Reserve-backed rising floor?

The Nirvana protocol owns the liquidity for ANA. Every purchase of ANA through the protocol’s central AMM locks liquidity into the AMM. This inbound liquidity provide sell-depth for sales of ANA back to the AMM. This liquidity is not “rented” from liquidity providers; it is held by the central AMM program.

The reserve backing for ANA is encoded in the special price curve of this AMM. The price curve ensures that the minimum price for ANA is at the floor. In other words, the AMM allocates liquidity at the floor price for all ANA tokens.

This backing for every token of ANA endows 1 ANA with a certain intrinsic value. The protocol will always be able to buy and burn 1 ANA for that value.

The promise that the protocol will always be able to buy ANA at a certain value creates a floor price effect for ANA. ANA will not be able to trade below this value, or at least it would not trade below it for long. If the floor price is $100, and a 3rd-party exchange is offering ANA for $97, then an arbitrage opportunity would swiftly cause the $97 price to correct back up to $100. An arbitrageur would buy ANA for $97, and sell it to the protocol for $100, netting a profit.

In order to maintain the intrinsic value for all ANA in supply, when the protocol buys ANA for its intrinsic value, it burns the ANA token. For example, suppose there are 10 ANA in supply, $1000 of value in the treasury, and a floor price set at $100. If the protocol buys back 1 ANA for $100, it will burn the ANA, reducing the supply to 9 ANA to match the new treasury value of $900. The intrinsic value remains the same ($10) after this purchase.

Composition of reserves

The reserves guarantee an intrinsic value for ANA, thereby providing a hard floor price. In order to provide this guarantee, the reserve assets must be extremely low-risk to the point of being as close to “zero-risk” as theoretically possible. If the value of the assets drops, then ANA would lose its backing.

The vast majority of assets in the reserve that back ANA will be stablecoins . Multiple kinds of stablecoins will be accepted, and the diversity of them will hedge against risk that any particular one would lose its peg. With this diversification, the floor price for ANA is extremely stable. The intrinsic value of ANA does not rest on a single stablecoin, but on a vast & growing basket of them.

Rising floor & the AMM

The intrinsic value of ANA changes over time, and only ever increases. The floor price can only “ratchet” up, and can never recede.

The floor is encoded in the protocol’s AMM price curve. The spot market for ANA allocates its liquidity such that there is always liquidity to pay back ANA at the floor price. Surplus liquidity gets re-allocated into raising the floor for all tokens.

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now we are in some type of bear market in general, but if we see how the protocol behaves in terms of price, I am happy that I trusted this project since the beginning.

It seems that we are still going up from this accummulation phase. The rising floor concept of Nirvana is something that gives me hope in this red days.