System Transition

A soft premise of the initial state of the Nuon protocol is that available yields exceed the debt obligations created by NUON’s rebase mechanism.

The protocol mitigates these risks with the mechanisms described in section 9, but to summarize: a liquidity bootstrapping pool provides the initial pool of capital to subsidize yields in the launch stage of the protocol; ve-weighted vault gauges and governance’s ability to cap mints address this as the protocol continues.

Absent these risk controls, the system is vulnerable to a state where available yields are low and inflation is high. In the short term, this can happen due to Nuon’s absorption of all available yields, addressed by the aforementioned risk controls.

In the long-term, the protocol will face macro conditions where hyperinflation is imminent and USD starts to lose its store-of-value appeal.

Nuon must transition seamlessly through governance’s approval of volatile assets, such as staked ETH LST’s, wrapped Bitcoin, or tokenized RWA’s like gold.