This proposal has been elaborated in a joint effort performed by a task force of neutrino community members (see participants at bottom)
So far we have tried out two tokenomics to run neutrino:
-NSBTs working as a bond with a sole purpose to restore USDN collateral and
-NSBTs working as a governance token, a tool to rebalance USDN supply and a revenue sharing token all in one
Both approaches were not sufficient to answer to all our needs:
-Past bond model can’t provide us with any reliable and predictable form of governance or protocol’s revenue sharing system
-Current system is unable to recapitalize reserves and ensure USDN market stability
We believe the solution to all our problems is to have the two above mentioned systems working together side by side and using two separate mechanics:
Recapitalization bond issuing for WAVES (i.e. bond unit received = 1/BR * WAVES provided) would be available every time BR falls under 1 without any liquidity limitations up to the point of restoring BR to 1.
In addition they should be non transferable just like gNSBT is now to force people to actually issue them and help the system rather than speculate on their value through the market. This means that these bonds need not be a token but just a notation on SC data, as gNSBT itself.
These bonds cease to exist as BR >= 1 (although not necessarily suddenly, see item 6). Whether to return the value of expired bonds in USDN or WAVES is discussed below (item 5) Possible expiration mechanisms is introduced below (item 6).
As long as bonds exist (that is, BR < 1), they share the profit of neutrino swap fees and arbing rights with gNSBT. Two mechanics were discussed here:
4a. A moderate approach, where share weight of bonds is 1-BR and share weight of gNSBt is BR. Here, the lower the BR, the more share weight for recap bonds and the less for gNSBT.
4b. An aggressive approach, where recap bonds acquire 100% benefits when BR < 1, so gNSBT holders get None. This option provides more incentive to issuers, but may create incentive of some kind of manipulation to conserve BR little below 1 indefinitely in order to conserve all rights. However it is not clear how this manipulation could be achieved.
There are two proposals regarding the asset in which expired bonds are returned to the issuer: either WAVES or USDN.
5a. If returned in WAVES, the issuer will get same amount of WAVES as he/she put when the bonds were issued. It will mean a direct decrease back of BR. In terms of incentives, the issuers probably prefer this option.
5b. If returned in USDN, it will receive the equivalent amount WAVES as he/she put when the bonds were issued, but in USDN at neutrino SC price. It will mean issuing of USDN and some depeg pressure (returned collateral will decrease back BR). So return in USDN may generate more arb activity, and also decrease BR via price pressure over WAVES.
The proposed expiration mechanism is similar to the decay of gWX: bonds expires at a speed inversely proportional to (1 - BR). This will create a progressive return pressure (returned assets will reduce BR back). Returned assets must be claimed, instead of directly transferred to the issuer, in order to reduce pressure even further. This decay speed must have a maximal value in order to avoid instabilities around 1(this means some bonds will survive for a time at BR >= 1), and fall to zero when BR is below some safety margin, i.e. 0.2, in order to avoid risk of having to return what is not in the collateral.
Regarding the rewards of the collateral added by bond issuers, we can parameterize how much go to reinforce collateral and how much is returned to bond issuers along with the added ammount of waves. The more goes to reinforce SC collateral, the faster the recovering. The more goes to issuers, the more incentive to issuing, but the less stable is the protocol. Notice that if reinforcement factor is zero, at bonds redeem time, issuers recover all what they put, plus its rewards, so on long term the net effect of the bonds in collateral is zero. In this case, the bonds only help to stabilize the collateral in the short term while in the long term the situation is stabilized only by external factors (waves price increase, USDN depeg decrease). So the only long term positive net effect of bonds are the portion of the rewards generated by the collateral they added, that go to reinforce definitively the SC collateral.
Rewards generated by SC own funds are not distributed among bond issuers. They conserve its actual reinforcement role.
That being said current NSBT mechanics also work great and we still need them to govern the protocol through voting and to share protocol revenue. Moon factor, overall scarcity, unstaking fees are all great features that prevent bad actors from gaining too much control over Neutrino protocol and therefore should be kept and not changed.
Two main concerns of the team voiced by Sasha during the AMA are:
a. We should strive for one token system to make it simple yet effective - we believe this was solved in 2. By making bonds non transferable, non speculative notation only
b. We should provide incentives for bond issuers to make sure it will be worthwhile to balance the system out in the times of need - this was solved in 4. by temporarily redirecting protocol’s revenue to the bond holders (it’s up for a debate if it should be set % of it or all generated fees)
Main concern by the community of NSBT holders is:
a. We don’t want to lose current stability of governance in favour of BR - keeping the governance function exclusive to NSBT/gNSBT token assures this.
b. Current NSBT/gNSBT holders want to retain their current shares in voting rights and future revenue but are willing to part with the latter for the sake of improving BR when it’s really needed for healing the system
In conclusion we believe our proposal brings the best parts of both proposals together without the need of sacrificing anybody’s interests along the way. It’s a good compromise: evolution not revolution.
Neutrino community members involved in the elaboration of this document: