1 USN is always backed at 100% by NEAR + stables in the Reserve Fund.
You can mint 1 USN against $1 of NEAR & earn at least 10% APY (Reserve Fund yield).
How does it work and is it superior to #Luna/#UST?
YES.
Why? A thread π
2/ What is $USN?
A fully collateralized, algorithmic NEAR-native stablecoin pegged to the US dollar.
It uses on-chain smart contract for NEAR/USN arbitrage like UST and StableSwap pool with other stablecoins (swap USDT for USN).
How does it match against other stables? π
3/ There are 4 types of stables:
1. Backed by the actual US dollar: #USDT, #USDC = centralized 2. Backed and collateralized by crypto: #DAI = capital inefficient 3. Semi-algorithmic: #FRAX = low adoption 4. Fully algorithmic: #UST = on-chain peg stabilization
USN? π
4/ USN uses an on-chain smart contract to issue USN and maintain its peg similar to how UST / Luna works:
1. You exchange NEAR to get USN. 2. You exchange USN to get NEAR.
But there is a catch here which makes USN better than Luna / UST and DAI! π
5/ NEAR is NOT burned to issue USN (compared to Luna), instead, it is placed in the Reserve Fund to 100% back all USN in circulation including with other stables + generate yield!
USN is also capital efficient compared to DAI + decentralized!
USN is fully backed, UST is NOT! π
6/ While USN / NEAR start as fully collateralized, UST is only now trying to build a reserve in BTC & other coins!
UST is issued on LEVERAGE, while USN is always BACKED!
The NEAR reserve can always buy back the entire issuance of USN!
7/ The Reserve Fund (that includes USDT) is a buyer of last resort.
What will it buy? NEAR to ensure USN is BACKED at 100%.
UST does NOT have this feature built into its mechanism & the Terra reserve needs another $16 bil today to catch-up to UST market cap!
Is USN perfect? π
8/ No.
But at least USN is backed!
Even if NEAR price crashes, the Reserve Fund will have other stablecoins (USDT) to buy NEAR and ensure price does not crash below a certain threshold to put in danger the solvency of USN.
You cannot say that about UST!
USN adoption? π
9/ USN will boost adoption by paying at least 10% APY to depositors based on the Reserve Fund yield (paid via NEAR stacking at ~10% APY, real yield could be higher).
This APY will likely sit at 10% as its market cap / depositors grow.
Is this yield better than UST? π
10/ Not in the near term.
But UST yield on Anchor will start falling as of May 1 from 20% to 18.5% and so on.
Considering UST is not backed, USN is a superior stablecoins with all the benefits!
Are there risks holding USN? π
11/ The biggest risk is smart contracts bugs, hacks and so on.
The peg will likely hold well, similar to UST.
If a bank run happens, USN is much better placed to hold its peg compared to UST that only has 10% backing!
Will NEAR pump? π
12/ NEAR is not burned, but rather staked = the impact on NEAR price is still bullish as USN market cap grows.
However, NEAR's price can still crash if a lot of USN exits the ecosystem. Similar to UST / Luna.
But the USN Reserve Fund guarantees a floor price.
"...algorithmic stablecoins arenβt necessarily backed by any assets at all. Instead they rely on financial engineering to maintain their link to the dollar. Some have failed, saddling investors with losses."