FAQ
0) What collaterals can I use to mint Nuon ?
WETH
LINK
ARB
FRAX
wstETH
rETH
1) How is the Nuon peg maintained?
Core Concepts:
Liquidation Ratio (LR) is dynamic - calculated using Truflation data, a constant Volatility Buffer, and the current peg gap (DPR)
Dynamic Peg Ratio DPR = peg gap = target peg vs market peg
LR = Peg target + Volatility constant + DPR
Collateral ratio CR is calculated by Nuon target peg price (NOT market price) and collateral market price via oracle
When CR=LR, automatic liquidation occurs.
TL;DR:
Nuon price > Target Peg:
Liquidation Ratio decreases
=> Liquidation risk decreases
=> Incentive to mint Nuon
=> Nuon Supply increases
=> Nuon Price decreases
=> Peg is restored
Peg restoration is also maintained and accelerated with arbitrage
Nuon price < Target Peg:
Liquidation Ratio increases
=> Liquidation risk increases
=> incentive to burn Nuon OR increase collateral:
If burn Nuon => supply decreases => price increases
If Nuon not burned & collateral ratio = Minimum collateral ratio => Collateral liquidation => protocol sells collateral to buy Nuon on the market and burn it => supply decreases => price increases
=> Peg is restored
Peg restoration is is also maintained and accelerated with arbitrage
Liquidation:
When collateral ratio = Liquidation Ratio:
Any user can trigger liquidation and earn a percentage of liquidation profit
Collateral is sold => Nuon is bought & burned => Nuon price rises
Leftover collateral moved to Nuon treasury
Arbitrage:
If Nuon market price > target price => opportunity to mint Nuon at target price => sell them in market at market price (> target price)
If Nuon market price < target price => opportunity to buy cheaper Nuon at market price (<target price) => redeem Nuon for target price from the protocol
Long explanation:
When the price of Nuon rises above the peg, the Liquidation Ratio decreases for all collateral assets on the Nuon Protocol. This makes Nuon minting more capital efficient, creating a strong incentive for users to mint more Nuon and sell it on the market. As Nuon supply increases on the market, its price will naturally decrease until the peg is restored.
When the price of Nuon drops below its peg, the Liquidation Ratio increases for all collateral assets on the Nuon Protocol. Arbitrageurs will accelerate peg restoration as will the rise in the Liquidation Ratio which increases risk of liquidation for Nuon Protocol participants. This creates a strong incentive for users to either increase their collateral or burn Nuon to maintain a safe collateral ratio. If users do not manage their position and the Liquidation Ratio rises to equal their total collateral ratio, their collateral will be liquidated. Any user on the protocol can initiate liquidation when they notice an improperly collateralized position and earn a percentage of the liquidation profit as a reward. Once liquidation is initiated, the Nuon Protocol will sell the collateral on the market, buy Nuon off the market and burn it. This decrease in Nuon supply on the market—whether by arbitrageurs or the Nuon Protocol buying it—will naturally increase Nuon’s market price until its peg is restored.
2) How is the Nuon peg calculated?
Nuon is soft-pegged to US truflation rates daily
Soft peg = current value of a basket of goods that cost exactly US$1 on the date of launch of Nuon
Peg data provided by Truflation
Formula for Target Peg on day d:P(d)
P(d) on Day d with Truflation Index of T(d) is:
P(d) = P(d-1) + (P(d-1) x (T(d)/365.2425)
3) What is the Liquidity Pools Protection (LPP)? How are liquidity pools used to protect the peg?
When users mint Nuon:
The protocol will automatically add liquidity in the market of the same amount as the Nuon minted (currently on the main liquidity pair NUON/USDT)
The protocol will buy Nuon on the market and use the user’s collateral to add to liquidity pools (Uniswap, Pancakeswap, etc.)
This affects the user’s collateral ratio as part of their collateral is used in the liquidity pool
The liquidity pool then generates yields for the users
This prevents bad actors from minting more than the liquidity available in the market and adds triple benefits to all users of the protocol:
an additional security layer
builds Nuon liquidity
generates yield for the user
As the protocol gains in popularity and liquidity is stable, it will be foreseeable to reduce or eliminate this feature by a vote to the DAO
4) How do collateral providers maintain their collateral value in the face of inflation?
Minters receive compounded yields on their LPP
Coming soon - optional yields on collaterals
In V2, collateral providers will be able to stake their Nuon Liquid Position (NLP) dynamic NFTs to participate in protocol arbitrage and earn direct income.
5) Why should I mint Nuon?
Asset Preservation:
Deposit capital as collateral => Mint Nuon => Use elsewhere in DeFi => Yield
Nuon price rises with inflation => Capital appreciates => Yield
Over-leveraging / Multiple Position Investing / Leveraged Yield Farming:
Mint Nuon => Use as collateral on other DeFi protocols => Generate yield
Nuon increases in value = Collateral increases in value => Increase yield
Provide Liquidity:
Deposit Nuon trading pairs on AMM => Earn transaction fees
Nuon price rises with inflation = Safer than stablecoin pairs
Inflation hedge demand => Nuon demand => High opportunities for transaction fees
Arbitrage:
Nuon price > Soft target peg => Mint & sell opportunity
Nuon price < Soft target peg => Arbitrage opportunities
At launch = Greater peg variation => Bigger arbitrage opportunities
More Advantages and Protective Measures than Other Protocols:
0% interest rates when minting
Nuon NLPs: Tradable NFT-based liquid positions => Buy/sell positions with one click
Automated liquidity pools => Earn compounded yield with your liquidity deposit
Nuon is better protected than protocols like DAI that lose purchasing power from US inflation
Adjustable collateral ratios => Easy to manage positions
6) When the price of Nuon rises with inflation, where does the inflation-derived added value come from?
The value-add from inflation is built into the protocol through overcollateralization.
Overcollateralization enables the price of Nuon to increase with inflation while protecting the protocol.
As the price of Nuon slowly rises with inflation, each minter’s Collateral Ratio decreases, representing the rise in actual value for Nuon.
Because of this, the protocol recommends levels of overcollateralization that ensure collateral is safe despite inflation, making it very rare for inflation to trigger liquidation.
7) How does inflation affect my position in the Nuon Protocol?
Managing your NUON positions is the best way to profit from the protocol, even under inflation.
If you keep NUON and use it as collateral in other Defi protocols or liquidity pools, there is no impact on your position with inflation when you want to redeem your collateral.
Quite the opposite, when the NUON price increases, you can over-leverage on an increasing asset that will return higher yields while retaining purchasing power.
If you sell NUON, inflation loss in the short term has an imperceptible slow impact so will not affect arbitrageurs who are minting and burning in quick bursts.
If you decide to sell all Nuon immediately, yield generated from the automated liquidity pools will alleviate the inflation loss but may not cancel it.
In all scenarios, the overcollaterization level required by the protocol ensures that liquidation is extremely unlikely to happen due to inflation
8) Will I have to deposit more collateral at a later date as inflation rates rise?
The price of Nuon increases slowly with the rate of inflation (soft peg), but the overcollaterization level required by the protocol ensures that liquidation is extremely unlikely to happen due to inflation which means that inflation is unlikely to result in the requirement to add collateral. However, ‘inflation loss’ can be mitigated by using a few different strategies:
Overcollateralization: Minters who overcollateralize at the bare minimum amount are at greater risk of inflation loss. Adding more collateral is the safest way to ensure liquidation of collateral will not happen.
Yield generation: Yield generated from Nuon’s LPP will help alleviate inflation loss, as will yield generated from over-leveraging strategies, but may not cover the loss in its entirety if Nuon is sold on the market with no strategy for managing Nuon positions.
9) Will I have to pay back more than I borrowed due to inflation?
To redeem collateral, minters must burn the same amount of Nuon as they originally minted. The price of Nuon may have risen in the interim, but the quantity of Nuon flatcoins to be burned remains the same.
For short-term positions, inflation loss is small and will have minimal impact on positions.
For long-term positions, the price of Nuon will have been impacted by inflation since minted. Strategies to alleviate this are:
Yield generation: Nuon’s automated liquidity pools return yield on a percentage of collateral used to mint Nuon.
Over-leveraging: If you keep NUON and use it as collateral in other Defi protocols or liquidity pools, there is no impact on your position with inflation when you want to redeem your collateral Quite the opposite, when the NUON price increases, you can over-leverage on an increasing asset that will return higher yields while retaining purchasing power
Don’t sell Nuon: There will be other strategies smart traders can engage in to create yield with Nuon. The key is to use it, not sell it, so that it is easier to return Nuon and redeem collateral. By selling Nuon, the user will need to buy back Nuon at a later date, which may put them at risk of inflation loss.
10) How will NUON get into the market?
As better money, Nuon will attract many different types of users on the protocol that will be keen to profit or protect their assets:
Long-term passive investors:
Nuon is a reliable inflation hedge and good appreciates with inflation rates
Arbitrageurs:
Nuon’s soft peg rises and falls with inflation rates
Nuon’s market price depends on trading volume
=> Arbitrageurs will continuously find opportunities to profit
Institutional investors:
Nuon is a great store of value that generates yield
Institutional investors will use Nuon as a treasury to store inflation-proof Nuon and convert to stablecoins later when they need it
Retail users:
As Nuon adoption spreads, there will be more commerce use cases
Nuon shields from inflation and grants reliable ROI, therefore making Nuon a stronger medium of exchange than the USD
11) How is Nuon affected by impermanent loss?
Impermanent loss does not directly affect the Nuon Protocol. Impermanent loss mainly affects trading pairs in liquidity pools, but not collateral hubs backing stablecoins.
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