NIRV - How it works

The superstable token with decentralized peg delegation

The Nirvana protocol produces 2 native stores of value: NIRV , a superstable token, and ANA , a volatile metastable token. NIRV is a 2nd-order stablecoin that maintains its value of $1 through a fully decentralized peg. It is backed by a diversified basket of stablecoins, whose individual pegs strengthen & de-risk the peg for NIRV. By holding NIRV, you hold a superstable coin that is collateralized & stabilized by all others.

How it works

Nirvana’s native token ANA is a yield-bearing, volatile investment instrument – but with one key differentiator: a rising floor price. This permanently rising floor is made possible through the stablecoin collateralization of ANA. Every token of ANA is backed by a diversified reserve of stablecoins, and ANA can always be sold back to the protocol at the floor-price backing for the stablecoins in the reserves.

The floor price for ANA provides the token with a minimum intrinsic value . ANA can trade above the floor, but its value can never go beneath the floor price.

This minimum intrinsic value can be deployed as collateral for zero-risk loans at the floor price of ANA. Holders of ANA may lock their ANA in a Nirvana vault, and in turn mint an amount of NIRV equivalent to the floor value of the ANA they locked. When the floor value of ANA rises, users can mint additional NIRV. The maximum amount of NIRV they can borrow is simply the current floor price of their ANA.

When a user takes out a loan of NIRV, their ANA becomes locked as collateral. The user may retrieve their ANA by repaying the loan to the protocol, which in turn burns the NIRV and unlocks the ANA. They may then use their ANA freely as before.

Delegated peg

The Nirvana protocol stabilizes the value of NIRV through decentralized peg delegation . The stability of the NIRV token is derived from the stability of all other stablecoin implementations working together. This superstable token is not a specific algorithm for a stablecoin, but rather the combined, diverse forces of others. It is a 2nd-order stablecoin that is implementation agnostic.

NIRV is always treated as $1 from the protocol’s point-of-view. This dollar value is denominated in ANA tokens. For instance, if the spot price of ANA is $12, the protocol accepts 12 NIRV to purchase an ANA token. Similarly, an ANA token can be sold back for 12 NIRV tokens.

But an ANA token can also be sold back to the protocol of 12 USDH, USDC, wFRAX, or any other stablecoin in the reserves. This transitivity from NIRV to ANA and ANA to an arbitrary stablecoin opens up an arbitrage opportunity if NIRV wanders from its peg.

If NIRV trades beneath its peg, an arbitrageur purchases cheap NIRV, and uses it to buy ANA at a discount. They subsequently sell the ANA back to the protocol for a different stablecoin, and make a profit off of the arbitrage.

If demand for NIRV drives the price above its page, arbitrageurs have two options for acquiring inexpensive NIRV from the protocol and making a profit by selling it on the open exchanges:

  • They may buy ANA with a stablecoin of their choosing, sell the ANA to the protocol for NIRV, and then sell the NIRV at a profit on an open exchange.

  • They may buy ANA with a stablecoin of their choosing, lock the ANA, and take out a NIRV loan. They then sell the NIRV at a price higher than the peg. When NIRV trades back down to its peg, they buy the regularly priced NIRV and pay off their debt.

Use cases for NIRV

There are several straightforward use-cases for NIRV:

  • Leveraging exposure to ANA with zero liquidation risk . By locking ANA, a person may take out a loan of NIRV equivalent to the intrinsic value of ANA. They may then spend the NIRV to purchase more ANA. By repeating this process, they will increase their exposure to ANA. Since NIRV loans never exceed the value of the ANA collateral, there is no liquidation risk.

  • De-risking stablecoin exposure . Since NIRV is a decentralized stablecoin, it spreads out the inherent risk of stablecoins to a diverse portfolio. Stablecoin users do not need to yoke their capital to a single stablecoin, but instead can diversify their exposure to collateralized, centralized, and algorithmic coins alike.

  • Negative-interest loans . The locked ANA continues to return yield in the form of prANA tokens while used as collateral for NIRV loans. This results in a loan that has a “negative interest rate” – in other words, a yield bearing debt. People are free to hold NIRV as long as they wish, deploying it as they see fit, and earning yield on their collateral all the while.

Fees

Since NIRV is a 2nd-order stablecoin, or superstable coin, it does not require special fee infrastructure to maintain its peg (such as DAI “stabilization fee”). And since the loan amount never exceeds the intrinsic value of the collateral (ANA’s floor price), the loan will never be liquidated. And finally, since NIRV is minted just in time by the Nirvana protocol – and not taken from lenders – there is no need to make interest payments on the loan (in fact, the loan has a negative interest rate, in the form of prANA yield users receive on their locked ANA).

However, the creation of value with NIRV minting cannot be truly frictionless, otherwise the supply of NIRV would flood the market. There is accordingly one monetary policy fee set on NIRV to control its supply:

  • A one-time “loan origination fee” when minting NIRV, charged as a flat interest rate of the total loan. :white_check_mark:
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Lovely Thread :heart_eyes::heart_eyes::heart_eyes::heart_eyes:

Nirvana is a twin system of algorithmic wealth & ultra low-risk stablecoin on the Solana network. It produces the ANA token: an algorithmic metastable token that serves as a store of wealth, and the NIRV token: a decentralized superstable store of value.