Nectar Dollar v1
Nectar dollar necUSD is a fully decentralized, on-chain, delta hedged stablecoin built on Arbitrum.
Nectar uses the perpetual DEX's Vertex and GMX to initiate the short hedge and create a delta neutral position to issue necUSD against.
To create necUSD a user mints through the protocol. For example, a user has 1 ETH and they deposit it into the Nectar Protocol contracts. Nectar then uses the ETH as collateral to open a 1 ETH short on Vertex. After the trade is complete, the user is issued necUSD.
When a user wants to unmint necUSD, they reverse the process by sending their necUSD back to Nectar through our contracts. Nectar closes the open short position and then returns an equivilant dollar amount of ETH back.
In each part of the minting and unminting process slippage costs and fees are subtracted from the total value of the asset returned.
How We Generate Yield
Nectar earns yield from two sources.
The funding rate earned on an hourly basis from the short leg of the perpetual trade.
Staking Ethereum through an LSD such as stETH or sfrxETH
Funding rates are determined by the deviation of the perpetual price from the index spot price on perpetual exchanges. When the perp price is above the spot price, positive funding is paid by longs to shorts. When the perp price is below the spot price, negative funding is paid by shorts to longs.
On average, funding rates have historically been positive. While there are times that funding does go negative, the Nectar insurance fund will cover the costs.
What is Delta Neutrality?
Delta refers to a concept borrowed from options trading that measures the rate of change of the option's price relative to a one-unit change in the price of the underlying asset. Although futures contracts themselves do not have a delta per se, as they have a linear pay-off profile.
Being Delta Neutral simply means that the assets price volatiltity is reduced to 0 and fixed at a specific dollar value.
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