Neutrino partners with Waves to launch a new investing mechanism
- This mechanism will let Neutrino’s users invest in its DeFo-listed assets.
- The mechanism involves backing asset pools with additional collateral.
- Users will allegedly receive interest from Liquidity Provider Fees and earn staking rewards.
Neutrino Protocol has joined hands with Waves.Exchange to roll out a new mechanism for investing in Neutrino asset pools on decentralized forex (DeFo). The Neutrino team unveiled this news via a blog post on November 9, noting that this mechanism will let its users invest in its asset pools seamlessly. Through these investments, the users will reportedly help ensure pool stability by shielding asset holders against the collateral deficit that emanates from currency rate fluctuations.
According to the blog post, users that invest in asset pools will earn interest from Liquidity Provider Fees, which is paid through the DeFo. Reportedly, the interest that users receive will be directly proportional to their share in the pool. On top or receiving interest, the users will also earn staking rewards.
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Before this change, Neutrino used a system that collateralized assets based on the aggregate value of funds amassed in a contract through USDN swaps into the assets. These funds facilitated the swapping of tokens into USDN. However, this system was flawed, seeing as currency rate fluctuations deemed these funds insufficient to cover all issued coins at times.
How the mechanism works
The new mechanism reportedly helps ensure the stability of assets by backing them with additional collateral. Explaining how the mechanism works, the publication noted that it allows users to invest in their desire asset pool with additional funds. These funds are then used for a reversed USDN swap if the amount of funds accumulated in the pool is insufficient. By investing additional funds into a pool, users insure against the shortage of other users that issue and hold Neutrino assets.
In the first stage, however, users can only invest USDN into the pool of any asset listed on DeFo. In doing so, users will receive daily rewards in the pool’s asset. Reportedly, the DeFo Liquidity Provider Fees paid for each asset swap will cover the cost of the daily rewards. On top of this, users will also receive interest on their provided USDN from staking daily.
Should there be a deficit, the invested funds might be used to top off the collateral. As a result, the system will lock some of the funds, preventing the users from withdrawing funds from the pool temporarily. During this period of locking, users will continue receiving both staking rewards and Liquidity Provider Fees rewards. After the pool’s collateralization ratio rises to 100%, the system will then unlock the funds.
Factors influencing the ROI of liquidity pools
Per the blog post, three factors might affect the return on investment (ROI). These are
- The share of funds that a user has invested in a pool in comparison to the total pool size.
- Trading volumes of DeFo. At the moment, the Liquidity Provider Fee for a token swap on DeFo is 0.02% of the transaction.
- The current APY% of USDN staked. 90% of the invested USDN is staked.
Outlining the risks involved in investing in Neutrino asset pools, the publication noted that user funds can be used to cover the difference in exchange rates. Apart from this, user funds can be frozen on the contract until pool stability is achieved.