Algorithmic stablecoins have played a role that cannot be ignored in the development of multiple ecosystems. For example, Terra Ecology relies on LUNA and UST to develop into one of the largest smart contract platforms; Avalanche relies on Wonderland to quickly attract funds in the early days. The ecology of the head public chain Near has always lacked a strong algorithmic stablecoin project.
In fact, there are also some stable coins in the Near ecosystem, such as nUSDO issued by Oin on the Near mainnet and RUSD issued by Rose on Aurora, all of which have a market value of less than $1 million, and nUSDO has a problem of de-anchoring. Negative premium above %. In this context, Near ecology’s native stablecoin USN came into being.
What is USN?
According to official information obtained by PANews, USN is the native stablecoin of the Near protocol, with a soft anchor of $1. Users can exchange 1 USD of NEAR to 1 USN, or 1 USN to 1 USD of NEAR at the current spot price through a smart contract . USN’s reserves include NEAR and USDT, and the organization that manages the reserves is called the Decentral Bank DAO (decentral-bank.finance).
USN Anchoring Mechanism
At present, USN can achieve an anchoring relationship with the US dollar in two forms.
The first relies on the exchange relationship between USN and NEAR. The exchange between the two has no slippage, but requires a small fee. When the price of USN in the secondary market is lower than 1 USD, the arbitrageur can buy it in the secondary market and redeem it as NEAR of 1 USD; when the price of USN is higher than 1 USD, the arbitrageur can pay 1 USD NEAR minted 1 USN and sold on the market. The USN can be maintained near $1 by the arbitrageur’s own activities.
The second is the stableswap between USN and other stablecoins, which is realized through the stablecoin exchange function on Ref.finance. During the bootstrapping phase, the official will provide initial liquidity between USN and USDT on Ref.
Insufficient liquidity is the reason why most stablecoin projects fail. For example, the nUSDO currently issued by Oin on the Near mainnet has only the trading pair consisting of nUSDO and NEAR in Ref. When the price of NEAR falls, nUSDO will follow the passive fall. In the case of insufficient application of nUSDO, arbitrageurs dare not participate rashly, and there is no other exit mechanism. USN avoids this problem by providing inter-stablecoin liquidity on Ref.
USN’s revenue stream
When the founder of Crypto Insider first introduced USN, he said that USN would bring users about 20% annualized income. This part of the income actually comes from the pledge income of NEAR.
Decentral Bank DAO pledges the NEAR held in the reserve to obtain an annualized income of about 11%, and exchanges the additional NEAR for USN and distributes it to USN users, including the use of USN in Ref, Burrow and other protocols User.
Initially, USN will be backed by twice the amount of collateral issued, including 100% NEAR and 100% other stablecoins. At this time, the annualized rate of return generated by USN only relying on NEAR pledge is 11%, plus other incentives in Burrow, Aurigami and other protocols, the initial actual APY may exceed 20%.
Reserves and Auto-Balance Algorithms
From the current data, the value of reserves in Decentral Bank DAO does not correspond to the issuance of USN, but it will always be higher than the issuance of USN. The ratio of NEAR and stablecoins will be automatically balanced in real time and dynamically through the algorithm. When the price of NEAR falls, Decentral Bank will buy NEAR; when the price of NEAR rises, it will sell NEAR. The purpose is to maintain the balance between the NEAR value in the reserve and the issued USN. The specific rules are determined by a series of parameters, see the white paper for details.
In the bootstrap stage, due to the additional capital injection by the project party and other supporters, the actual mortgage rate is 200%. Even if NEAR falls, there is no need to worry that the reserve fund is not enough for USN to redeem USD 1 assets. Decentral Bank obtained a grant from Proximity (the research and development company of the NEAR ecosystem, used to support the applications of the NEAR ecosystem) to support the bootstrap phase and provide USN and USDT liquidity on Ref.
As users participate in the minting process with a 1:1 NEAR ratio, the mortgage rate will gradually decrease from 200%. If the price of NEAR falls sharply, the automatic balancing mechanism behind USN is required to maintain full collateral.
Officially, the reserve fund is automatically balanced based on the rules of the Currency Distribution Committee, and always maintains the USN mortgage rate above 100%. In the worst case, Decentral Bank can buy back all issued USN.
USN Summary and Reflections
From the current known information, USN has indeed obtained more resources than the existing algorithmic stablecoins in the Near ecosystem , and it is easier to be integrated as native stablecoins in ecological projects such as Ref, Burrow, Bastion, and Aurigami.
The issuance mechanism of USN is more similar to Fei Protocol. It mainly uses the native token of the public chain as a reserve to maintain the exchange between 1 USD of assets and 1 unit of stablecoin, and will not destroy or mint new NEAR. Due to a series of coincidental conditions, Fei Protocol allows users to mint a large amount of coins when the price of ETH is low, and redeem ETH for $1 when the price of ETH is high, so the protocol has a lot of extra ETH. USN relies on the early injection of additional funds from the project side and supporters to maintain a mortgage rate of more than 100%.
When the price of NEAR changes, the amount of NEAR and stablecoins in the reserve changes, and the smart contract will automatically balance the two. The balancing rule needs to maintain that the value of the reserve is always higher than the issued USN, and there is better innovation. But it is also necessary to observe whether this mechanism can stand the actual test in the falling market of NEAR.