A quick look at Solana eco-counting stable newcomer Nirvana, how ANA and NIRV are building decentralized currencies
A quick look at Solana eco-counting stable newcomer Nirvana, how ANA and NIRV are building decentralized currencies
Since algorithmic stablecoin projects such as Fei Protocol and Olympus have moved towards adoption, the liquidity possessed by the protocols has been valued. The common practice is to store this liquidity in protocols such as Curve for liquidity mining, but the yield is now lower. Nirvana, a new algorithmic stablecoin project that has recently become popular in DeFi circles, has created a new type of AMM that guarantees that ANA will not be traded at a price lower than its floor price and allows users to mint stablecoin NIRV at ANA's floor price.
As of April 15, the current floor price of ANA is $4.65, compared to the market price of $20.36, which already has a large difference between the two, and ANA's market capitalization has exceeded $40 million.
What is Nirvana?
The Nirvana protocol contains two main tokens, the price unstable ANA, which is primarily used for wealth storage, and the stable NIRV, which is primarily used for value storage. Both have intrinsic value and do not arise out of thin air. In addition, there is the prANA, which is used for reward distribution, and the trANA, which is released over time.
All Nippon Airways
ANA is known as a "sub-stable" (metastable) token, and although it has a floor price, it is still highly speculative, with high risk and reward, and is collateral for minting NIRV.
ANA can be purchased directly through Nirvana with a basket of stablecoins (USDC, USDT, UST, USDH, etc.) or sold as a stablecoin, with a 0.1% fee for the purchase process and a 0.3% fee for the sale.
The funds entering the Nirvana treasury will back the ANA, and each issued ANA contains in the treasury a reserve of stabilized coins not less than its reserve price. The floor price will only go up, not down, and when net buying continues to occur, the excess liquidity will be used to raise the floor price. When net selling occurs consistently to deplete the liquidity needed to maintain the market price, then subsequent selling is done at the floor price and no further slippage is generated.
Stable Coin NIRV
NIRV is known as a "superstable" token because it is backed by a basket of reserves in the ANA, and the probability of NIRV being under-collateralized by a single stablecoin de-anchoring is low, ensuring that NIRV is softly anchored at $1.
Nirvana allows users to lock ANA and withdraw loans corresponding to the reserve price from the agreement, disbursed in the form of the agreement's own stable coin, NIRV. ANA is in a locked status and still earns prANA proceeds. NIRV can be used to continue purchasing ANAs for the purpose of increasing leverage without liquidation risk. Since the locked ANA contains a reserve of no less than the floor price, the agreement also allows the user to exchange the ANA for a stablecoin corresponding to the floor price at any point in time. Therefore, this collateralized lending process does not create systemic risk and users do not have to worry about liquidation.
In Olympus, there is still a significant portion of treasury assets in the form of stablecoins, with some of the funds deposited in Convex, the Aave and other protocols for liquidity mining. However, from a user's perspective, users pledging OHM do not have risk-free access to these assets for leveraging. Instead, Nirvana has created a stable coin that can stabilize near $1.
The market price of NIRV is theoretically not much lower than $1. If the market price is too low, the arbitrageur buys at the market price and buys ANA in Nirvana with NIRV at $1 and sells ANA to complete the arbitrage.
NIRV's collateral contains at least a corresponding amount of stablecoin, which, as a native algorithmic stablecoin on Solana, has the potential to be used in other applications, thus enhancing the value of Nirvana.
Prana
Nirvana rewards pledgers through prANA (pre-ANA), which is essentially an option that represents the user's right to redeem ANAs from the agreement at a floor price. As such, prANA also has intrinsic value, which is the difference between the spot price of ANA and the floor price. The prANA is cast daily at a fixed percentage of the ANA's outstanding volume.
The process of converting prANA to ANA by the user still requires payment of the reserve price, which means that the balance of the treasury is not reduced in the process and the reserve price is not diluted by the conversion process. However, because prANA owners are able to mint new ANAs at a significant discount, mass issuance may also dilute the value of ANAs.
The process of converting prANA to ANA, which is also known as achieving prANA, needs to be done manually. Users can re-invest by converting prANA to ANA and pledging ANA again.
A portion of the prANA minted is used as an "ecosystem growth fee" to incentivize the use of tokens in the Nirvana system in other protocols, such as incentivizing the liquidity of SOL-ANA on Raydium, enabling ANA to be used as collateral for Solend, etc.
Transcriptome
Nirvana will sell ANAs that are released linearly over time (Time-released ANA, TrANA) in the marketplace, a feature similar to bonds in Olympus. For example, a USDC 5-day contract, corresponding to a spot price of ANA may be $200, while buying trANA through the contract, the selling price may be only $180, there is a discount, these ANA will be released linearly in 5 days. This feature is not currently live.
Virtual AMM
Reviewing the Treasury assets in Olympus, OHM-related liquidity includes OHM-DAI, OHM-ETH, OHM-LUSD, OHM-FRAX, and OHM-DAI-ETH, which account for more than 30% of Treasury reserves. The vast majority of these liquidities are in SushiSwap In contrast, SushiSwap charges a transaction fee of 0.05%, which reduces the transaction fee that Olympus relies on liquidity to charge by about 1/6. Because of the instability of the OHM price, some users also believe that the Treasury Reserve should not count the OHM held by the agreement itself. The OHM price has fallen from the original $1,300 to $28, which shows that the liquidity associated with the Treasury The decline in the price of OHM has indeed caused the value of Treasury reserve assets to fall as well.
Nirvana can provide the liquidity needed for ANA trading, but is completely different from traditional AMM in that it does not have ANA assets in its treasury reserve (because liquidity above the ANA price is not needed and users mint new ANAs when they buy), only a basket of stable coins. This avoids other DEX draws on transaction fees and ensures the liquidity needed for the exchange, while maintaining the price of ANA from falling below the floor price, all through Nirvana's Virtual AMM (Virtual AMM).
Virtual AMM, as the core of Nirvana, automatically adjusts the price curve and is mainly used to support the floor price of ANA and maintain the liquidity of ANA around the market price. The Protocol-Owned Market (POM) is directly connected to the central mint of ANA. When a user buys ANA, virtual AMM instantly mint ANA tokens and sends them to the user; when the user sells ANA, these ANA tokens are destroyed and the user gets the corresponding liquidity. If the price decreases to the floor price of ANA, subsequent net sell orders will be filled at the floor price.
As shown in the chart above, virtual AMM uses a linear price curve where the supply increases linearly with the price and does not cause drastic price changes during the trading process. In contrast, in traditional AMM, there is very little liquidity at either end of the price spectrum.
Change in reserve price
The funds entering the Nirvana reserve are divided into two parts, one to support the ANA floor price and the other to maintain the liquidity of the ANA, and the reserve is allocated between the two in a defined ratio. When a user purchases an ANA, new funds enter as liquidity for Nirvana AMM. If the value of liquidity to total reserves exceeds 30%, some of the funds are used to increase the floor price of ANA while bringing the value of liquidity to total reserves down to 25%.
In Uniswap In a classic AMM such as V2, when a user buys $100,000 of ETH in an ETH/USDC pair and then sells these ETH, the only loss is the 0.3% fee for both transactions, without considering other participants and Gas. However, in Nirvana, the process of buying ANA may trigger an increase in the floor price and selling the same number of tokens again may cause additional losses. If the price change is not significant, it can also be close to negligible.
The differences between Nirvana and other algorithmic stablecoins
Nirvana, like Olympus, has protocol-controlled liquidity, with treasury-controlled funds giving OHM and ANA some underlying value. In Nirvana specifically, it is the Treasury-controlled basket of stablecoins that enables ANA to make rigid payments at the floor price; in Olympus, the reserves are still predominantly stablecoins, but also include OHM-DAI LP tokens, the BTC , ETH, etc. These assets are also capable of generating returns. The floor price in Nirvana is similar to the risk-free asset/OHM issuance in Olympus.
Nirvana differs from other algorithmic stablecoin projects in the way tokens are minted. Virtual AMM can mint or destroy ANA tokens, and the circulation of ANA moves with market behavior, similar to Terra.
The stable coin NIRV is minted in a similar way to Alchemix, as the value of the collateral is always greater than or equal to the debt, so user debt can never be liquidated.
Summary
Nirvana's algorithmic system is significantly different from existing algorithmic stablecoins, allowing for the creation of NIRVs softly anchored to $1, adding leverage to the ANA through a risk-free asset component similar to that in the Olympus reserve.
The relationship between ANA supply and price in the agreement and the method of adjusting the reserve price are all highly innovative, and if the application of NIRV can be promoted, it can further increase the value of Nirvana.
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