How Does the Nolus Protocol Work?
A financial suite that allows users with different objectives to find a home for their crypto activities
Introducing the world’s first DeFi Lease by Nolus — a financial suite that allows users with different objectives to find a home for their crypto activities. The protocol creates an innovative approach to credit markets by introducing a new interoperable blockchain lease that democratizes access to ownership and enhances trust and transparency.
Within Nolus, stakeholders can find all their financial needs in one place:
- Users can buy, sell, swap, and ramp in a lightning-fast and cheap way;
- Lenders are the liquidity engine, feeding the protocol with stablecoins used for opening DeFi Leases;
- Borrowers can gain 3x exposure, better liquidation rates, and retain ownership by receiving loans in stablecoins;
- Stakers are the users who lock their $NLS tokens to secure the network and be rewarded with protocol-related benefits.
The Nolus protocol is a fully automated money market with no custody over the users funds. The code is open-sourced, and changes can only be applied after the community of stakeholders decides to do so through governance. All transactions are executed solely between Lenders — protocol — Borrowers, meaning that no external parties can operate the funds provided in the system.
Let us dive deeper into how Lenders and Borrowers will interact:
DeFi Lease
The DeFi Lease defines a money market between lenders looking to earn yield on stablecoins, and borrowers, looking to borrow more digital assets than their current equity. To borrow assets, borrowers provide a down payment and can leverage it up to 150%.
When a DeFi Lease is opened, the down payment and the loan provided by Nolus protocol are locked in a smart contract instance, with both acting as collateral. As a result, the borrower boosts his exposure by 3x with a lower margin call risk to the average market rate. The interest rate for borrowers can vary between 11% and 18% APR depending on the utilization levels of the funds available in the system — the more liquidity the protocol holds, the lower the interest rate for the DeFi Lease and vice versa. However, once a DeFi Lease position has been opened, its interest rate is fixed and will never change, providing predictability for future cash flows and yield distributions toward lenders.
Lenders
Lenders provide liquidity to the protocol in stablecoins. The protocol is designed to work on a cash (not accrual) basis where actual yield rewards lenders. Interest from DeFi Leases are due for collection after certain time periods and, if not paid, automatically get deducted from active DeFi Lease positions (collateral). The accumulated interest is immediately distributed to lenders by the smart contracts. The system also limits the number of new deposits that lenders can provide if the utilization of funds is below optimal, therefore securing controlled returns for lenders who have already committed funds.
Lenders are additionally rewarded in $NLS tokens from the Lenders Incentives Pool containing 12% of all token supply. Rewards distribution from the incentives pool is linked to the protocol’s growth — starting from higher APR % and slowly decaying with the increase of total value locked in the system. Early adopters are exposed to the highest rewards, thus creating organic demand and adoption of the product. The rewards earned in $NLS can additionally be staked on the network and multiplied through the rewards distributed by the Inflation Pool.
Automatic Buybacks
Based on the above mechanics, at any point in time a DeFi Leases collects between 11% and 18% APY (for simplicity’s sake, 15% APR). Lenders will receive 12% APR on the spot, leaving the protocol with revenue of 3% (stream 1). Combining it with a swap spread (stream 2) and a small TX fee (stream 3), the three streams buy back $NLS tokens from the open market and actively refill the Incentives Pool to create a sustainable model that rewards lenders in the system in the long term.
Conclusion
Nolus is a decentralized strategy to take part in a product from the traditional finance world that is familiar to people who have little to no experience in crypto. Not only that, established crypto users can find an environment where they can easily park their liquidity and earn rewards for doing so. And for believers in this model, thanks to the three revenue streams, they can be certain that there is real yield supporting the value accrual of the native asset itself.
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