Neutrino Protocol 2020: Vision & Challenges

During the year 2019, the blockchain development team Ventuary Lab pioneered several major projects for Waves Platform with financial and infrastructure support from Waves Incubator, including an online course called “Mastering Web3”, the first Decentralized Autonomous Organization (DAO) on Waves, and the beta release of Neutrino, an algorithmic stablecoin protocol.

Just three months after the beta launch, Neutrino became one of the most actively-used decentralized applications built on the Waves blockchain. According to dAppOcean, it is one of the most popular dApps within the ecosystem with almost 3,000 users who have interacted with the Neutrino smart contract. Five million USD have been locked in the smart contract so far, and daily trading volumes on exchanges have already reached an impressive milestone of two million dollars. We are proud to say that Neutrino is currently listed on three exchanges: Waves Exchange, Tidex, and P2PB2B, with more to come soon. Currently, over four full-time teams and many external contributors and auditors are working on Neutrino to help this crucial ecosystem project succeed in the long run.

Vision & Challenges

We believe that DeFi (also called Open Finance) is going to become a significant trend in the coming years, capable of radically affecting how people use financial services, both in emerging markets without advanced banking or IT infrastructure, as well as in countries with developed economies whose citizens face other types of issues with financial institutions, such as restrictions based on age, nationality, credit history, and so on. DeFi will also benefit from further globalization and the increasing complexity of economic relations among people, and between people and digital entities.

As a multipurpose protocol, Neutrino allows for the tokenization of real world off-chain assets and uses crypto tokens as collaterals, with a system of algorithms working to maintain the economic stability and parity of the rate of a synthetic asset to the market rate of its pegged asset. The first synthetic asset released was a token tied to the U.S. dollar, USD Neutrino (USDN), built using the dApp-oriented smart contract language RIDE.

But it doesn’t stop there. We bring to your attention a review of potential strategic options for the development of the open-source Neutrino project for 2020. We also encourage teams of developers from the community to join and collaborate on the project alongside the core team.

In this article, we propose several innovations and improvements to the Neutrino Protocol. Some of those are already under development, and others are being offered for implementation to all the new developers who will be applying to the Waves Labs and Waves Association grant programs.

Note 1: many projects’ names are inspired by concepts from various areas of physics, like Neutrino itself. This is a tribute to the history of the Waves blockchain, which was named after the discovery of gravity waves.

Note 2: In the future, USDNB tokens may be renamed as NSBT, or Neutrino Base Tokens, as they will be used to stabilize not only the USD Neutrino, but also other synthetic assets based on the protocol (e.g. EURN, GLDN, etc.), and will also have further useful applications and greater liquidity.

I. Collateral

The integration of a new model called WAVES Collateral would extend the existing WAVES-Neutrino swap procedure and allow users to collateralize (in other words, pledge for later repayment) an amount of WAVES tokens at the cost of Y USD each, and receive Y/(1+C) Neutrino tokens per WAVES token, where C is the over-collateralization rate.

Some of the reasons for adding a collateral instrument to the Neutrino Protocol, as a way of locking more WAVES on the Neutrino contract, are listed below:

• The collateral contract would create a “cushion” of over-collateralization, which would lead, even with a large USDN supply, to a smaller deficit of WAVES and would decrease the rate of NSBT generation.
• Collateral would be a long-term asset with expectations of significant apprecation, which would be more conducive to the accumulation of assets on the contract, thus creating a deflationary dynamics.
• Due to over-collateralization, the yield of Neutrino staking would increase for all stakers.

Note that the current swap procedure would also remain in the Neutrino dApp.

Example

Let us say that the overcollateralization ratio (C) is equal to 50% and the WAVES price is around $1. If a user pledges 102 WAVES (100 USD) as collateral, the contract would return 66.7 USDN at this collateralization rate.

The collateral can be withdrawn with or without profit by its owner. In case the owner decides to withdraw the collateral without profit, 102 WAVES will be given back. The collateral may also be liquidated automatically by the smart contract when the value of the collateral reaches its market value (i.e. when WAVES falls to 0.667$).

For instance, if the price of WAVES becomes $1.96 and the user decides to close the collateral, the gross profit at the time of closing is going to be $1.96*102–1*102 = $98. At the closing of collateral with profit, the smart contract takes a T rate (tax rate) from the profit, that is, if the value of collateral in USDN increased by some amount P, only P will be taxed. I.e., if, for instance, the tax rate is 10%, the smart contract will keep (0.1*98)/1.96 = 5 WAVES as tax, and the user will receive 102–5=97 WAVES back for 66.7 USDN.

The funds derived from taxing are used to liquidate NSBT tokens. Upon liquidation of the collateral, a usual swap procedure happens, and the WAVES tokens are added to the reserves for Neutrinos issued against WAVES collateral.

II. Collider

The Neutrino protocol was designed to be a universal instrument for tokenization of real world assets. Despite the fact that the US Dollar Neutrino will probably remain the most popular stablecoin, the release of so-called Collider protocol would allow the creation of hundreds of other assets secured by WAVES tokens, with algorithmic mechanics similar to how USD Neutrino is generated now. Thus the release of the Collider protocol would open ways to utilize the existing system of smart contracts and the pool of Neutrino’s liquidity to tokenize such popular assets as GOLD, EUR, SNP500 and many others, including various national currencies.

In addition, given that the design of the Neutrino system only provides for the possibility of USDNs staking, this means that the growth in popularity of other assets will lead to an increased income from USDN staking, due to a decrease in the staked/total USDN ratio.

III. SuSy (Super-Symmetry)

DeFi services are developing very rapidly on all major blockchain platforms. At present, Waves is the main blockchain for Neutrino services. However, in order to extend the use of Neutrino to as many DeFi users as possible, it is crucial to turn Neutrino into a cross-platform project.

An extension called Super-Symmetry would enable trustless, decentralized, transparent cross-chain swaps of the Neutrino tokens from Waves to other blockchains, e.g. Ethereum ERC20 or TRON TRC20 standards, as well as the corresponding swap back into Waves, which may be useful for Neutrino staking. This will allow USDN and other tokens from Collider to be traded on various decentralized exchanges in the Ethereum ecosystem, as well as being integrated into many DeFi or other dApps (Gaming, Gambling, Marketplaces) on Ethereum, TRON and other popular blockchains.

IV. Nucleus

An extension called Nucleus would allow the use of reserves for different types of Neutrinos, not only in the native token of the Waves platform, but also in other liquid tokens circulating within the Waves blockchain ecosystem (WEST, BTC, ETH, WCT, ERG).

The first candidate for a reserve token could be the native token of the Waves Enterprise (WEST) platform, which would also provide the opportunity to accumulate revenue from staking WEST tokens by the generating nodes of the network.

The principles of integration and settings for other tokens will be decided in the future by a decentralized process called NEP&G, described later in this article.

Nucleus will significantly expand opportunities for trading and hedging strategies for existing and future users of the Neutrino protocol, and will contribute to the replenishment of reserves on the contract, thus increasing the overall liquidity of Neutrino tokens.

V. Synchrotron

Some of the Neutrino protocol extensions mentioned above — Collateral, Collider, and Nucleus — would open up a large number of opportunities for technical implementation of many financial instruments and operations with synthetic assets.

An extension called Synchrotron would be a smart contract providing a platform for decentralized exchange of various types of Neutrino tokens and for generating various derivatives, such as call/put options, binary options, futures (with margin), credit default swaps (CDSs), prediction markets, etc. Synchrotron would be designed as a decentralized hub of liquidity available for integration by any exchange or service.

VI. Neutrino Enhancement Proposals & Governance (NEP&G)

We are planning to systematically improve the functionality and technology of Neutrino Protocol. Due to many technical and conceptual limitations in the development of DeFi services, some components of smart contracts can sometimes remain highly centralized. We believe that the right approach is to continuously work on increasing the level of decentralization of the system as much as possible.

In early (alpha/beta) versions of the Neutrino protocol, there remain several points of system centralization that could be addressed in future releases of the Neutrino smart contracts system:

• As of now, the smart contracts are updated by a multisignature of major Waves ecosystem maintainers (i.e. core developers, market makers, external and large USDN & NSBT stakeholders).
• The price oracles, supported by the same Waves ecosystem maintainers, are also a centralized element.
• There is only one mining Neutrino Staking Node at the moment. More nodes will be added and will become available for selection in the future.
• A system of Temporary Emergency Shutdown (TES) is an automatic “emergency brake” built into smart contracts to halt their operation for a specific period of time (2 hours, 24 hours, or a week), which can ensure the security of the contract in case of suspected hacking or attacks.

In addition to the centralized elements that should be removed technically, the system also contains a large number of parameters that could be selected through voting by all Neutrino stakeholders. This process was successfully implemented and tested during the release of “feature 14” of the Waves blockchain that establishes voting procedures for the block reward size.

In order to automate the process of smart contract changes and fine-tuning, a special extension of the Neutrino protocol called NEP&G (Neutrino Enhancement Proposals & Governance) is offered. Shares of USDN and NSBT tokens, as well as existing roles in the system (oracle, nodes, developers), are taken into account as a voting weight. With the help of decentralized governance, it is possible to accept or reject changes to the system via NEP, including voting for mining nodes, price oracles, constants in smart contracts, and various timing parameters.

VII. Gravity Hub

At the end of 2019, Waves announced the beginning of a cross-chain solution development called Gravity Hub. This project is an important technological foundation for implementing different extensions of the Neutrino Protocol and increasing its decentralization and stability. Thanks to Gravity Hub, a cross-chain implementation of the Neutrino Protocol is also possible.

The Ventuary Lab team is aiming to contribute to the development of Gravity Hub solutions in 2020. First of all, Neutrino services such as price oracles and SuSy will be migrated to GH. Later on, Ventuary Lab plans to immerse itself into the development of the Gravity Hub as an infrastructure component within the Waves ecosystem, as well as related blockchains (Waves Enterprise, Ethereum, sidechains).

In particular, the Ventuary Lab team has begun research and development for the creation of a non-Turing Complete Language (RIDE-4G) for RIDE-based smart contracts on the Gravity Hub, supporting all types of blockchain networks integrated with GH, including Ethereum, Waves Enterprise and Waves.

Join us

The Neutrino protocol is open source software with transparent mechanisms for introducing changes and improvements. Join the team and contribute to the success of Neutrino Protocol!

Github: https://github.com/Neutrino-Protocol

Neutrino dApp: https://beta.neutrino.at/

Medium: https://medium.com/@neutrinoteam

Twitter: https://twitter.com/neutrino_proto

Telegram: https://t.me/neutrino_group

Special thanks

Many community members have played a huge role in the development of the Neutrino protocol. We would like to express our special thanks to the Waves Exchange team, the Tradisys team, the developers of coinranking.com, as well as Pywaves, @whois_johngalt (the developer of the Telegram bot @neutrinonotifybot) and Marc Jansen for RiskRide Neutrino project assessment.