After LUNA and UST collapsed, the keyword “stablecoin” became popular. Let’s take a look at another stablecoin model with CoinCu, namely the USN of the Near ecosystem, whether there is anything special or any improvement to help avoid the UST’s fall!
What is USN?
USN is an algorithmic stablecoin with a price balance mechanism similar to the UST coin of the LUNA ecosystem (to mint 1 USN, 1 USD worth of NEAR is required).
However, the difference lies in the fact that USN said that it completely has enough escrow tools and solutions to maintain a high and sustainable APY level for its stablecoin, which has become the fatal weakness of LUNA and UST.
Price balancing mechanism
As mentioned above, USN is created by using NEAR to mint this stablecoin at a 1:1 ratio. This means that 1 USD of “locked” NEAR value will mint 1 USN, and in the opposite direction, 1 USN can be converted to 1 USD of NEAR value. This article will go into depth explaining the use of the word “lock” NEAR instead of “burn” in the difference between USN and UST.
Similar to LUNA – UST, NEAR’s USN stablecoin will have the following balance mechanism:
- When USN < 1 USD: Users will be incentivized to buy USN on the market, deposit into the contract and take out 1 USD value as NEAR. Then sell this NEAR and benefit from the exchange rate difference. For example, NEAR costs 10 USD, USN costs 0.99 USD, now you spend 99 USD to buy 100 USD, put in the contract to get 10 NEAR -> sell these 10 NEARs for 100 USD, from there benefit 1 USD from the initial 99 USD capital.
- When USN > 1 USD: Users will be encouraged to buy NEAR on the market, convert to USN, then sell USN and enjoy the difference. Also, from the above example, when USN has a price of 1.01 USD, you spend 100 USD to buy 10 NEAR, mint out 100 USN, sell it, and earn 101 USD, thereby benefiting 1 USD.
What is the difference between USN and UST?
The first difference lies in the burning of the coordination coin. When creating UST, LUNA will be burned or removed from the supply. Meanwhile, USN is minted when NEAR is locked into the Reserve Fund. The fund will then implement staking Near into the network, generating revenue from staking, thereby helping to maintain interest on stablecoin USN.
The next difference lies in the Reserve Fund itself. Thus, in order to have USN, a certain amount of NEAR must be put into the Reserve Fund for security. This is contrary to the trend of LUNA, when this project mints UST on the market, then it starts to raise money to buy assets such as BTC, AVAX, etc., to put it back into the reserve fund.
Besides, in the beginning, this Reserve Fund will have a total value higher than the supply of USN in the market. In addition to Near being loaded into the fund to mint USN, there is also an amount of USDT available in the Reserve Fund to support the price of USN at the beginning.
Another point, also related to the Reserve Fund, is the difference in how the staking yield or APR interest is generated for stablecoins. Personally, for comparison, the Reserve Fund (with the management of the Decentral Bank) has a similar role to the Anchor Protocol.
Accordingly, both play the role of managing interest rates and generating revenue from yield staking activities. However, since the staking yield from LUNA’s Anchor is passive and depends on the borrower’s collateral, Decentral Bank’s staking yield will be activated right from the minting to the stablecoin.
USN’s risk
The first is that USDT is present in most of the conversion stages of USN. In the current USN roadmap, there is still no sign that the project will integrate USDC stablecoin (a personal currency I think is more secure).
Second, it is not clear when the USN supply grows large, the proportion of stablecoin backed by 1 USN decreases, or how the project will have a defensive way when NEAR can completely have strong volatility. Don’t forget, LUNA is also a link that causes UST to collapse quickly when attacked.
The third weak point is the turning point in the trading pools, where the UST was exposed and collapsed. USN needs to build a transaction pool system with a thickness of liquidity to avoid a large transaction, which can fluctuate the stablecoin rate later.
Conclude
USN is confirmed to implement 3Pool mechanism on AMM Trisolaris (in the Aurora ecosystem). Even so, liquidity on other ecosystems (besides Ethereum) has never been considered thick enough. And if it wants to really grow, Near’s team needs to think hard about how to close this gap.
Currently, USN’s supply is still in its infancy, with capitalization hovering around $20 million at press time. Therefore, attacking the USN at this point is almost impossible.
And above is some information, analysis as well as my perspective around USN – the stablecoin of the Near ecosystem. Hope the above content brings a lot of value to you! Follow CoinCu News for more market updates.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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Harold
CoinCu News
