Algorithmic stablecoin project Neutrino launches staking for its governance token

Published at: Dec. 8, 2020

The Neutrino Protocol, a project building algorithmic cross-platform stablecoins, announced Tuesday the launch of staking rewards for its governance and utility token, the Neutrino System Base Token (NSBT).

Neutrino uses an innovative mix of collateral backing and algorithmic supply changes to create a wide range of fiat-pegged stablecoins. Its flagship stablecoin, USDN, and NSBT are available on Ethereum as ERC-20 tokens.

The USDN generation mechanism relies on WAVES, the native token of the Waves platform. Generating the stablecoin is as simple as using its smart contract to exchange WAVES for USDN. Oracles will read the price of the asset and create an amount of USDN based on WAVES’ current price.

The assets thus form a pool of collateral that backs the USDN stablecoin. The reverse process can be performed at any time, redeeming USDN back for WAVES according to its current market price.

However, this mechanism is only valid if the price of WAVES is growing or remaining stable. If it were to fall, the stablecoin’s reserves would eventually be less than the number of tokens circulating. This is where the mechanism relying on NSBT comes in.

To recapitalize the system, smart contracts will auction off new NSBT in exchange for WAVES in a similar manner to the “flop” auction used by MakerDAO after Black Thursday.

Once the price of WAVES recovers, or the system is otherwise recapitalized, the NSBT will be redeemable for USDN at a rate defined by the stablecoin’s reserves ratio. For example, if there are $130 million WAVES tokens for $100 million USDN, the price of NSBT will be approximately 1.3 USDN. The formula is exponential, and it is set in such a way that the smart-contract-based price of NSBT will begin rising rapidly once the reserve factor grows above a certain over-collateralization threshold. The smart contract’s mechanism only establishes lower and upper limits to the price through arbitrage mechanisms, while the market price is free to float between those values.

Both the NSBT and USDN tokens can be staked right now. The former entitles holders to 2% of smart contract operation fees, but it can only be staked directly on the Waves platform. The latter draws rewards from the Waves treasury and can be staked on Ethereum as well by simply holding it in a wallet. Staking through exchanges is also possible.

Sasha Ivanov, founder of Waves, said that Ethereum “is just the beginning.” The Neutrino protocol is set to expand to Solana, IOST, Ontology and others, using its oracle-based Gravity bridge protocol. The team is also pushing for proposals to integrate the token into existing DeFi protocols like Compound and Aave.

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