Protocol Balance
Last updated
USDN Protocol
Last updated
The USDN Protocol is permissionless, meaning that users can mint or redeem USDN, as well as open or close Long positions at any time. This freedom of action implies that the Protocol is never static and remains in constant motion. To maintain balance and ensure that the price of USDN stays close to $1, we have designed the Protocol to naturally seek this equilibrium at all times.
To achieve this goal, we have implemented mechanisms such as the Funding Rate, which continuously adjusts participants' positions to encourage stability. Additionally, safety measures such as the Dip Accumulator are integrated to prevent excessive imbalances, ensuring the robustness and security of the Protocol for all users.
In this section, we will begin by defining what we mean by the state of equilibrium in the USDN Protocol. We will then explain how the Funding Rate encourages the Protocol to move toward this equilibrium, while the Dip Accumulator prevents sudden imbalances. Finally, we will discuss the protective measures in place to guarantee the Protocol’s stability.
The USDN Protocol is considered to be in equilibrium when the two sides—the USDN Vault and the Long positions—reach an equivalent value. To assess this equilibrium, we measure each side as follows:
USDN Vault balance: This is the total amount of assets held in the USDN Vault.
Trading Exposure on the Long Side: This is the difference between the Total Exposure of the Long positions and the collateral provided by users at any given time. For example, if a user deposits 1 asset unit as collateral with 4x leverage, this results in a Total Exposure of 4 assets. The Trading Exposure will therefore be 3 assets (4 - 1 of collateral). In other words, the Trading Exposure is the "synthetic" or "borrowed" part of the position, whereas the collateral is the "real" or "owned" part. It should be noted that the collateral value changes over time as Profits and Losses or Funding Rates increase or decrease the value of each position. However, the Total Exposure is defined when the position is opened with the initial collateral and initial leverage, and doesn't change over time.
The protocol is in a perfect state of equilibrium when there is the same amount of assets in the USDN Vault as in the Trading Exposure of all Long positions. This means that the assets borrowed by the Long positions is backed one-to-one by assets in the Vault.
