus Protocol Discord Group. Finally, as a small taster of what is to come, the Nereus team is currently working on an Automatic Leveraging via a one-click UI, meaning recursive borrowing will be one-touch away for all NXUSD participants! Please stay tuned as we continue to develop the Nereus Protocol & NXUSD.
