Vaults ❄️⚪️
The collateral snowball ❄️⚪️
The vaults 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 a Vault?
Burning the $NUMA token is the only way to mint new nuMoney, and vaults provide the means by which $NUMA comes in or out of circulation. Users either deposit a given LST and mint $NUMA or they burn $NUMA and remove the LST. Depositing LSTs into a vault to mint $NUMA incurs a nominal 5% fee (4% retained, 1% to LP staking rewards). Users can also remove LSTs from a 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 a given LST increases—increasing the collateral position of the protocol.
Price differences between a vault and a corresponding LP create arbitrage opportunities which allow for a vault to perpetually accrue collateral—creating a collateral snowball ❄️⚪️.
What are the benefits?
✔️ Depositing LSTs provides a decentralized method for backing $NUMA tokens.
✔️ Vaults create a collateral snowball which makes $NUMA tokens continually gain value in LST terms, as the protocol continues to absorb more collateral—overcollateralizing nuMoney synthetics as a utility. As such, vaults capitalize on volatility and absorb 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.
✔️ Vaults don't rely on liquidity and is zero-slippage: each and every $NUMA holder can exit their positions through a vault at the current market rate with a 5% fee. In fact, if every $NUMA holder decided to dump their tokens into a 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 LSTs.
✔️ Vaults provide 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 a 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 a 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 a 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 a vault and an LP create arbitrage opportunities which allow for a vault to perpetually accrue collateral. In the Uniswap LP, $NUMA is paired with USDC, while vaults contain various LSTs: 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 LST terms. Explicitly, every arbitrage transaction results in more LST per $NUMA token in existence. Using USDC in the LPs creates frequent arbitrage opportunities while also stabilizing the protocol in cases of extreme volatility.
For example, if an LST increases in USD value, then the burn price of $NUMA will increase. Thus, it is cheaper to purchase $NUMA tokens from the UDSC Uniswap pool than to burn in an LST vault—creating an arbitrage opportunity. In buying from the pool, arbitrageurs avoid the 5% minting fee: they can buy $NUMA from an LP and burn the tokens in the LST vault—earning a profit and increasing the LST backing of all $NUMA tokens in circulation.
Conversley, if an LST decreases in USD value, then the mint price of $NUMA will decrease. In this case, it may be cheaper to mint $NUMA tokens via a vault than by buying from the Uniswap pool—creating an arbitrage opportunity. Arbitrageurs can mint $NUMA tokens via a vault and sell them into an LP—earning a profit and increasing the LST-backing of all $NUMA tokens in circulation.
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