The Vault ❄️⚪️
The collateral snowball ❄️⚪️
The Vault introduced by the Numa protocol collateralizes all of the synthethics and the $NUMA token. This represents a radical security improvement to the methods of prior synthetic burn and mint experiments.
What is the Vault?
Burning the $NUMA token is the only way to mint new nuMoney, and the vault provides the means by which $NUMA comes in or out of circulation. Users either deposit rETH and mint $NUMA or they burn $NUMA and remove rETH. Depositing rETH into the vault to mint $NUMA incurs a nominal 5% fee (4% retained, 1% to LP staking rewards). Users can also remove rETH from the vault by burning $NUMA tokens, which also incurs a nominal 5% fee (4% retained, 1% to LP staking rewards). Every time $NUMA tokens are either minted or burned, the value of $NUMA priced in rETH increases—increasing the collateral position of the protocol.
Price differences between the vault and the LP create arbitrage opportunities which allow for the vault to perpetually accrue collateral—creating a collateral snowball ❄️⚪️.
What are the benefits?
✔️ Depositing rETH provides a decentralized method for backing $NUMA tokens with rETH.
✔️ The vault is a collateral snowball which makes $NUMA tokens continually gain value in rETH terms as the protocol continues to absorb more collateral—overcollateralizing nuMoney synthetics as a utility. As such, the vault capitalizes on volatility and absorbs it.
✔️ Single-stakers of nuMoney synthetics earn sustainable, real yield—as a fundamental part of the protocol.
✔️ The numa protocol pays sustainable LP staking rewards to providers, which incentivizes liquidity and secures it for the long run.
✔️ The vault doesn’t rely on liquidity and is zero-slippage: each and every $NUMA holder can exit their positions through the vault at the current market rate with a 5% fee. In fact, if every $NUMA holder decided to dump their tokens into the vault, the price per $NUMA would rapidly increase, such that the first "sellers" (burners) would get the market price and subsequent burners would get more and more rETH.
✔️ The vault provides transparent proof-of-reserves for the synthetics that are minted.
Dynamic fee model
Under normal conditions, the fee for burning or minting $NUMA tokens via the vault is 5% (4% retained, 1% to rewards), but the buy fee adjusts according to demand for the protocol. Increasing the buy fee based on demand benefits $NUMA holders and the protocol, in general, because it increases the the value accrual of the $NUMA token and the collateral position of the protocol. The dynamic fee creates additional benefits for speculation on the $NUMA token, since the price can move beyond the 5% upper band above the nominal price more easily, and this creates a sort of feedback loop: as the price increases, the fee increases, which then increases the price even more.
For every $1 of $NUMA minted via the vault, the buy fee increases by 0.0001%.
For every $1 of nuMoney burned or minted when the $NUMA LP 15min & 30min TWAP prices are more than 5% below the buy price, the buy fee decreases by 0.0001%.
For every $1 of $NUMA sold into the vault when the $NUMA LP 15min & 30min TWAP prices are below the nominal price, the buy fee decreases by 0.001%.
Buy fee can only increase 5% per 24 hours: e.g., from 5% to 10%, 10% to 15%, etc.
Arbitrage—The Collateral Snowball ❄️⚪️
Though price volatility is a weakness in other protocols, numa capitalizes on volatility and consumes more collateral. Price differences between the vault and the LP create arbitrage opportunities which allow for the vault to perpetually accrue collateral. In the Uniswap LP, $NUMA is paired with USDC, while the vault contains rETH: the difference in pairings provides on-going price differences which incentivize arbitrage—more importantly, the arbitrage transactions are what make the $NUMA token continue to accrue value in rETH terms. Explicitly, every arbitrage transaction results in more rETH per $NUMA token in existence. Using USDC in the LP creates frequent arbitrage opportunities while also stabilizing the protocol in cases of extreme volatility.
For example, if rETH increases in USD value, then the mint price of $NUMA will increase. Thus, it is cheaper to purchase $NUMA tokens from the UDSC Uniswap pool than by minting via the rETH vault—creating an arbitrage opportunity. In buying from the pool, arbitrageurs avoid the 5% minting fee: they can buy $NUMA from the LP and burn the tokens in the rETH vault—earning a profit and increasing the rETH backing of all $NUMA tokens in circulation.
Conversley, if rETH decreases in USD value, then the mint price of $NUMA will decrease. In this case, it may be cheaper to mint $NUMA tokens via the rETH vault than by buying from the Uniswap pool—creating an arbitrage opportunity. Arbitrageurs can mint $NUMA tokens via the vault and sell them into the LP—earning a profit and increasing the rETH backing of all $NUMA tokens in circulation.
Last updated
