Elastic Supply
Elastic Supply. Stable Price.
nYUSD works differently than most tokens. Instead of the price increasing as the value of the assets under management increase (as with Compound cTokens or Yearn yTokens), the value of one nYUSD remains constant at approximately $1. Instead, the contracts constantly adjust the monetary supply and automatically updates the balance in every token holder’s wallet to reflect the yield that has been earned by the protocol.
Think of it as interest accruing in your bank account. The unit of account and value for the US dollar doesn’t change. You just get more US dollars over time as you earn interest.
This mechanism was inspired by the approach taken by Ampleforth, but there are some key differences that are worth highlighting:
nYUSD is 100% backed by other stablecoins and does not have the same challenge maintaining the peg to the dollar. Given the ease of minting and redeeming nYUSD, we can count on arbitrageurs to ensure the peg is maintained.
nYUSD rebasing will only increase supply since the amount of nYUSD minted is tied to the realized gains earned by the underlying strategies. Your principal is protected as long as nothing goes wrong with the underlying lending/AMM and stablecoin protocols. Your nYUSD balance will never decrease, but the value could drop if there's a failure in the underlying systems.
Unlike Ampleforth, which rebases once a day, the monetary supply of nYUSD is constantly being updated in real-time as yield is generated. Rebases are triggered regularly as users interact with the nYUSD contracts.
Manually triggering a rebase
Anyone will be able to trigger a rebase at any time by calling the rebase function on the vault. They will do this by connecting a web3 wallet.
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