USD Neutrino

What is Neutrino USD (USDN)?

Neutrino is an algorithmic price-stable assetization protocol. It allows the creation of “stable” cryptocurrency tokens to be pegged to the value of real-world assets.

Neutrino USD is, therefore, a U.S. dollar stablecoin pegged to the value of the U.S. dollar via the Neutrino assetization protocol.

The volatility of popular digital assets like Bitcoin and Ethereum is often a disincentive when it comes to using them as a common currency or low-risk savings instrument. This issue has given rise to a whole host of stablecoins pegged to the world’s current reserve currency, the U.S. dollar.

Most stablecoins are backed by centralized entities that have to maintain sufficient fund reserves for the number of tokens on the market. Neutrino USD eschews this approach in favor of an algorithmic one, where a blockchain’s native tokens are locked in a smart contract.

What is the Neutrino Protocol?

In essence, Neutrino is a set of smart contracts deployed on the Waves blockchain that interact with each other. As a big part of the Waves ecosystem, Neutrino’s operations are easily accessible via Waves.Exchange, and the Waves Explorer can track Neutrino activities.

Neutrino smart contracts are also written using RIDE, the programming language created for the Waves protocol by its founding team.

What are Smart Contracts?

Smart contracts are pieces of code deployed to a blockchain and automatically executed when predetermined terms and conditions are fulfilled.

Since they are on the blockchain, they are immutable, meaning that they can’t be changed. Additionally, they are auditable by all, which means that users can read and review the code to make sure it will perform exactly as desired.

This allows users to trust the smart contract. The smart contract replaces a third party that needs to be trusted to facilitate a deal, such as an escrow account or a notary.

Notably, Waves smart contracts are unlike most others, as they do not require a gas fee to be paid. Instead, Waves-based smart contracts, including Neutrino’s, are subject to a minimal flat fee.

When Was Neutrino USD Launched?

Neutrino USD was launched in February 2020 by Sasha Ivanov, the creator of the Waves network.

Neutrino USD is also available as an ERC-20 token on Ethereum, but thanks to a community push titled #NeutrinoComingHome, availability on Ethereum is steadily decreasing.

The campaign began thanks to depegging events in external liquidity pools. These events were caused by the aggressive selling of the USDN token in these pools by large, highly-capitalized institutional entities.

How Does Neutrino USD Work?

Neutrino USD relies on a set of external oracles to ensure that it matches the price of the U.S. dollar. It also involves a new token, the Neutrino system base token (NSBT), which insures against diminishing reserves in underlying assets during periods of volatility.

The maximum capitalization and supply of USDB are limited by the maximum possible capitalization of WAVES tokens. These are used as the underlying assets for USDN collateral.

What Makes Neutrino USD Unique?

Neutrino USD is unique in its use of a three-token architecture, with USDN being the stablecoin backed by WAVES and NSBT.

USDN is generated via the Neutrino Protocol, which is a system of smart contracts that users interact with. Depositing WAVES with the protocol allows users to mint USDN, and arbitrage traders compensate for any deviation from the value of one dollar.

NSBT is the utility token of the Neutrino Protocol that stabilizes the reserves backing the USDN supply. NSBT tokens are generated using a special auction algorithm and liquidated by the Neutrino smart contract during a significant growth of WAVES capitalization and reserve balance.

When the price of the underlying asset, WAVES, goes up, the Neutrino smart contract detects an excess of reserves. It then generates a corresponding amount of USDN to buy back NSBT liquidation orders.

When the opposite happens and the price of WAVES falls, the smart contract generates NSBT via the auction algorithm and sells NSBT to buy WAVES for the reserve. The Neutrino USD whitepaper details this process.

How is the Neutrino USD Network Secured?

Neutrino USD is deployed on the Waves blockchain, which means it is dependent on the Waves’ Leased proof-of-stake (LPoS) consensus mechanism.

Like many proof-of-stake blockchains, Waves relies on economic incentives and disincentives to ensure nodes act according to the protocol. Full nodes have to stake a certain amount (currently 1000 WAVES) to be able to validate transactions on the network.

Besides the Neutrino smart contracts deployed on the Waves blockchain, Neutrino USD is reliant on three types of oracles to maintain operations:

• Price Oracles. The exchange rate of USDN to USD is determined by a system of external oracles querying highly liquid exchanges and OTC (over-the-counter) trading platforms.
• Emergency Oracles. Emergency Oracles, selected by large NSBT holders, have the authority to unilaterally shut the system down in the event of an attack. However, they have no other access within the system.
• Pacemaker Oracles. These oracles trigger transactions and process complex computations. If deployed on a non-Turing complete system, they are necessary for functions like loops, recursions, or auto-triggered transactions.

What is the Use of USDN?

USDN is a U.S. dollar stablecoin, meaning that it is a blockchain-based token but enjoys the relative short-term stability of the dollar.

The tokenization of U.S. dollars into stablecoins like USDN allows rapid movement of the currency and extremely fast settlement. This is vital in the world of DeFi, where traditional financial instruments and institutions can be avoided.

You can also use USDN to send money across the world fast and at a low cost. It also serves as an inflation hedge for users residing in countries that are in the midst of hyperinflation.

In a way similar to the use of fiat dollars in a savings account, USDN can be staked to generate a daily return.

Finally, USDN is used in Neutrino’s DeFo (Decentralized Forex) extension. This extension enables instant swaps between stablecoins tied to various assets, such as Neutrino Euro (EURN) and Neutrino JPY (JPYN).

DeFo, available on Waves.Exchange, provides a frictionless bridge between fiat and cryptocurrency. It also provides easy access to financial instruments to residents of countries where local banking systems are inadequate or offer unfavorable conditions.

Who Controls Neutrino USD?

Neutrino USD is operationally managed by Waves.Exchange. Besides this, Neutrino technology, marketing, and the neutrino.at website, along with customer support, are all carried out by Waves.Exchange. On-chain governance of the Neutrino protocol is handled by NSBT holders, who vote periodically on issues the community raises.

How Much Is USDN In Circulation?

USDN has a circulating supply of over 682 million USDN. Still, this figure is subject to constant change since it is an algorithmic stablecoin without any total cap or issuance.

How Do You Buy USDN?

The best places to buy USDN might be from within Waves on Waves.Exchange (since it’s a Waves ecosystem-based token) and Swop.fi. However, many other markets do serve the USDN stablecoin, too.

Centralized exchanges like KuCoin also offer trading in USDN, normally paired with USDT, and the same pairing is available on MEXC.

You can also purchase ERC-20 USDN on Ethereum-based platforms, such as Uniswap, Curve Finance, and Pancakeswap. Yet, these may be subject to the success of the #NeutrinoComingHome movement.

Is It Possible to Buy Neutrino USD Instantly?

The Waves blockchain settles transactions in seconds, so buying Waves on Waves.Exchange is practically instant. Using Ethereum-based decentralized exchanges may be slower since Ethereum can take a few minutes to settle trades.

Using a centralized exchange (CEX) platform is instant, especially if you want to hold and even stake your USDN on the CEX. However, withdrawing tokens from an exchange into your private wallet may be laborious due to KYC (Know Your Customer) and AML (Anti-Money Laundering) processes.

How Do You Store USDN?

Like all cryptocurrencies, USDN can be stored in a wallet. An exchange account could count as a wallet, but all the tokens present within are in the full custody of the exchange. Private storage, meanwhile, comes in two forms:

• Hot wallet. These need to be online in order to use them. They could be desktop clients or online/web wallets that store credentials with the online wallet provider rather than the user’s hardware.
• Cold wallet. Cold wallets keep private keys offline and out of the reach of potential attackers. They could be electronic devices not connected to the internet, paper, or some other physical copy of the private key.

Neutrino USD Energy Consumption

Neutrino USD is a token that exists primarily on the Waves blockchain, with an ERC-20 presence on Ethereum as well. That means it does not have its own blockchain and can’t really be accused of significant energy drain.

This puts Neutrino USD in significant contrast to the fiat dollar. The latter is an immense resource drain that includes printing facilities and security, vaults and storage facilities, transport, and so on.

Is USDN a Good Investment?

USDN is a stablecoin pegged to the dollar that doesn’t offer any real upside over the fiat dollar in capital gains terms, aside from potential arbitrage opportunities. That said, it does allow borderless and much faster transactions.

Traders can take advantage of USDN’s practically instantaneous settlement to quickly move into and out of various crypto assets and fiat currencies. Waves.Exchange’s DeFo is an interesting alternative to the traditional world of Forex trading. It operates far faster and more efficiently in settlement terms.

However, USDN is a dollar equivalent and can lose value as the dollar does. Therefore, it may not be a very good store of value given the dynamics of inflation and the money supply employed by central bankers.

What are the Risks of Algorithmic Stablecoins?

The collapse of the Terra Luna ecosystem in 2022 was a devastating exhibition of the risks inherent in algorithmic stablecoins.

While the design of Neutrino USD doesn’t exactly match that of Luna (now Luna Classic) or its stablecoins, it nevertheless relies on algorithmic means to ensure that the value of USDN retains parity with that of the U.S. dollar.

The Neutrino USD white paper, authored by Waves founder, Sasha Ivanov, and Aleksei Pupyshev, outlines the risk management approach of the Neutrino Protocol:

• Smart Contract hack. One of the biggest risks to the system, an emergency shutdown mechanism, was proposed to counteract a hack that exploits the deployed smart contracts. With this shutdown, risk can be mitigated, and USDN and NSBT users can withdraw the value they are entitled to from the protocol.
• Token reserve collapse. If the WAVES token loses value, the Neutrino protocol issues NSBT to cover the reserve deficit. In the event of a substantial crash in WAVES value, Emergency Oracles can unilaterally trigger an emergency shutdown of the smart contract system.

Furthermore, the Neutrino USD team had Beosin Technology conduct a smart contract audit, and the resulting report was published on the Neutrino website. Beosin used several methods, including Formal Verification, Static Analysis, Typical Case Testing, and Manual Review. Also, the Neutrino contract passed all audit items with Distinction.

Nevertheless, algorithmic stablecoins do present major risks, many of which may be unforeseen, and this is further acknowledged in the whitepaper. The authors state that it may be necessary to implement further defenses against pricing errors, DDoS attacks, and market irrationality.