This mechanism will allow users of Neutrino to invest in its DeFo-listed assets.
The mechanism includes the backing of pools of assets with additional collateral.
Users will allegedly receive interest from the fees of liquidity providers and will receive rewards for betting.
Neutrino Protocol has partnered with Waves.Exchange to introduce a new mechanism for investing in neutrino asset pools on decentralized foreign exchange (DeFo). The Neutrino team presented this news in a blog post on November 9th, pointing out that this mechanism will allow its users to seamlessly invest in its asset pools. Through these investments, users will reportedly help ensure the stability of the pools by shielding asset holders from the security deficit resulting from currency fluctuations.
According to the blog post, users who invest in asset pools will receive interest from the fees of liquidity providers paid through the DeFo. According to the report, the interest that users will receive will be directly proportional to their share of the pool. In addition to the interest they receive, users will also receive a reward for bets.
Prior to this change, Neutrino used a system that secured assets based on the total value of the funds accumulated in a contract through USDN swaps into the assets. These funds facilitated the exchange of tokens into USDN. However, this system was flawed as these funds were considered insufficient to temporarily cover all coins issued due to currency fluctuations.
How the mechanism works
The new mechanism is reportedly helping to ensure the stability of assets by providing additional collateral. The publication explained how the mechanism works and noted that it allows users to invest additional funds in the asset pool they desire. These funds are then used for a reverse USDN swap if the funds accumulated in the pool are not sufficient. By investing additional funds in a pool, users insure themselves against the shortage of other users who spend and hold neutrino assets.
However, in the first phase, users can only invest USDN in the pool of any asset listed on DeFo. In this way, users will receive daily rewards in the pool’s assets. It is reported that the DeFo liquidity provider fees paid for each asset swap will cover the cost of the daily rewards. In addition, users will also receive interest on their USDN provided from the daily rewards.
Should there be a deficit, the invested funds can be used to top up the collateral. As a result, the system will block part of the funds and prevent users from temporarily withdrawing funds from the pool. During this blocking period, users will continue to receive both staking rewards and rewards for the liquidity provider’s fees. After the pool’s collateralization level has risen to 100%, the system will unblock the funds.
Factors that influence the ROI of liquidity pools
Per blog entry, three factors can influence the return on investment (ROI). These are
The proportion of funds that a user has invested in a pool compared to the total size of the pool.
Trading volume of DeFo. Currently, the liquidity provider fee for a token swap to DeFo is 0.02% of the transaction.
Currently APY% of USDN is used. 90% of the USDN invested is plugged.
In the publication outlining the risks of investing in neutrino asset pools, it is pointed out that user money can be used to cover the exchange rate difference. Apart from this, user funds can be frozen on the contract until the pool has reached stability.