USN vs. UST: what are the differences between stablecoins?

USN | Encrypted | In this article:

Translation of material USN – the Ultimate Alpha of NEAR

USN is the native stablecoin of the NEAR protocol, which is pegged to the US dollar. Its emission takes place by depositing NEAR tokens into the Reserve Fund. But reverse conversion is also possible: USN can be exchanged (burned) for NEAR at the current NEAR/USN rate.

For additional support, USDT will also be deposited in the reserve fund. This will give the stablecoin an over-collateral (i.e., the fund’s monetary volume is greater than the issuance volume).

The lion’s share of the reserve fund will go to generate income for USN holders.

Staking vs. Burning

The USN stablecoin has an important difference from the UST algorithm from LUNA. It is minted in the process of “swapping” with NEAR tokens, not in the process of burning.

That is, we use NEAR for minting, and then we stake these tokens on the NEAR blockchain to receive staking rewards.

The bottom line is that USN minting/burning does not change the amount of NEAR in circulation. This principle protects the underlying economic security of the blockchain. Also, the NEAR tokenomics is improving due to distributed staking in the Reserve Fund.

Experts have previously warned that UST from LUNA there is a potential death spiral. After all, if UST loses its peg to the dollar, users in response burn UST for LUNA minting (which means they increase the number of LUNA tokens in circulation). More tokens in circulation – higher inflation – lower rate. And so it happened. More selling pressure led to the collapse of the UST.

USN has a different mechanism, so the stablecoin itself will not have a noticeable impact on the stability and security of NEAR. After all, when burning USN, the number of NEAR tokens does not increase, this does not lead to inflation.

NEAR ranked third among the fastest growing developer communities in the entire digital asset ecosystem even before the release of the USN stablecoin. There are already more than 500 projects in its thriving ecosystem.

organic farming

The minimum APY for USN holders will be ~11%. This is the current NEAR staking PoS reward rate.

However, in the future, APY for stablecoins will be higher than the base reward in PoS (and we will explain everything in detail below).

The bottom APY rate is completely organic, with no central injections or artificially high interest rates on loans. It is based on the claims of USN holders when applied to the NEAR Reserve Fund.

Staking rewards are generated every epoch or approximately every 15 hours, automatically converted to USN and distributed among the holders. This makes APY USN sustainable in the long run.

USDT in the Reserve Fund

The first billion issuance of USN stablecoins will be backed by USDT on a 1:1 basis. This is an amount in addition to the $1 billion worth of NEAR tokens staked on the USN Decentral Bank protocol.

USDT in the Reserve Fund guarantees over-collateralization of USN and will protect the stablecoin even in case of critical fluctuations in the NEAR price.

20%+ income for USN holders

Let’s talk about what everyone is really interested in: how to get a 20%+ return on top.

Index USN<>NEAR

The company will contribute 100 million NEAR to the USN contract and stake to generate rewards.

We understand that USN’s market capitalization will be below this amount for an extended period of time (100 million NEAR is valued at over $1 billion at current NEAR exchange rates). This means that 1 USN is a NEAR-generated staking reward worth more than $1 billion.

For example, if more than 50 million NEAR are staked in a contract, but only 100 million USN is in circulation, and the price of NEAR is $12, then the effective APY for USN holders will be over 120%!

Yes, you read it right. 120%!

The USN<>NEAR index will increase as more USNs are issued. But this will not necessarily lead to a decrease in rewards.

Initially, minting more USN will put more NEAR into the pool, which will be staked to generate more rewards. But another point is more interesting: how can we stake tokens in different DeFi products with the same USN, like a Lego constructor.

Lego Staking and Lending

Lego staking is possible through lending, perpetual swaps, LP and leverage.

USN will be accepted as collateral in lending protocols such as Burrow, Bastion, Aurigami and Pret (which will be launched soon). Demand for the service will be strong as long as the cost of credit is lower than USN rewards. The loans, in turn, will increase the APY percentage for USN, which will bring 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, we will set the APY in staking rewards to 20%, the interest rate to 30%, and the USN liquidity rate to 15%. And the additional reward from BRRR APY will be 5%. This means that a USN holder can end up earning 40% per annum simply by lending their stablecoins. Even borrowers will earn 10% net annual income by borrowing USN for the site.

200% APY with 10x USN leverage

Why get only 40% when you can take 200% with safe leverage?

USN holders will have their own “degen boxwhere 10x leverage on USN loans is just one click away.

DEX

USN pairs with other stablecoins will be the deepest liquidity pools on NEAR. In them, LP token holders will be able to simultaneously receive USN rewards, transaction fees and farming rewards.

Things will become even more interesting when income-generating tokens are accepted on DEX exchanges, and LP tokens are accepted on lending protocols as collateral. You will be able to sum up the landing and rewards for LP tokens together.

For example, if someone stakes cUSN and cUSDT in the Bastion stableswap, it assumes a 20% annualized transaction fee and a 20% BSTN farming reward. As a result, the total income will be 60% APY.

PERP

The NEAR ecosystem will soon launch the first DEX with perpetual swap. Why use USDT as collateral when you can open positions with USN as margin and earn rewards while trading?

The highly profitable nature of USN will greatly expand its usefulness and make it the dominant stablecoin on NEAR.

What then to do with NEAR tokens?

Well, alpha testing might take longer than you thought…

The number of NEAR coins in circulation (circulating supply) is 674 million. Of these, 450 million or 67% are already staked in the blockchain.

As we wrote above, another 100 million NEAR will be gradually added to the fund to provide USN. Then they stake, which means that another 15% of circulating supply will leave the market. At the same time, the demand for NEAR will continue to grow, because now it is the fastest growing L1 ecosystem with many cool opportunities to generate income in DeFi and NFT.

The more active the growth of network activity, the more NEAR tokens will be burned on transaction fees. And the more coins will be locked as TVL in the network.

That’s where APY comes from. You know what happens when limited supply meets explosive demand.

Rewards drive demand for USN, not just NEAR

As soon as USN rewards are launched, people will start actively buying USN, which will raise the price of USN in liquidity pools. The USN peg mechanism automatically incentivizes people to mint USN with NEAR to bring the price back to $1. This creates a higher demand for NEAR. The NEAR token is staked, removed from the market, and the reward is paid to USN holders.

Why sell NEAR to the market when you can mint USN?

USN allows NEAR to be sold without slippage. That is, we have the effect of zero-slippage, when a trader does not lose on the difference in prices when concluding a deal.

If Bob wants to profit from his 1,000 NEAR on the network, he would have to swap NEAR<>USDT, which would result in a slippage of about 0.2%. With USN, Bob can now mint USN using NEAR and have zero-slippage. Then, if he needs to exchange USN for USDT, then there will be very little slippage – less than 0.01%. Bob gets his profit, but hasn’t sold any NEAR to the market!

NEAR Future Return Stream Trading

USN is essentially the hallmark of the NEAR staking reward. That is, the stream of future yield. This makes it not only a stablecoin, but also a financial primitive for building more complex NEAR portfolios with hedging, leverage, etc. All this will be possible when USN moves to multichain.

Frequently asked Questions

What is USN?

$USN is NEAR’s stablecoin, which is quoted at parity with the US dollar. It is backed by a reserve fund, which consists of two assets – $NEAR and $USDT.

What is Staking?

A type of passive income when a client allows funds to be frozen in a wallet or on an exchange to support the operation of the blockchain, and in exchange receives a reward. It’s kind of like a bank deposit.

What is a stablecoin?

A type of token that combines the characteristics of cryptocurrency and fiat money. It works on blockchain technology, but the stablecoin rate is tied to specific assets – currencies, precious metals, etc. The most popular stablecoin is Tether (USDT), which reflects the exchange rate of the dollar.

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Author of articles on trading and investments, which I have been doing for more than 8 years. Even from your phone, you can open a deal, buy shares, build up capital in assets that will bring dividends even when you stop working. You can't just not think about it.

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