NEAR’s Ultimate Alpha is USN. This article presents an overview of the sustainability and yield generation of USN stablecoins.NEAR stablecoin $USN is soft-pegged to the US Dollar, supported by a Reserve Fund that initially contains $NEAR as well as $USDT. In addition to on-chain arbitrage, $USN’s stability mechanisms include a Reserve Fund that operates on the principle of the Currency Board.
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What is USN
USN is the native stablecoin of NEAR Protocol, pegged to the U.S. dollar. USN is minted via depositing NEAR tokens into the reserve fund, and can always be redeemed (burned) for an equal value of NEAR, based on the NEAR/USN price. The reserve fund will also contain USDT as the extra backing for USN, making USN an over-collateralized stablecoin. Most of the capital in the reserve fund will be utilized to generate yield for USN holders.
Staking vs. Burning
Unlike the case of UST where you burn LUNA to mint UST, USN is minted in a “swap” process with NEAR. The NEAR used to mint USN is then staked on the NEAR blockchain to generate staking rewards, which get distributed to USN holders. The key is that minting/burning USN does not change NEAR’s supply; therefore, the baseline economic security of the NEAR blockchain is improved by the Reserve Fund’s distributed staking.
A frequently discussed potential “death spiral” for LUNA<>UST is if UST will depeg -> people burn UST to mint LUNA (which increases the circulating supply) and market sell the latter -> tank LUNA price -> more sell pressure on UST. With USN, the stablecoin itself will not fundamentally affect NEAR’s security, as burning USN does not increase the circulating supply of NEAR.NEAR has already become one of the top public blockchains even before USN was created, with a thriving ecosystem of 500+ successful projects with traction already launched.
The floor APY for USN holders will be ~11%, which is NEAR’s current PoS staking reward rate. However, the realized APY will be higher than the basic PoS reward (covered later in this post). The floor APY is 100% organic, without centralized subsidies or artificially high borrow rates, since it’s based on the circulating USN holders’ claim on the Reserve Fund’s NEAR token staking rewards. The staking rewards are generated every epoch, or approximately every 15 hours, automatically swapped to USN, and distributed. This makes USN’s APY sustainable in the long run.
USDT in the Reserve Fund
The first 1 billion circulating USN will be backed 1:1 by USDT, in addition to 1 billion dollars worth of NEAR staked to USN’s Decentral Bank Protocol, which guarantees over-collateralization of USN even in the case of extreme fluctuation of NEAR price.
How to get 20%+ yield by simply holding USN
Let’s discuss what everyone really cares about: how to get that juicy 20%+ yield 🙂
In short, 100 million NEAR will be deposited in the USN contract and staked to generate rewards. However, the market cap of USN will likely be lower than that, potentially for a long period of time (100 million NEAR is worth more than 1 billion USD at current price of NEAR), which means 1 USN represents staking rewards generated by more than $1 worth of NEAR.
For example, if there are 100 million NEAR staked by the USN contract, but only 100 million USN in circulation, and the NEAR price is $12, then the effective APY for USN holders would be higher than 120%!
Yes, you read that right. 120%!
The USN<>NEAR ratio will increase as more USN is minted. However, this doesn’t necessarily lead to declining rewards. For starters, minting more USN puts more NEAR in the treasury, which will be staked to generate more rewards. However, what’s more interesting is how we can stack the DeFi money legos with USN in the picture…
USN will be used as collateral in lending protocols like Burrow, Bastion, Aurigami, and Pret (launching soon). Borrowing demand for USN will be great, as long as the borrowing cost is lower than USN’s reward. Borrowing will in turn boost the supply APY for USN, bringing more rewards to USN holders. At the same time, all lending protocols will incentivize USN pools with their own tokens (BRRR, BSTN, PLY, etc.), adding at least another ~5% APY for USN.
For example, if we set the staking rewards APY, borrowing rate, and supply rate for USN at 20%, 30%, and 15% respectively, and additional BRRR reward APY at 5%, then a USN holder can earn 40% APY simply by supplying her USN to Burrow. Even for borrowers, they are still earning 10% net APY by borrowing USN to supply.
And a 10x USN looper could get 200% APY
Degens always degen.
Why only earn 40%, when you can get 200% APY with safe leverage?
USN holders will have their own “degen box” where 10x leverage on Burrow with USN only requires one click.
The USN stable pairs will be the deepest liquidity pools on NEAR, where LPs can simultaneously earn USN rewards, transaction fees, and farming rewards. It gets even more interesting when yield-bearing tokens are accepted by DEX or LP tokens are accepted by lending protocols as collaterals: you will be stacking lending and LP rewards together.
For example, if Alice puts both cUSN and cUSDT in Bastion’s stableswap, assuming 20% annualized transaction fee income and 20% BSTN farming reward, she would receive an aggregated 60% APY.
The first perpetual swap DEX will soon launch in the NEAR ecosystem. Why use USDT as collateral, when you can open positions with USN as margin and earn rewards while trading?
The yield-bearing nature of USN will greatly expand its utility and make it the dominant stablecoin on NEAR.
So, what do all these have to do with $NEAR?
Well, the alpha may be bigger than you thought…
A major supply shock when demand rockets
The circulating supply of NEAR sits at 674M, of which 450M, or 67%, are natively staked on the blockchain already. As mentioned before, from USN alone, another 100M NEAR will be gradually deposited into USN’s treasury and then staked, which means another 15% of circulating supply will be taken out of the market. At the same time, the demand for NEAR will keep growing as NEAR is currently the fastest expanding L1 ecosystem with plenty of amazing yield opportunities across DeFi and NFTs. Increased network activity means more NEAR will be burned as transaction fees and locked as TVL on-chain.
That’s where APY happens. When supply shock meets demand explosion, you know what will happen.
Rewards drive demand for USN, thus NEAR
Once USN rewards go live, people will flood in to acquire USN, which will push the USN price higher in liquidity pools. USN’s pegging mechanism automatically incentivizes people to mint USN with NEAR in this scenario to bring the price back to $1, generating higher demand for NEAR. This NEAR is staked, taken off the market, and rewards are paid out to USN holders.
Why market-sell NEAR, when you can mint USN?
USN enables zero-slippage selling of NEAR. If Bob wants to take profit on his 1000 NEAR on-chain, he would have to do a NEAR<>USDT swap on Ref Finance, which would incur ~0.2% slippage. With USN, Bob can now mint USN using NEAR with zero slippage, and then swap USN for USDT if he wants, which would only have a negligible slippage — lower than 0.01%. Bob still takes his profit, but no NEAR is actually sold to the market!
Trading future yield stream of NEAR
USN essentially represents the claim to NEAR staking rewards, a stream of future yield, which makes it not only a stablecoin, but a financial primitive to construct more sophisticated (and hedged/leveraged) portfolios of NEAR and more when USN goes multichain.
What more is there to say? USN, the ultimate alpha of NEAR: LFG.
About MetaWeb Ventures
MetaWeb Ventures is a global crypto firm with an investment focus on the NEAR ecosystem. With its extensive global network, research driven thesis, and incubator approach, MetaWeb aims to help builders to open the web and disrupt the world.
$USN is a NEAR-native stablecoin soft-pegged to the US Dollar, backed by a Reserve Fund that contains $NEAR, as well as $USDT initially. $USN’s core stability mechanisms consist of on-chain arbitrage and the Reserve Fund based on the Currency Board principle. Combining the growth potential of $UST and the strong peg defense of $FRAX, $USN is positioned to be one of the most effective ways to bootstrap liquidity in the NEAR ecosystem; all while adding a new layer to $NEAR’s utility as a token. $USN’s smart contracts and Reserve Fund are managed by the Decentral Bank DAO.
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