How the Neutrino Token (NSBT) ensures USDN stability and protocol governance

In this post, we’ll explain how USDN backing and Neutrino protocol governance work with NSBT

The Neutrino protocol has a unique mechanic that ensures stability of its stable assets, also providing governance features.

In this respect, Neutrino operation differs from that of other stablecoin protocols. The main difference is that Neutrino ties in deeply with the economy of the underlying Waves blockchain. As a result, the staking of WAVES turns into the staking of USDN, Neutrino protocol’s flagship stablecoin, eliminating volatility typical of crypto markets.

WAVES staking earns around 6% annually. USDN is backed by WAVES tokens, and tokens locked on the smart contract are staked. USDN stakers’ profits increase to 10%+ as not all users choose to stake their USDN, and only those who do so collect staking profits.

Therefore, USDN is effectively an interest-bearing stable coin, unique of its kind, which creates an intrinsic demand for it. This also has a positive impact on the stability of the US dollar peg, since it boosts the value of the underlying WAVES token.

To provide greater stability, an additional token is used, the Neutrino governance token or just Neutrino token (the ticker is NSBT, which stands for Neutrino System Base Token). For clarity and simplicity let’s call it Neutrino Token.When the value of WAVES tokens in USDN backing goes down, it works as a bond, allowing users to speculate on the so-called Backing Ratio (BR). BR is the share of WAVES reserves in relation to the total Neutrino supply. To calculate this crucial parameter, a trader should determine how many WAVES back USDN on the main smart contract and convert that amount to dollars at the current exchange rate ($R).

There are community services displaying total value locked (TVL) at any given time, such as http://dev.pywaves.org. The current value of BR can be viewed in the API endpoint: https://beta.neutrino.at/api/explorer/get_br

When the value of BR falls below 1, that is USDN tokens’ total value exceeds the value of locked WAVES tokens, the Neutrino Token works like a bond: it is sold below 1 USDN and can be exchanged back for USDN at a 1:1 ratio when the backing is restored.

Neutrino stipulates no marginal mechanisms or liquidations. If the USDN backing goes down, intrinsic demand and speculative interest bring it back to stability. To go up to restore the balance, WAVES’ price doesn’t necessarily have to go up. The stability can also be restored through additional backing locked on the smart contract. That’s another point on how Neutrino differs from other protocols based on Ethereum.

Knowing how many USDN tokens have been issued on the main smart contract via swap operations and are currently in circulation (supply), one can calculate the BR parameter, using this formula:

BR = $R / S or BR% = 100 * (R $ / S)

The USDN deficit (D) is related to BR via another simple formula:

D = 1 — BR or D% = 100 — BR%.

In principle, the backing ratio can have any value between zero to infinity. In a state of complete equilibrium between supply and reserves, BR is equal to 1, or 100%. If the reserves are sufficient to cover exactly one half of the entire stablecoin supply, BR is equal to 0.5. Similarly, if the value of reserves is higher than the supply by 50%, BR equals to 1.5.

To successfully trade NSBT, it is important to identify and follow three major factors that lead to growth in BR:

• increase in the WAVES market value
• increase in the number of WAVES tokens in the reserves as a result of WAVES/USDN swap operations
• increase in the number of WAVES tokens in the reserves as a result of issuance NSBTs via the smart contract.

Conversely, three factors can push the BR value down:

• decline in the WAVES market value
• decline in the number of WAVES tokens in the reserves as a result of USDN/WAVES swap operations
• liquidation of the Neutrino Tokens, provided that BR is greater than or equal to 1 (i.e., surplus state).

There is an emission curve that connects the backing ratio to the Neutrino Token price. Overcollateralization at BR equaling to1.5 is targeted: we’re building the curve in such a way that once a BR of 1.5 has been reached, the Neutrino Token’s price increases sharply.

The NSBT price formula in the exponential curve looks the following way:

The USDN backing mechanism is described in more detail in the Neutrino documentation.

What does the Neutrino Token actually govern? Striving for even greater stability, we added an extra layer that enables the creation of stable assets on top of the Neutrino protocol. They can be tied to national currencies, precious metals, stock market indexes etc.

With the Neutrino Token , the Neutrino protocol community gets the opportunity to influence decisions concerning product roadmap by investing in the Neutrino Tokens and voting with them. Users can vote on which new assets should be issued on the Neutrino protocol.

The voting process is quite simple.

Step 1

Buy NSBT, using one of these options:

1) on the smart contract (https://waves.exchange/investments/nsbt) for WAVES, instantly and almost any amount. The price is determined by the emission curve. The contract redeems NSBT for USDN at a 1:1 ratio, but you can sell them back only if BR> 1 (https://waves.exchange/investments/nsbt, the “NSBT to USDN” tab).

2) on the Waves.Exchange for USDN, WAVES and other crypto. Buy and sell prices are determined by the market.

Step 2

Vote for the new assets

Go to the Neutrino governance page https://neutrino.at/governance and vote with any amount of NSBT for assets that should be issued for trading and staking on DeFo. 1 NSBT counts for one vote. A user can vote multiple times, sending an unlimited amount of NSBT to the smart contract.

Step 3

Recover NSBT

Through the end of the voting period, your Neutrino Tokens are locked on the smart contract. Once the voting is complete, all the tokens will be sent back to the user by request.

Custom stable assets are backed by USDN, and an additional user liquidity pool is created to account for volatility of stable assets against the dollar. Liquidity providers earn swap fees, and vote with their Neutrino Tokens for new stable assets to be issued.

The Neutrino token has been also ported into the Ethereum network. Its contract address of ERC-20 NSBT is 0x9D79d5B61De59D882ce90125b18F74af650acB93. ERC-20 NSBT is already available on Uniswap.

To conclude: the Neutrino protocol provides a new and unique approach to stablecoin operation. Stablecoins issued on Neutrino are backed by WAVES, but their stability is ensured through different mechanisms, including demand for the governance token, the Neutrino Token.

Join us!

Neutrino website: https://neutrino.at

Medium: https://medium.com/neutrinoteam

Twitter: https://twitter.com/neutrino_proto

Telegram : https://t.me/neutrino_group