Defend Your Assets, Supercharge Your Yield
- Executive Summary
- Intro to Nexus Protocol
- bLuna Vault
- UST Vault
- Token Economics ($Psi)
- Token Distribution($Psi)
- Strategy Bounty Program
- The Future
1. Executive Summary
Nexus Protocol aspires to be the gateway to yield-generating products in the ever-expanding Terra ecosystem, and in the long term, the forefront incentive token yield optimizer and liquidation protector for the multi-chain world. Nexus v1 will offer vault strategies focused on Anchor and Mirror. The initial vaults will 1) maximize the LTV in Anchor Borrow, and slightly after launch, 2) execute a delta-neutral strategy on Mirror. We are also very excited to announce the development of our 3rd product, EthNexus.
2. Intro to Nexus Protocol
In traditional startup fashion our team at Nexus has opted to first solve for what we consider to be the most immediate need in the terra community; A safe vault for Anchor Borrow which maximizes users yield while eliminating the risk of principal liquidation. We have made careful efforts to cut no corners on this important asset to the Terra community. We are hopeful that this product alone will be very impactful, but we are eager to share more details about our additional structured products which will be released after launch — Mirror V2 “Delta Neutral” Vault and the EthNexus vault.
We are also excited to announce our plans for Nexus Bounty which will serve as a tool to incentivize the best and brightest from the DeFi community to help create additional vault strategies for Nexus later down the line.
In this litepaper we will begin by exploring our vault solutions for Anchor and Mirror in more detail — including our plans for EthNexus which we believe will be revolutionary. After that, we’ll provide information about our tokenomics, and lastly we’ll provide an overview of our inter-blockchain expansion plans.
3. Nexus Anchor Vaults
Nexus’ first vault products will be a simple vault where users can deposit bLuna or bETH to earn optimized rewards from Anchor borrow. The Vault solution will automatically maintain a high LTV ratio via smart contract logic.
Nexus will be directly managing user’s collateral. As such, safety is our highest priority. We would like to spend some time in this paper reviewing the safety measures which are being implemented to ensure protection against liquidation for the assets deposited to Nexus Anchor Vaults. The detailed mechanics of the smart contracts can be found below.
In order to manage LTV efficiently and safely against all possible fail scenarios; Nexus Vault will have three different modes which will be activated based on different scenarios. The fully complete version of our Nexus Anchor vaults will have optimal mode, safe mode, and emergency mode running concurrently. However, as a team we made the decision to launch Safe Mode & Emergency Mode as quickly as possible to give our users access to these powerful tools as soon as they were capable of providing a significantly better experience than what’s possible by using Anchor manually. We are working on the development of the Optimal Mode and intend to release that mode in Q4. We have taken the utmost effort to ensure that Safe & Emergency mode are dependable and highly secure. We cover the details on this in the following paragraphs.
Optimal Mode: Front-running Anchor Protocol’s Price Oracle
How Anchor Works
Nexus’s LTV management system is based on a thorough understanding of Anchor Protocol. Anchor Protocol determines the liquidation of the collateral based on the price data received via a price oracle smart contract. Since feeding price data too frequently is neither necessary nor efficient, Anchor Protocol instead receives price data every 15 seconds from the Terra blockchain. The Terra blockchain gathers the price data via a bot which accumulates and weights the exchange price of the assets off-chain, and the price data is updated every 5 blocks, which is roughly every 30 seconds.
How Nexus fits in…
Nexus Protocol will create a bot using the same oracle and weighting logic as the bot that provides price data to the Terra Blockchain. However, the Nexus price oracle will be fed more frequently, with new price data every 15 seconds, instead of Anchor which effectively updates its price data every 30 seconds.
As a result, Nexus Protocol will be able to know the exact prices of collateral slightly before it becomes visible on Anchor Protocol. By embedding this front-running logic, Nexus will know the ideal LTV level that should be maintained without putting assets at risk for liquidation. Since the LTV management activity such as ‘Repay’ and ‘Borrow’ will occur at the smart contract level, Nexus Protocol will ensure protection against liquidation regardless of whether Anchor Protocol’s WebApp is running or not. The combination of the price oracle front-running & smart contract level interactions would allow Nexus Protocol to borrow near the LTV limit in the most efficient and fundamentally safe manner possible.
This Optimal Mode will be fundamentally the safest method to manage LTV level against liquidation, regardless how large is the deviation of the price fall may be. However, such ideal state entirely depends on Nexus’ Price oracle functioning well. What happens if Nexus Price Oracle fails? This is where our ‘Safe mode’ takes place.
Safe Mode: In case of Nexus Price Oracle fails
In case of the Nexus’ price oracle fails, Nexus Protocol will automatically change its LTV management logic as per Safe Mode; which utilize Anchor’s price oracle. However, as a result, Nexus will no longer able to front run Anchor’s price oracle; thus the target LTV level must be closely monitored to ensure users collateral positions are safe.
In this scenario, the Nexus Anchor Vault will no longer know with certainty what the future prices will be, therefore Nexus’ Anchor Vault will be set into safe mode and will manage LTV level by activating safe mode parameters related to the target LTV. The initial parameters for the safe mode will be set such that the users would be covered even under dire circumstances (i.e. these parameters will be set initially to cover users even during the worst Luna price crash in history to date). Safe mode will be deactivated once the Nexus price oracle is functioning normally, returning to Optimal Mode.
What happens if Anchor Price oracle fails while safe mode is running? No worries, we also have that covered.
Emergency Mode: In case of Anchor Price Oracle failure
In case of an Anchor price oracle failure, Nexus Protocol will automatically change its LTV management logic to decrease the target LTV to half instantly. Emergency Mode will be deactivated once Nexus Protocol detects Anchor’s price oracle has returned to normal functionality, and will resume safe mode again.
An Anchor price oracle failure means that Anchor’s liquidation market is paused. During the liquidation market pause, if the value of collateral assets appreciates, there will be no consequences. However, in the opposite case, consequences can be dire. While the liquidation market is paused, if the value of collateral assets depreciates — once the Anchor price oracle resumes its normal function, the loan will have exceeded the LTV max, and in turn more assets will flood into the liquidation market.
In order to stay on the safe side at the expense of temporary inefficiency, Nexus Protocol will treat an Anchor price oracle failure as a sign of potentially higher deviation. Emergency mode is effectively a preemptive measure against further price deviation.
Other fail-safe measures
Once there is too much traffic on the blockchain for whatever reason, and if the blockchain floods with overwhelming transaction requests, regardless to how thorough the system is, the system may easily fail as it may not be possible to implement transaction in such adverse circumstances.
In prep for such circumstance, Nexus protocol manages and operates independent node and work closely with number of validators to ensure that Nexus protocol have the best chance to push necessary transactions to operate Nexus vaults properly.
Columbus-5 migration will improve Terra’s bandwidth by ~33x, thus Col-5 may naturally solve the most of the problem related to blockchain flooding. This is why Nexus is building for Col-5 and will be launching post Col-5 migration completion.
However, as every network inevitable faces limit of bandwidth at certain point, especially for robustly growing network such as Terra, Nexus is also preparing a fundamental fail-safe tool to actively address these issues from Nexus side. Because of this, an internal fail-safe measure will be vital to implement & operate Optimal Mode safely.
Nexus Protocol will develop a tool to detect abnormal increase in transaction request by tracking the traffic in the mem pool. Once Nexus Protocol detects abnormal level of traffic increase, Nexus Protocol would again decide to stay on safe side at the cost of slight inefficiency: Regardless to the current mode (Optimal or Safe), Emergency mode will be activated.
Anchor Earn Blockage
The UST that Anchor protocol lends via Anchor Borrow is gathered purely from Anchor Earn deposits. As a result of this, Anchor Protocol cannot lend any more than 95% of how much UST has been deposited to Anchor Earn. This can be a potential problem for someone who wants to withdraw from Anchor Earn when the UST is being fully borrowed, because once the borrow limit is met, withdrawal from Anchor Earn will not be possible.
In prep for such fail scenario, Nexus protocol will maintain a small portion of borrowed UST in simple UST as a buffer. As Nexus also carries position in Anchor Borrow, the small buffer should allow Nexus to readjust position as much as the protocol needs.
It is important to note that while we have planned for all known failure points, liquidation is possible in Safe Mode or Emergency Mode if the price collapse of the collateral during the period in between LTV management check timing is greater than the buffer provided by the Safe and Emergency Mode parameters. As mentioned previously these parameters will be owned by governance, and initially parameter will be set with consideration of the worst price decline that Luna has ever had.
Based on historical Anchor data, Nexus determines the net added benefit it is able to achieve for users based on the formula below.
The protocol fee will be taxed in order to grow the community pool.
4. UST Vault
In order to further optimize users’ UST funds, Nexus will be building an automated Mirror Delta Neutral strategy vault. The benchmark for this vault to beat is the yield provided by Anchor Earn. By hedging the impermanent risk of mAsset-UST LP (or sLP) staking with aUST-minted mAssets (or long position in mAssets), Nexus Protocol will provide similar risk to Anchor Earn, but higher yield to the users.
The UST vault will include the following functions to deliver higher yield than the benchmark Anchor Earn rate:
- Positioning based on the highest weighted APRs
While managing Mirror Borrow LTV and optimizing the APR of mAsset-UST LP (or sLP), Nexus will calculate and compare weighted APRs to select the most profitable yield option at the time of positioning. With the LTV of the selected mAsset in consideration, the deposited UST will be allocated to an aUST minting pool to be used as Mirror Mint collateral, while the UST will be used as mAsset-UST LP token minting (or to place long position with the matching mAsset). Since mAssets can only be minted or closed during market hours, Nexus will prioritize mAssets that can be minted or closed at any time.
2. Automated Mirror Mint LTV Optimization
Similar to the logic of Anchor Liquidation management, Nexus Protocol will front run Mirror Protocol’s price oracle, and maintain the liquidation level efficiently at the smart contract level. LP or sLP & it’s matching long positioned mAsset position will be partially closed in order to protect the collateral against the liquidation. As the Mirror’s protocol fee is charged as a fixed percentage, rather than capped like Anchor Borrow, an aUST buffer pool will also be created to ensure protection against liquidation without having to pay too much protocol fee in the event of serious fluctuations.
3. Automated MIR rewards claiming
Nexus Protocol will automatically claim the reward in Mirror Protocol, due to the economies of scale, the protocol can claim rewards far more frequently than the individual users, ensuring efficient and low risk yield strategy to be realised.
Setting the stage…
Recently Anchor Protocol has added bEth as a form of collateral in Anchor. We believe the introduction of bETH can be groundbreaking for Anchor Protocol, if it manages to lure some share of the massive value locked in Ethereum to Terra.
One of the main potential user groups for bETH are Ethereum native users since they hold the most Eth. Due to the importance of Ethereum native users, we believe the success of bEth will largely depend on the following three factors:
- bETH must provide significantly higher returns than alternative staking options for ETH native users.
- There needs to be a simple & easy to use platform for ethereum native Eth holders to use.
- ETH holders need to know about bETH & be convinced that it’s a better alternative.
EthNexus will greatly enhance the first two factors.
EthNexus will provide a Far simpler experience for the users; easy to use, easy to understand, no additional wallet needed — Deposit ETH, get higher yield than anywhere else! (+you get your ETH auto compounded)
EthNexus is simpler to use for Ethereum native users, and it will also have significantly higher yield than manual usage of bEth in Anchor. This is because EthNexus utilizes Nexus Protocol’s LTV optimizing vaults, which will max out on LTV and operate borrowed UST efficiently. Additionally EthNexus will provide much higher yields than other Eth native yield solutions in the market.
EthNexus takes native ETH and converts to stETH, then goes through a series of steps to deliver compounded ETH yield back to the user.
Yield will be paid out in ETH/stETH for EthNexus users. The yield offered will be significantly higher than Ethereum based competitors, but significantly lower than what is being offered to Terra native bETH holders with Nexus bETH vault.
ETH holders will be able to bridge their ETH over to Anchor manually to earn higher returns through Nexus, however it will be a much more complicated process (depicted below)..
Some users will not require the same degree of process abstraction, so Nexus will also be releasing a separate bETH vault for Terra native users day 1. This bETH vault will offer significantly higher yield than the EthNexus vault, and this yield will be paid out in Nexus protocol’s native token ($Psi) unlike yield from EthNexus which is paid out in ($ETH).
The differences in yield between EthNexus and Nexus’ bETH vault ensure value is being effectively locked in the Terra ecosystem. These differences may also act as an incentive and soft landing place for the Ethereum users to attempt to migrate to Terra ecosystem.
Summary of benefits of EthNexus for Anchor:
1. bETH will become even more attractive for ETH holders (higher yield), meaning more migration to bETH from ETH.
2. It will be easier for ETH holders to reap the full benefit of bETH, meaning more migration to bETH from ETH.
This will lead to higher TVL for Anchor, more borrow on Anchor Borrow, more value accrued for ANC token.
6. Token Economics ($Psi)
Nexus Protocol will offer two types of native tokens: nAssets and $Psi tokens
nAssets tokens represent the assets deposited in Nexus vaults. The holders of the nAssets will be entitled to the Nexus vault’s yield. nAsset tokens may be exchanged at any time for the deposited assets.
$Psi token is the governance token for Nexus Protocol. $Psi holders will also be entitled to stake and earn a pro-rata share of protocol fees. Below are some of the topics to be handled via governance:
1. Protocol fee rate
2. Tax rate
3. Whitelisting additional assets
4. Updating yield optimizers logic
5. Benchmarking yield per nAsset
6. Use of the community pool
7. Bounty System’ parameters
$Psi tokens will be the medium of yield distribution within Nexus Protocol. Yields collected will be used for $Psi buybacks in the $Psi-UST LP Pool which are awarded to nAsset holders, $Psi stakers, and Nexus Community Pool.
7. Token Distribution ($Psi)
See the diagram below for details on token distribution.
The fixed total supply of $Psi tokens will be 10,000,000,000, distributed over a period of at least 4 years.
8. Strategy Bounty Program
With the explosion of development activity occurring in the Terra ecosystem, we expect many more yield optimization opportunities to present themselves over the coming years. As Terra expands its connectivity with other L1’s such as Cosmos chains via IBC, Nexus will in turn offer vaults on other L1s.
As we accrue revenue to the community pool through taxes, we’ll develop and launch a Bounty System to reward community members for their contribution to the research and development of new vault strategies.
The program will provide good soil for the formation of a DAO. Ten percent of our intial token supply supply will be used initially to subsidize the community fund for this DAO, which will continue to grow from the protocol tax. The DAO will have a number of core purposes including voting on community proposed vault strategies, and determining the compensation structure for those strategies.
The purpose of this DAO is to expand the Nexus community to ensure the growth and progress towards decentralization of our ecosystem over time.
Roles for Nexus Strategy Bounty Program:
Strategist Recruiters — Responsible for recruiting top vault & yield strategist from across the Defi ecosystem to the Strategy Bounty Program. There will be limited positions.
Core Strategists — Responsible for identifying the most promising, long-term vault opportunities, voted in by both Strategist Recruiters and the Psi Allegiance. There will be limited positions. These positions will serve terms and will be allowed to be elected and re-elected by the Psi allegiance through governance voting. This ensures new strategists consistently have an opportunity to be elected.
Nexus Governance — Any stakers of the Psi token will be able to cast their vote to elect Core Strategists and Recruiters.
Anyone is welcome to participate in the Strategy Bounty Program & DAO. We welcome everyone from the Terra ecosystem and beyond.
We will be announcing more on this in the coming weeks and months.
9. The Future
We believe in a cross-chain future where Terra will be tightly intertwined with projects across all major L1 chains. With this rise in popularity of a multi-chain future, many new projects and incentive programs will be created. Nexus Protocol aspires to be the gateway to yield-generating products in the ever-expanding Terra ecosystem, and in the long term, the forefront incentive token yield optimizer and liquidation protector in the cross-chain space.
We hope you are excited for the future of Nexus and we hope to have you along with us on our journey.
Follow us on our core channels to keep up with the latest.