Intro to Nexus
n.b. This short article assumes previous knowledge of Nexus Protocol and how it works. So far, the protocol is a yield optimizer and LTV (loan) manager for Anchor borrowed positions (bAsset vault) as well as Mirror Farming strategies (UST vault). You can read the Litepaper, Public Sale Disclosure, this ‘For dummies’ article, as well as visiting their website to find out more.
“Nexus will be the best farming opportunity for Luna and ETH”
Nexus already means no more getting REKT on bLuna or bETH borrow positions, but as Ernestas has pointed out on Twitter (The Nexus team didn’t get a chance to) “Nexus will be the best farming opportunity for Luna and ETH”. The full debrief is available on Hisoka’s Youtube stream.
Anyway, the story starts with the $Psi token distribution…
25% of $Psi supply allocated to “nAsset-Psi LP Incentives”
Basically, the Nexus team have allocated a crazy amount of the total $Psi supply to this Liquidity Pool. By adding this huge incentive $Psi rewards, it will be a no-brainer for nAsset holders to add their Liquid, yield-bearing assets to this LP.
How do nAssets yield Psi?
Before getting to the crux, it is pertinent to quickly remind the reader why nAssets yield Psi. bAssets deposited on Nexus’s Anchor Vault become nAssets, which yield $Psi after the earned ANC, UST and aUST on Anchor Earn and Borrow are used by the Protocol to buyback $Psi tokens, as per the flowchart below:
Liquid Yield-Bearing Asset : Yield Asset LP (nAsset : Psi): What does this mean?
This means, an additional layer of yield compounding.
When we have the nAssets and their yield tokens paired together in the LP, we end up in a situation where the $Psi rewards earned on nAssets creates a disbalance in the LP.
In turn, this created an arbitrage opportunity (which I am sure White Whale will take advantage of!!) to buy nLuna at a premium to re-balance the LP.
But since there is now more nLuna in the LP, this means that more Psi rewards are also available, which makes the cycle repeat again and again, leading to a net compounding effect of gainz!
And these are not only gainz on the smallcap $Psi token, but we are talking significant gainz on Luna and ETH.
Ernestas’ example: nLuna-Psi LP
In order to illustrate this ultimate compounded yield-bearing opportunity, we will use the example given to us by our Nexus guru, available on this Google doc.
1) In a 50 USD Luna world, where the price of Psi has managed to reach a whooping 0.5 USD, our starting LP would look as follows:
1 nLuna : 25 Psi
2) nLuna yields 8% in $Psi, creating a buy pressure of 4 $Psi on the LP after a year:
1 nLuna : 27 $Psi
3) Arbitraging (Like in Luna-UST) re-balance the LP leaving it as follows:
1.1 nLuna : 26 $Psi
4) As nLuna yields $Psi, more nLuna in the LP will compound on these gainz by repeating the 1), 2), 3) cycle:
1.1 nLuna : 26 $Psi
1.1nLuna : 28 $Psi
1.2 nLuna : 27 $Psi
Additionally, the following should be noted:
– This ignores the % Rewards from providing liquidity to the nAsset-Psi pool, which is currently at around 300%, increasing the incentive for arbitraging.
– This also ignores the inflationary incentives paid by Nexus Protocol, which account for 2.5 billion $Psi over 4 years (25% of 10 billion $Psi)
– This also ignores the fact that Nexus Protocol will gradually increase TVL in Anchor, open new vaults as the ecosystem matures and release its ‘Optimized LTV Mode’.
Conclusion
Our Nexus obssessed Guru Ernestas suggests it might be possible to get +100% APY on ETH and Luna, which as far as I know is unheard of in DeFi. “Nexus will be the best farming opportunity for Luna and ETH”, while creating additional incentives to buy $Psi and boost its price. This is only the beginning of Nexus, once the IBC is fully operational and there is opportunity to interact with other yield-bearing strategies elsewhere.
Disclaimer: Non of this content is or should be considered financial or investment advise. I am no financial advisor, I am merely a content writer using referenced open data and information to produce the best OC I can come up with for informative and entertainment purposes only. Also, I replicate my content on multiple platforms to make it visible to a larger audience. I originally published this article on Loop and may be accessed here.
