Pegging and Backing
nUSD has a soft-peg to the value of the US Dollar, and its price are constantly rebalanced to ensure the 1:1 ratio to the USD is maintained. It does it with the help of the following mechanisms:
- Supply rebasing (aka burning, minting tokens),
- Increasing and decreasing of the backing reserves' ratio,
- Open market price arbitrage,
- Allowing withdraws in fiat currency and other crypto assets, always on a 1:1 ratio to the USD,
Our reserves are managed in a way to always offer deep liquidity support and quick access to exchangeable capital on multiple networks to defend nUSD's peg to the US dollar.
The major risk with nUSD on Nova Network, as with many other stablecoins, is the de-pegging of the currency to the USD value. In order to mitigate it, we are:
- Keeping a collateral ratio to allow us to backstop de-pegging on the open market if needed.
- Opening several fiat redeeming channels, so users can always redeem their nUSD for USD regardless of its trading value on the open market, thus incentivising arbitrage.
- Holding nUSD in our own treasury to enable us to use the smart contract's burning feature to help on rebasing the value in case of de-pegging.
In order to expand safely to networks other than our own and avoid volatility and entirely mitigate the possibility of a death spiral - as seen with several other stablecoins in the past - we have decided to make nUSD's collateralisation on-chain, using USDC as collateral.
To do that, we have developed a smart contract that wraps USDC on a 1:1 ratio in order to mint nUSD, and burns the previously minted nUSD when users redeem their collateral USDC. The entire process happens on-chain, the collateral can be audited 24/7, the contract is open-source and auditable, and the protocol is fully decentralised and needless of an operator or authority to work.
With this system we believed to have mitigated almost all major collateral risks other stablecoins have, and we believe to be creating real value by offering the option for users to breakaway from the centralisation component of USDC, offering a fully decentralised way for our community to use a token that is fully backed by it, but not subject to the scrutiny of Circle - USDC's issuer.
This system ensures that even if nUSD happens to depeg on the open market, users will always be able to redeem their USDC at a 1:1 ratio, no matter what. The nUSD supply is dynamic, and will always equal the amount of USDC tokens deposited into its smart contract.
Because nUSD works as a mirrored token, the major risks we have identified with this system are those associated with USDC itself. For example, if USDC happens to lose its peg, although nUSD will add an extra layer of protection to the users, these will be ultimately subject to the USDC market value if they decide to redeem their collateral.
nUSD is backed by a range of collateral assets, including SNT, USDC, and fiat USD in our reserves. We strive to keep the backing reserves' ratio at a range in between 100% ~ 500% (1:1 ~ 1:5), and this is to ensure solvency and liquidity for users' withdraw requests, as well as maintaining and defending the peg in adverse market conditions.
In all other networks, nUSD is backed by USDC on a 1:1 ratio. All the collateral remains in its smart contract, and can be audited by the community 24/7.
Last modified 9mo ago