Using diversified staking yields, money markets, and the NEP token incentives and governance, the Lucra Protocol composes a fully decentralized fixed-income instrument.
- 1.Governance sets the “Lucra Rate” … the “Lucra Rate” is the target APY Lucra seeks to pay out to depositors. A quorum of NEP governance token holders vote to set the `Lucra Rate` parameter.
- 2.Staking rewards make up the “real yield” … underneath the hood, Lucra implements the classical money market, with the caveat that whitelisted collateral is reserved for liquid staking derivatives of major PoS protocols. The collateral earns staking rewards, making up the real yield.
- 3.The "real yield" is stabilized around the "Lucra Rate" reserves and borrowing incentives help the real yield to converge to the Lucra Rate.
- 1.If real yield > Lucra Rate, the excess staking rewards are stored in a nYUSD denominated “yield reserve”. NEP incentives to borrowers drop by 10% every epoch (week).
- 2.If real yield < Lucra Rate, the yield shortfall is drawn down from the yield reserve until it is depleted. Additionally, NEP incentives to borrowers increase by 60% every epoch (week) until the real yield converges to the Lucra Rate.
Lucra Protocol can be subdivided into the below components:
Three types of users exist in the Lucra ecosystem: depositors (lenders), borrowers, liquidators, and NEP liquidity providers. Lucra also requires oracle feeders, critical for providing the necessary infrastructure.
In Lucra Protocol, depositors are incentivized to lend NEPRI nYUSD stablecoins to Lucra's money market, which is borrowed out by borrowers through lAsset collateralized loans. Interest paid by borrowers are given to depositors, along with subsidies generated from rewards of deposited lAsset collaterals. In addition, the protocol prevents borrowers from forming liabilities in excess of collateral value by incentivizing liquidators to observe and liquidate loans at risk of under-collateralization.
A Depositor is a user that lends NEPRI nYUSD stablecoins to the Lucra money market. Deposited stablecoins are pooled and lent out to borrowers, with accrued interest pro-rata distributed to all depositors.
Depositors receive newly minted Lucra NEP (lNEP) in exchange for their deposit. lNEP tokens represent a depositor's share in the stablecoin pool and can later be redeemed to claim the initial stablecoin deposit, along with accrued interest and depositor subsidies.
Borrowers are entities that create lAsset-collateralized loan positions to borrow NEPRI nYUSD stablecoins from the Lucra money market. lAssets that were whitelisted by Lucra can be deposited and locked to create a loan position. Positions are required to maintain a loan-to-value (LTV) ratio below the set maximum.
By borrowing, users can gain access to liquidity without losing price exposure to their lAsset collateral. Borrowers are recommended to keep a close eye on their loan position's LTV ratio, as loans with LTV ratios over the set maximum are subject to liquidation.
A Liquidator monitors for the existence of risky loans (loans with an LTV ratio above the set maximum) and requests loan collaterals to be liquidated if necessary. Before liquidating a loan, liquidators must submit a bid to the Liquidation Contract, offering to purchase the liquidated collateral in exchange for the liquidator's NEPRI nYUSD stablecoins.
Collaterals are liquidated by executing bids in the Liquidation Contract. Only bids that were submitted by the liquidator can be executed; the liquidator triggering liquidations must have a pre-existing bid submitted by them. On execution, the liquidator receives the collateral tokens at a discounted rate, and stablecoins in the liquidator's bid is used to repay the liquidated borrower's loan.
NEP Liquidity Providers are entities that provide liquidity to the NEP-nYUSD NEPRIswap Pair. They manage the initial bootstrapping of the exchange liquidity between NEP tokens and nYUSD. NEP exchange liquidity is critical as NEP tokens are distributed as borrower incentives, used to calibrate the stablecoin deposit rate.
An Oracle Feeder is a NEPRI account that is responsible for providing an accurate and up-to-date price feed for lAsset collaterals. Fed-in price data is used to calculate the collateral value of a borrower, also used as the reference price in the Liquidation Contract.
As an entity crucial for protocol operation, Lucra's oracle feeder is initially set as the creator of Lucra Protocol. Through governance, support can be extended to third-party oracle feeders as the protocol further matures.