Nirvana, Ponzi or Algorithmic Stablecoin Innovation?

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01. What is Nirvana?

Nirvana is an algorithmic stablecoin protocol on the Solana chain. The Nirvana protocol has two different purpose tokens, NIRV and ANA. Among them, ANA is an algorithmic metastable token in this protocol, which is used as a store of wealth; the NIRV token generated by ANA mortgage is a super stable currency, used as a store of value.

02. How does Nirvana work?

In the Nirvana protocol, in addition to NIRV and ANA, pledged equity certificate PrANA and bond TrANA (Time-released ANA) are also derived. The Nirvana protocol produces ANA tokens, and participants earn benefits through ANA.

The user participation process is:

1. Purchase ANA tokens through stablecoins including NIRV, USDT, UST, USDC, etc.

2. Pledge ANA tokens to earn income. Earnings will be paid in the form of PrANA, and the reward for staking will grow with the growth of PrANA and is related to the proportion of the staking insurance pool. Holders of PrANA are eligible to purchase ANA at the floor price. (PrANA value = ANA market price - ANA floor price).

3. Get the benefits of PrANA.

4. By mortgaging ANA, lend NIRV, and then use NIRV to purchase ANA tokens.

In this way, users can purchase ANA, pledge ANA to obtain PrANA income, and then borrow NIRV through the pledged ANA, and then use the loaned NIRV to purchase ANA at the floor price of ANA, thus realizing a cyclical closed-loop process.

The picture comes from the rhythm of the block

Among them, a few points to note are:

1. Because PrANA cannot be traded directly, when exchanging rights and interests, you need to use the PreANA you hold, pay the floor price of ANA, convert it into ANA, and then sell ANA tokens. During the process of converting PrANA to ANA, PrANA will be automatically destroyed.

2. In order to solve the liquidity risk caused by violent market fluctuations, the Nirvana protocol adopts an ANA bottom-up mechanism, that is, the ANA floor price mechanism. When the price of ANA falls below the floor price, ANA holders can always use the floor price Sell ​​ANA at this price (no slippage will occur at this time). Each issued ANA contains a stablecoin reserve no less than its reserve price in the treasury. The reserve price will only rise, not decrease. When net buying continues to occur, more liquidity will be used to increase the reserve price. When the continuous net selling exhausts the liquidity required to maintain the market price, the subsequent selling behavior will be traded at the reserve price, and no slippage will occur.

The treasury funds that support the ANA floor price repurchase mechanism come from the funds reserved by the Nirvana agreement (Reserve Value). Staking fee (0.5%)). Handling fee for buying bonds TrANA (0.2%), NIRV loan handling fee (3%).

3. In the process of mortgage lending, the pledged ANA is used as collateral, and the loan is valued at the floor price of ANA instead of the market price of ANA (the floor price of ANA will be determined by the funds reserved in the agreement (Reserve Value) ) to protect). Therefore, in this way, changes in the market price of ANA can be avoided, resulting in the liquidation of the collateral, which is also the official zero-liquidation risk loan.

4. In addition, the Nirvana agreement will also issue official bonds TrANA, holding TrANA will be able to purchase ANA tokens at a discounted price. This feature is currently not live.

03. What is the biggest innovation of Nirvana?

Nirvana is a fully decentralized, trustless, self-governing protocol. Its core is the innovation of the Virtual AMM (Virtual AMM) mechanism that the protocol itself has liquidity. The virtual AMM centralizes the liquidity of the agreement with the rising reserve price of ANA, and automatically ensures that every ANA token in circulation can be guaranteed to be repurchased at the reserve price.

1. How to realize the liquidity of the agreement?

Nirvana's protocol market POM (Protocol-Owned Market), in this POM market does not lock unused ANA tokens in the traditional AMM pool, but holds virtual ANA. If someone buys ANA, the POM will mint ANA tokens in time. If someone sells ANA, the POM is burned and ANA is removed from the supply. This POM model has the greatest capital efficiency. Unlike traditional "constant product market maker" AMMs, which must lock up funds for both tokens at all possible prices, Nirvana's POM does not require ANA, nor does it require liquidity above the current market price of ANA. POM only pools liquidity at a price below the current spot price of ANA, providing an exit for those who sell back ANA.

2. Changes in ANA base price

The funds entering the Nirvana reserve are divided into two parts, one part is used to support the reserve price of ANA, and the other part is used to maintain the liquidity of ANA. The distribution ratio of the reserve fund between the two is determined.

When a user buys ANA, new funds come in as liquidity for the Nirvana AMM. If the value of liquidity accounts for more than 30% of the total reserves, part of the funds will be used to increase the floor price of ANA, and at the same time reduce the value of liquidity to 25% of the total reserves. (According to the official introduction, the 30% and 25% here are just example values, and the actual values ​​are manually adjusted by the team)

3. Comparison between Nievana and traditional models

In the traditional model the protocol keeps its tokens liquid by incentivizing market makers. This kind of liquidity is deeply bound to the funds of the pool. Once the capital is transferred elsewhere, the liquidity of the token may dry up, causing token holders to sell tokens only under high slippage. This situation is a major obstacle to the long-term sustainability of new projects.

Nirvana has designed the mechanism of "protocol has liquidity". Every ANA token in existence is backed by intrinsic value, which is called the reserve price of ANN. The realization of this intrinsic value is to deposit the liquidity value of its reserve price into the agreement as a reserve fund before generating new ones. ANA tokens. In the same way, the bottom support price of ANA will only rise when the reserve value is sufficient to support the new bottom price of ANA.

The advantage of this is that the value of ANN has a bottom support, which can ensure sufficient liquidity for tokens to be sold at a low price, avoiding the problem of excessive token exchange slippage after the loss of funds in traditional LPs.

04. Where is the risk of Nirvana?

1. The stability of the Solana ecosystem is limited by the development of the public chain.

Nirvana as Solana, its development is subject to the development of Solana. Compared with public chains such as Ethereum in terms of performance and security, the Solana network is inferior, so the development of Nirvana will be constrained by the ceiling of Solana.

2. The application scenarios of NIRV are limited, and its actual value is to be determined.

The value of stablecoins, including algorithmic stablecoins, largely comes from their application scenarios and the wide range of applications. To some extent, the relationship between ANA and NIRV is very similar to that between Luna and UST, but UST has a wealth of application scenarios in the Luna ecosystem, including support for actual use cases such as Anchor, Chai, and Mirror. Therefore, compared with stablecoins such as UST, Nirv still needs more real use cases and value capture.