Price inflation remains one of the most understated issues for global stablecoin holders.

According to US CPI, in the past 5 years, all assets kept in stablecoin lost 17% of value, and according to Truflation's CPI the loss was larger than 26%.

There is ~$80 billion in latent stablecoins in DeFi, seeking protection from accumulated inflation. Those holders desire modest, reliable, low-risk returns but find defi protocols prohibitively risky and complicated.

On the other hand, those best to source reliable returns are crypto-natives: risk-seeking investors who demand high yields and are comfortable taking enormous risks to get them.

Nuon v2 bridges the gap between stablecoin holders seeking modest returns and crypto-native investors seeking high yields.

Nuon v2 ensures stable inflation-hedging yields for NUON holders while rewarding nuMint governance token holders with the accumulated surplus yield generated from strategies that they vote to allocate capital towards.

Nuon v2 uses a lightweight veto-based governance system with optimistic security assumptions to enforce risk preferences while allowing any asset as a source of yield. The backstop function protects the protocol and ensures NUON holders at least the inflation-level yields, also during times when inflation is higher than yields.

The incumbent solutions for inflation-protection in traditional markets are Treasury Inflation-Protected Securities (TIPS). With a market cap of $1.8 trillion, TIPS clearly demonstrate the substantial demand for assets that guard against inflation. However, TIPS, which pay out biannually like bonds, provide a suboptimal user experience and are inherently limited by their TradFi rails.

In the realm of decentralized finance (DeFi), a new analogous asset class known as flatcoins is emerging. Flatcoins are stable assets that protect their holders from inflation. Unlike TIPS, flatcoins leverage the programmability of smart contracts on platforms like Ethereum, enabling innovative improvements in user experience and functionality.

Nuon v2 represents a significant evolution in this space. Many flatcoins, including Nuon v1, have mirrored the model of collateralized debt position (CDP) stablecoins, adjusting their redemption value to keep pace with inflation. Nuon v2 takes a different approach. It continuously streams NUON tokens to holders with each block, which can be redeemed for USDC on a 1:1 basis. This process is supported by Truflation’s truCPI, ensuring that Nuon’s value is closely aligned with actual increases in the cost of living.

Nuon v2 has 4 core modules: the treasury, Dutch auction, vaults, and governance.

In Nuon v2, NUON minters deposit USDC and receive Truflation APY % generated on their USDC deposits through compounding vaults, which are approved with a trust-minimized system of governance with optimistic security assumptions.

USDC deposits flow through the treasury to vaults via a Dutch auction. Vaults accumulate yield in excess of Truflation-level APY. nuMint stakers vote on which vaults should earn yield and receive the excess yield.

By giving the MaxCap governance stakers the excess of Nuon’s accumulated yields less Truflation CPI, Nuon provides the high yields needed to incentivize risk-seeking crypto-natives to source and underwrite sustainable yields for NUON holders.

Depositing 1 USDC yields 1 NUON in return, plus a small minting fee is applied. The minting fee is calculated as the number of USDC, prorated at the current Truflation APY. It is taken in order to prevent a siphoning attack in which a user could deposit USDC and withdraw more USDC (as they would have more NUON over time) before it is put to work in the protocol - effectively getting the yield from Nuon without supplying USDC to generate the yield.

Stablecoins holders are concerned about not just inflation, but the decline in real purchasing power. Nuon addresses this by integrating Truflation’s truCPI, which tracks the increase in cost-of-living with a public methodology, separate from the Treasury’s own.

'Beyond the problem of falsified official numbers - solved by Truflation - flatcoins must resolve the issue of how to source yields. The strategy of the U.S. Treasury is simple - print. This strategy has been tried in DeFi, with little success (see Terra LUNA, Iron Finance, and USDM).

To provide consistent yields, flatcoins must draw on exogenous sources. Nuon pulls from the lowest-risk, highest yield sources available. These sources are approved by a veto-based, ve-weighted governance module, described in section 4, Governance.

Governance token holders are rewarded for approving yield sources and properly directing USDC from the treasury toward the high-yield, low-risk assets (see Section 6, nuMint).

From these yield sources NUON holders receive a yield at the rate of Truflation in the form of additional NUON tokens, in a manner similar to Lido’s stETH. nuMint holders vote on what yield generating strategies to fund, receiving the excess yield generated by these vaults, while the protocol ensures Truflation APY is always paid to NUON holders through a number of backstops (see Section 8, Backstops).

In this way, Nuon synergizes the coincidence of wants between two user groups: risk-seeking crypto-natives, and risk-averse stablecoin holders, providing inflation for the latter, and high yields for the former.

The Treasury module in Nuon v2 acts as the initial repository for minters' USDC deposits. A portion of USDC in the treasury is kept as a buffer to safeguard against sudden redemptions. This buffer amount, which is initially set at 20% and is mutable via governance decisions, serves several critical purposes.

The buffer amount ensures that the Treasury remains solvent even during periods of heightened redemption activity. Without this buffer, the protocol would be forced to liquidate yield-bearing assets every time NUON is redeemed, potentially leading to inefficiencies and increased risk.

Additionally, maintaining a buffer helps stabilize the system by providing a cushion against short-term market fluctuations. By holding a portion of the deposited USDC in reserve, the protocol can mitigate the impact of sudden changes in asset prices or yield rates.

Furthermore, the buffer amount is subject to governance oversight, allowing stakeholders to adjust it based on changing market conditions or risk profiles. This flexibility ensures that the protocol can adapt to evolving circumstances while maintaining its core objectives of stability and yield generation.

However, it's important to note that while the buffer mechanism provides a layer of protection, its effectiveness relies on accurate risk assessment and prudent management. As such, ongoing monitoring and adjustment of the buffer amount are essential components of Nuon's risk management strategy.

Nuon v2 uses a Dutch auction to convert the base asset - USDC initially - into yield-bearing assets. In a Dutch auction, the asking price starts high and decreases until someone buys it.

Dutch auctions are well-established in DeFi, used by a variety of protocols including Frankencoin. When there is an excess of USDC in the buffer at the end of a weekly epoch, it is converted into vault tokens. The amount allocated to each vault’s strategy is proportional to the amount of votes it has (see Section 4.3 Vote Escrow Weights). This amount is calculated and a dutch auction is set up for each vault to acquire the required vault assets.

The Dutch auction as a design choice in Nuon v2 serves two purposes - firstly, using a Dutch auction to acquire assets abstracts away complexity, allowing users to deposit USDC and let the protocol decide which assets it should be allocated toward.

Secondly, using a Dutch auction to acquire assets allows the protocol to take in assets while paying the lowest premium. New assets are added through vault proposals by simply changing the proposed token address. This is described further in Section 4, Governance.

This Dutch auction process works the same for acquisition of vault assets, and their auctioning on redemption, bidding 200 USDC for 200 of Aave aUSDC, then 199.99, 199.98, and so on until aUSDC is supplied at the current asking price.

With a long enough auction period, arbitrage bots will provide all assets in order to make a profit. A 10 basis point (0.1%) discount on $100 million TVL transacted just once in a year would yield $100,000. Such discounts occur in the daily volatility of vault assets.

The particular assets that the new USDC is auctioned off for depends on which vaults have the most capacity, as set by vote-escrow governance weighted votes (described in Section 4, Governance).

The process of refilling the buffer involves replenishing the portion of USDC held in reserve within the Treasury. This ensures that the buffer remains adequately funded to fulfill its intended role of safeguarding the protocol against liquidity shocks.

By default, all deposits of USDC are allocated to the buffer. When the protocol is above a defined value (default of 21%) above the buffer amount for a week, then the USDC of the buffer above another value (default 20.5%) is allocated to vaults via a dutch auction.

In addition to suggesting a token contract address and supplying a veto bounty, on-chain proposals in the Nuon system also require the following elements:

Proposal Submission: Users submit proposals to the Nuon system. This involves creating a proposal transaction on the blockchain that includes the details of the suggested token contract address and the veto bounty. Users are notified about new proposals through either a Telegram Bot, Discord and/or a Web3 Messaging Service - it is important to have redundancies in place so that no malicious proposals can sneak through (see Build Finance).

Veto Period: Once a proposal is submitted, there is a predefined veto period during which other users can challenge the proposal. Users who disagree with the proposal can submit a veto by holding the necessary veto weight of 2% of the total staked MaxCap. The results of votes are implemented at the end of the Dutch auction period, during which USDC is allocated to vaults.

Voting Mechanism: Token holders can vote on the proposal. This voting can determine whether the proposal is accepted or rejected. Voting power is awarded proportional to MaxCap staked, as described in Vote Power Weighting.

Vote Canceling: The Nuon v2 Protocol allows users to use their voting power to cancel out the voting power of another user. This prevents any single address from accumulating voting power that is excessive and can use its influence to negatively affect the protocol.

Bounty Handling: If a proposal is vetoed, the veto bounty is added to the buffer. If the proposal is not vetoed within the veto period, the vault is accepted, and the veto bounty is returned to the proposer.

Implementation: Accepted proposals are implemented on-chain. This involves updating the system's state to recognize the new token contract address as valid within the Nuon ecosystem.

Record Keeping: All actions related to the proposal, including submissions, vetoes, votes, and final decisions, are recorded on the blockchain for transparency and accountability.

These elements ensure that the proposal process is secure, transparent, and resistant to spam or malicious activities.

Vaults in Nuon v2 have the flexibility to contain a wide array of assets, making them highly adaptable and versatile. In the initial phases of Nuon, while the preference for US dollars persists, these vaults will primarily consist of price-neutral, yield-bearing assets. These assets do not carry a directional bet beyond the stable value of USDC and their respective yield. Examples include Aave aUSDC, Uniswap USDC-USDT LP tokens, and Curve 3CRV.

The selection and profile of vault assets are governed by a robust governance system rather than enforced through technical limitations. Nuon v2 leverages ERC-4626 standards, which mandate that any protocol implementing this standard must use ERC-20 tokens to represent shares. This ensures that vaults can hold diversified baskets of assets, enhancing yield potential while maintaining stability.

The choice of these asset baskets will be overseen by a risk-averse, yield-seeking quorum of governance participants. This group of vetoers will rigorously evaluate and approve assets to ensure they meet the expected standards and contribute to Nuon’s goal of providing reliable, inflation-protected yields

By allowing vaults to incorporate any delta-neutral basket of assets, Nuon v2 maximizes its adaptability and yield potential, catering to the diverse needs of its user base while maintaining a focus on stability and security.

ERC-4626 vaults can also be leveraged to issue receipt tokens for protocols which otherwise don’t. ERC-4626 vault integrations allow the protocol to partner with and generate yields from virtually any protocol. With the right function logic, ERC-4626 vaults can also accumulate points, and claim airdrops.

Nuon employs Chainlink’s CCIP (Cross-Chain Interoperability Protocol) to facilitate cross-chain deposits of USDC. This functionality allows users to seamlessly transfer USDC from one blockchain network to another and mint NUON tokens directly from the treasury to the depositor's address.

The utilization of Chainlink's CCIP ensures a secure and reliable process for cross-chain transactions, maintaining the integrity of assets transferred between different blockchain ecosystems.

Nuon’s architecture optimizes for the lowest risk and highest yield through its veto-based governance. It is flexible enough to add new strategies, bootstrapping through partnerships, and initial token distribution to tap into a de facto council of aligned experts. The governance module itself is lightweight and limited in scope.

MaxCap token holders stake their tokens to receive weighted voting rights, which is a prerequisite for earning rewards.

MaxCap stakers are able to:

1. Veto proposed vaults, which they deem too risky

2. Vote on which vaults should receive new USDC deposits

3. Set the Treasury buffer amount and cap NUON minting

When the protocol reaches a critical state of having no buffer, it is at risk of approaching undercollateralization and being unable to process redemptions. If the collateral ratio is less than 100% (time averaged over 1 week, 3 days and 24 hours) then Emergency Mode is activated. To remedy this, the protocol goes into a status in which all vaults are liquidated for USDC which is done via a Dutch auction process. During this process minting and redeeming is disabled. Once all USDC has been acquired from winding down the vaults, NUON is redeemable at a pro rata value.

Individual vaults can also be closed if the vault is underperforming. This is determined as the vault having <90% value compared to the amount of USDC input into the vault. The vault must also have a return that is less than the average return rate for all vaults. If both conditions are met, then the vault begins a wind down with its assets being sold for USDC in a Dutch auction and placed into the buffer.

When you stake MaxCap, you vote for a vault and begin accumulating MaxCap rewards, which cannot be transferred between wallets. Claiming USDC or changing your vote resets the voting power of the user back to 0.

Voting power is calculated for each individual based on their share of the staked MaxCap and the locking time of their staked MaxCap. The lockup choices are 3 months, 6 months, 9 months, and 1 year, where 1 year- lockup equals 100% of voting power and 3 month lockup equals 25% of the voting power.

The amount of MaxCap allocated to each vault is also tracked to determine how to proportionally allocate USDC in the treasury that is being converted to yield-bearing assets. The more MaxCap a vault has, the more USCC capital will flow into it.

Proposals last for 1 epoch (7 days) and can be rejected via a veto of mib 2% of the total voting power. A minimum veto bounty of 1000 USDC is required to start a proposal. If a proposal is vetoed, then the bounty is distributed proportionally to those who vetoed it. If a proposal for a vault is accepted, the proposer reclaims the bounty.

Rebasing adjusts the total supply of a token so that all holders receive the same percentage increase or decrease in their token amounts. For example, if you have tokens, your balance is calculated as tokenAmount * rebasePercent. If the rebasePercent changes from 1 to 1.01 in one day, your token balance increases by 1%.

Rebasing does not require any interaction from holders of the token, your balance will automatically increase per block.

There are three layers of risk management in Nuon v2.

Firstly, the initial vetoing of proposals by a minority of voting power acts as a filter to the system. This filter primarily prevents bad debt and secondarily filters for sustainable and sufficiently high yields.

Secondly, MaxCap stakers' accrued yield funds redemptions when yields are lower than Truflation. When yields exceed Truflation, the excess yield compounds and remains in the treasury for the staking period, at which time it can be withdrawn.

The system is kept secure if

1. the backstop remains sufficient and

2. the MaxCap staking period lasts longer than the low-yield season, ideally still leaving some yields for the MaxCap holders.

To this end, MaxCap stakers vote to cap the minting of NUON proportionally to available, expected yields.

At launch, however, the system as described, lacks an initial excess. In the following section, we explain the mechanisms used in the bootstrapping phase of Nuon v2.

To maintain the sustainability of NUON's yield-generating mechanisms, it is essential to balance the demand for yield-bearing protocols with the supply of NUON tokens. Imposing limits on NUON minting helps ensure that the yield rate remains sustainable over time.

Consider the finite pool of borrowers willing to participate in a lending protocol like AAVE at a given interest rate. If the supply of NUON tokens representing loans exceeds the demand from borrowers, the yield potential of the protocol may be diluted. Similarly, in decentralized exchanges (DEX), the liquidity between two assets is limited. Increasing the supply of one asset could reduce the relative yield of the trading pair.

While the idea of unlimited NUON minting might seem attractive, it is important to recognize the finite nature of yield sources. To consistently outpace inflation, strategic constraints on minting may be necessary. This is especially important when considering the risk preferences of users who have veto power over yield-bearing strategies.

In the initial phases, it is advisable to keep these minting restrictions either uncapped or set at relatively high levels. This approach allows for the assessment of the protocol's impact on underlying yield sources and enables iterative adjustments based on market dynamics and user behavior insights.

By strategically managing the minting caps, Nuon can ensure that the yield rates remain attractive and sustainable, providing reliable returns to NUON holders while maintaining the protocol's overall stability.

MaxCap is the governance token of the Nuon v2 protocol and is distributed to NUON stakers on a Bitcoin-style emission curve. Maxcap holders need to stake their tokens in order to earn the excess yield of the system (in excess of Truflation APY paid to NUON holders).

MaxCap holders are incentivized to attract as much capital as the system can support, as they earn more if there are enough yields in the system, and, because they are entitled to the yield in excess of Truflation, they lose more if they allow too much NUON to be minted.

When staked, MaxCap earns the yield on deposited USDC in excess of the Truflation APY paid to NUON holders. These returns auto-compound in the vaults until the staking period is over; after that time, MaxCap token holders can withdraw their accumulated share of rewards. MaxCap also confers governance rights in the Nuon protocol (see Governance).

NUON is the flatcoin token within the Nuon protocol. Users wishing to be protected from inflation deposit USDC into the treasury and are minted NUON at a 1:1 ratio. The USDC is used by the protocol to generate yield, and then distributed back to NUON holders in the form of more NUON.

NUON supply rebases in the holders’ wallet, and starts accruing interest by the block, as a rebase in the token supply. Essentially, each NUON will accrue a fraction of itself as interest every second. Newly rebased NUON is then immediately redeemable for the underlying USDC from the treasury.

For NUON, the amount you hold adjusts over time according to the Truflation APY. So, if you had 100 NUON and the Truflation rate was 10% over a year, you would end up with 110 NUON in your account.

Nuon uses a veto system similar to Frankencoin’s, where a minority quorum of voters can veto a vault proposal. A veto-based voting system confers several advantages over a traditional majority vote method. It mitigates the ability to acquire a stake large enough to force through malicious proposals by requiring broader consensus for changes, as it is much easier for actors to block proposals than a majority vote system. It is more efficient while also encouraging collaboration, fostering stability, and ensuring only well-considered proposals are implemented.

Proposals are made on-chain by users, who suggest a token contract address and provide a veto bounty for their submission. The veto bounty acts as an anti-spam mechanism to prevent the submission of frivolous or malicious proposals. This mechanism ensures that users have a financial stake in the quality and validity of their proposals.

Once a proposal is submitted, there is a predefined veto period during which other users can challenge the proposal. 2% of the total amount of staked MaxCap is required to veto a proposal. MaxCap stakers who disagree with the proposal can submit a veto by staking a higher bounty than the original proposer.

• 21% NUON Stakers

• 18% Liquidity

• 17% Team & Advisors

• 17% Pre-Sales

• 15% Ecosystem & Community

• 12% Product Development

In total 21,000,000 MaxCap will be distributed to stakers of NUON on a predefined curve. Distribution is calculated per block, starting at a rate of 50 MaxCap each block. Halvings would occur every 420,000 blocks (~2 months).

Maintaining the security and reliability of our smart contracts is a top priority. All of Nuon v2 smart contracts have been thoroughly audited by a blockchain-hacker security firm.

NUON holders can stake their NUON to earn MaxCap. Over time, this provides holders of NUON governance rights over the protocol they support.

For more information on the distribution rates of MaxCap, see the section on Staking Distribution.

At any point, MaxCap stakers are able to claim profits from the vault they have staked MaxCap towards. Doing so resets the amount of MaxCap a user has accumulated from their staked MaxCap. The amount of excess you can claim depends on the amount of total staked MaxCap for the vault, as well as how much excess yield is available. The formula for claiming the amount is relatively simple:

claimAmount = user staked MaxCap amount / total staked MaxCap for vault * amount of excess yield in the vault

In a simplistic example, you have 1 staked MaxCap and are voting for Vault A. If there is a total of 100 staked MaxCap voting for Vault A, and an excess of 500 USDC then:

claimAmount = 1 / 100 * 500

claimAmount = 5

Therefore, in this example, the user would be able to claim 5 USDC.

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.