NEPRIDAO will launch with support for a select number of US equities, and will decentralize ownership of its native governance token NEPT via a community-first distribution strategy.
To mint a NEPRI TFA (tAsset), an issuer must lock up > 120% of the current asset value in NEPRI stablecoins nYUSD OR tAssets as collateral. If the value of the asset rises above the collateralization threshold, the collateral is liquidated to guarantee solvency of the system.
To target the price of the tAsset, the system will read in underlying asset prices via a decentralized price oracle - prices will be updated every 20 seconds. When the price of the tAsset will drift significantly from the primary market, traders will be incentivized to purchase / sell the asset to mint / burn to claim the collateral.
To burn a tAsset, the issuer must burn the equal amount of tAssets issued when opening the CDP - the collateral is then returned to the issuer.
NEPRI TFA smart contracts will be built on Solana, Avalanche, Cardano, xDAI Stablechain, Ethereum, Polkadot, Binance Smart Chain (BSC), Huobi ECO chain (HECO), Kusama, Cosmos Blockchain, Ethereum Layer 2 solutions such as Polygon, and leverages nYUSD as the collateral asset.
Tokenized assets are blockchain tokens that behave like "reflector" versions of real-world assets by reflecting the exchange prices on-chain. They give traders the price exposure to real assets while enabling fractional ownership, open access, and censorship resistance as any other cryptocurrency. Unlike traditional tokens which serve to represent a real, underlying asset, tAssets are purely synthetic and only capture the price movement of the corresponding asset.
NEPRI tokenized assets provide the following advantages:
• Global Accessibility: In most markets outside of Europe & North America, access to foreign equities and forex markets is highly limited. Crypto allows global accessibility without entry barriers.
• Fractional Orders: In traditional finance, to execute a fractional order, multiple fractional orders are bundled together to execute a unitary transaction. The process of gathering all the orders into one requires additional waiting time. By utilizing the blockchain, orders volume is simply represented as a number on the blockchain, so there is no need for the intermediary bundling process.
• Nearly-Instantaneous Order Execution: Oftentimes due to the lack of liquidity (price-time-priority order book algorithm), orders can take up to a day to fully execute. Given the fact that NEPRI will rely on liquidity provided by each individual asset pool, orders can be executed as fast as the blocktime of the network (~ 5 seconds).
The first NEPRI TFAs will be NEPRI Token Fractional Stocks (TFS) We will provide a way to mint crypto assets that mimic the value of shares in publicly traded companies like Apple or Tesla. We are creating a way for retail investors around the globe to more easily participate in the U.S. and top equities market. NEPRI enables the minting of synthetics that trace equities and other traditional financial assets demanded by everyday retail investors, further integrating cryptocurrencies into the global economy. It represents a unique alternative to centralized exchanges and e-brokerage platforms, with 24/7, on-chain, capital-efficient minting, settlement, and trading of U.S. equities.
Investors worldwide have spent years trying to find ways to integrate cryptocurrency with traditional financial markets. The target market for the product is users outside of the U.S. One of the main value propositions of NEPRI is to grant 24/7 exposure to and fractional ownership of tokenized synthetic assets, such as US equities, to people who don't currently have an easy way to access these types of assets.
Named as tAssets, these tokens will track the price of U.S.-based equities in the real stock market, using an oracle system that’s able to check prices every six seconds. Much like MakerDAO, if a stock price were to go up against its underlying collateral, that could trigger a slashing event for a given crypto asset (unless the collateral depositor increases their stake). But U.S. equities also don’t tend to move as quickly as crypto.
The synthetic exchange Synthetix pioneered synthetic asset creation in crypto. To mint a synthetic on Synthetix however requires a 750% collateralization ratio in SNX tokens, due to the fact that its token is prone to the same volatility as most cryptocurrencies. Minting a synthetic stock on NEPRI, however, will only require users staking 120% of its value in NEPRI’s yield stablecoin nYUSD, thanks to the low-volatility of these assets. (These assets can also be minted using other tAssets as a stake, but they then require a 150% stake.) Those lower collateralization rates will make NEPRI more capital-efficient, though of course if a creator expects an equity’s value to rise, they will want to over-collateralize. Better capital efficiency goes hand-in-hand with another advantage NEPRI will create: decentralized options against U.S. equities. A permissionless platform for options against U.S. equities should be attractive for crypto’s growing retail market.
The retail investor is at the center of this growing demand for U.S. equities and global equity derivatives. The stock market is no longer the exclusive purview of Wall Street’s suits, whether in New York, London, Lagos, Mumbai, Johannesburg, Sao Paulo, Manilla, Nairobi, Mexico, Bangkok, or Tokyo.
NEPRI Community App will offer users exposure to the top American technology stocks. These synthetic assets will allow anyone with an internet connection to buy and sell Tesla, Apple, Twitter, and many other stocks as easily as Robinhood. Unlike Robinhood, however, NEPRI will be open to anyone in the world with an Internet connection.
Though U.S. markets have been the most lucrative and liquid globally, its exposure is limited to an American audience. High net worth individuals can easily navigate this barrier, and foreign investors can earn exposure through several different brokerage firms. Still, it’s a much different story for the rest of the population. Trading American assets can be extremely cumbersome for the retail investor.
Hence, the popularity of easy-to-use trading apps like Robinhood. The company has enjoyed headline after headline in 2020 as markets dipped and rose from all-time lows to all-time highs within just a few months.
The app attracted so many users that it has even crashed on several occasions, costing amateur traders real money. Burned traders are now turning to legal venues to recoup their losses. Robinhood users can also trade a handful of cryptocurrencies too. Unfortunately, this is only possible for U.S. residents.
Though there are several decentralized and centralized candidates, crypto has yet to launch an alternative that offers both crypto and equity trading on par with Robinhood.
Combining the ease-of-use, diversity of assets, all from a permissionless mobile app, is, for many, the final bastion of a truly global decentralized financial system.
The bounty for solving this pain point is massive, too. Robinhood has enjoyed staggering growth despite its limitations to a single country. The promise of Bitcoin and the rise of cryptocurrencies have been precisely this. As long as users have access to an internet connection, they will have access to liquid financial markets. Trading Bitcoin is one thing, but trading massive brand-named stocks like Google, Apple, and Tesla is still the pinnacle financial experience for many.
The potential for synthetic assets is extremely high, it’s not possible to invest in Google, for instance, if you live in India.
Already, firms like Bittrex, FTX Exchange, and decentralized protocols like Synthetix are tapping into this market. Instead of offering access to digital assets, each project now lets traders invest in synthetic versions that track the underlying stock price. Unlike derivatives contracts, synthetic assets can change who and what is traded on global markets.
The global market for existing assets sits at a large $5.5T but has limited access and can only be built upon existing assets. But imagine a world where anyone can trade any asset they can imagine. With synthetic assets you can trade anything from a synthetic Chinese Yuan, a synthetic S&P500, or any number of newly created assets. Perhaps you want to create an asset tied to the value of the United States Unemployment Report, or the number of Big Macs that McDonald’s sells each year in Peru. This is all possible when creating synthetic assets.
Challenges with Existing Synthetics: Today, some synthetic protocols already exist such as Synthetix and UMA. While they are early stage, they have amassed a marketcap of over >$1B combined showing the size of the addressable market. We think both Synthetix and UMA are promising technologies in this space that have their place, we just have philosophical differences on how to best solve the challenges of synthetic assets. Each of these existing protocols suffers from at least a few of these key risks: They require the use of their asset to underpin the issuance of the synthetic. This means the synthetics are overly tied in risk to a single asset. They are an adversarial money lock-up. In order to put your money into a synthetic asset, you cannot be using it elsewhere. In some cases (UMA) they also require the use of custom oracles that involve human arbitration. In the grand scheme, neither Synthetic or UMA have issued that many synthetic assets. If they can reach a combined marketcap of >$1b with these challenges, imagine what we can do by trying a new approach?
Synthetic assets are an important part of a decentralized ecosystem. They allow decentralized infrastructure to offer assets that track the price of any system. This means users could make synthetic assets that track either the price of BTC or the inverse price of BTC (creating a synthetic put). It also means you could track prices of stocks or other traditional assets, allowing users around the world to have trustless, decentralized, 24/7 access to stocks like $AAPL. Right now, existing protocols for synthetics (like Synthetix and UMA) require you to put your assets into a base token in order to collateralize the creation of your synthetic asset, taking on risk and losing you exposure to the underlying assets of your choice. Instead of this, we are allowing users to use their LP tokens to create synthetic assets, so they will still have their exposure to the underlying assets and the LP fees from that trade pair. Despite these inefficiencies the market for synthetics on Ethereum is already >$1B marketcap and >$1B TVL. We believe NEPRI TFA will increase that dramatically by making it practical to partake in synthetic asset creation.
There’s a pretty high probability that synthetic assets overtake traditional markets, permissionless venues will open American markets to a 7 billion global population.
NEPRI TFA will offer synthetic exposure to top stocks. It is decentralized, permissionless, and like crypto, open 24/7. NEPRI TFA will offer traders a simple app to close the loop finally.
With an elegant and intuitive user interface, NEPRI Community App’s trading experience will be comparable with Robinhood. Just as Robinhood made stock trading accessible to millions of Americans, we anticipate NEPRI Wallet could make US equities accessible to the billions of users worldwide who haven’t previously been able to participate in the US stock market.
Instead of fiat currency, these stocks can be purchased using NEPRIDAO’s native yield stablecoin pegged to the U.S. dollar, nYUSD. Later, the team will introduce both Bitcoin and Tether for purchases. Participants in NEPRIDAO can also vote to add additional assets to NEPRI TFA by staking NEPT tokens.
In light of this retail mania, cryptocurrency exchanges have also begun their foray into equity offerings. Building a bridge between crypto and traditional assets, FTX launched the trading of tokenized US stocks30. These tokens are:
• Fully reserved and redeemable on request, representing a claim on the underlying asset.
• Custodied by the licensed German financial institution CM-Equity.
• Traded on spot markets against US dollar stablecoins.
• Traded on leveraged futures markets, marked against the spot pair with unrestricted collateral (including BTC or ETH).
• Restricted to a set of popular technology stocks.
• Tradeable 24/7.
While not the first attempt at bridging the crypto-equity divide (Broker and Abra were first to market, but experienced major regulatory challenges), we are eager to monitor trading volumes and open interest over the coming year. The success or failure of FTX’s offering may signal the level of latent demand for equities within crypto alone.
DeFi’s emergence presents an opportunity to disrupt the legacy e-broker and expand traditional market exposure to anyone capable of using crypto. A decentralized and permissionless system to trade equities has a number of advantages over the e-broker model:
• 24/7 Trading - The ability to trade synthetic assets at any time of the day, regardless of market open or close.
• Decentralized Exchange - The ability to trade synthetic assets via on-chain DEXs, with the liquidity benefits of Automated Market Makers (AMMs)
• Protocol Composability - The ability to leverage/lend synthetic assets as collateral in on-chain lending/borrowing protocols.
• Transparent Fees - Understand exactly how fees are charged on trading and execution.
• No Counterparty Risk - Assuming correct protocol and oracle function, maintain exposure to an asset without centralised exchange risk
NEPRI TFA is a protocol for the creation and exchange of permissionless tokenized synthetic assets. We believe NEPRI TFA will bring the vision of crypto-synthetics to life. It is one of the few capital-efficient crypto-economic systems bridging traditional markets with DeFi, building on the TradDeFi paradigm.