Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. Users are comfortable with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins.
Neverland aims to solve this by creating a free-floating reserve currency, HOOK, that is backed by a basket of assets. By focusing on supply growth rather than price appreciation, Neverland hopes that HOOK can function as a currency that is able to hold its purchasing power regardless of market volatility.
No, HOOK is not a stable coin. Rather, it aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, HOOK provides free floating value its users can always fall back on, simply because of the fractional treasury reserves HOOK draws its intrinsic value from.
Each HOOK is backed by 1 KUSDT, not pegged to it. Because the treasury backs every HOOK with at least 1 KUSDT, the protocol would be able to exchange HOOK at 1 KUSDT or above. This has the effect of pushing HOOK price back up to 1 KUSDT. HOOK could always trade above 1 KUSDT because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1.
You might say that the HOOK floor price or intrinsic value is 1 KUSDT. We believe that the actual price will always be 1 KUSDT + premium, but in the end that is up to the market to decide.
At a high level, Neverland consists of its protocol managed treasury, protocol owned liquidity (POL), bond mechanism, and staking rewards that are designed to control supply expansion.
Minting generate profit for the protocol, and the treasury uses the profit to mint HOOK and distribute them to stakers. With HOOK LP minting, the protocol is able to accumulate its own liquidity. Check out the entry below on the importance of POL.
(3,3) is the idea that, if everyone cooperated in Neverland, it would generate the greatest gain for everyone (from a game theory standpoint). Currently, there are three actions a user can take:
Staking and bonding are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding does not (we consider buying HOOK from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+1). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+1), while the good actor who moves price gets half of the downside (-1). If both actions are detrimental, which implies both actors are selling, they both get half of the downside (-1).
Thus, given two actors, all scenarios of what they could do and the effect on the protocol are shown here:
- If we both stake (3, 3), it is the best thing for both of us and the protocol (3 + 3 = 6).
- If one of us stakes and the other one bonds, it is also great because staking takes HOOK off the market and put it into the protocol, while bonding provides liquidity and DAI for the treasury (3 + 1 = 4).
- When one of us sells, it diminishes effort of the other one who stakes or bonds (1 - 1 = 0).
- When we both sell, it creates the worst outcome for both of us and the protocol (-3 - 3 = -6).
As the protocol controls the funds in its treasury, HOOK can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 HOOK with 1 KUSDT. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy HOOK below 1 KUSDT with the treasury assets until no one is left to sell. You can't trust the FED but you can trust the code.
As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.
Neverland owns most of its liquidity thanks to its mint mechanism. This has several benefits:
- Neverland does not have to pay out high farming rewards to incentivize liquidityproviders a.k.a renting liquidity.
- Neverland guarantees the market that the liquidity is always there to facilitate
- By being the largest LP (liquidity provider), it earns most of the LP fees whichrepresents another source of income to the treasury.
- All POL can be used to back HOOK. The LP tokens are marked down to their risk-freevalue for this purpose. You can read more about the rationale behind this in this Medium article.
It is extremely important to understand how early in development the Neverland protocol is. A large amount of discussion has centered around the current price and expected a stable value moving forward. The reality is that these characteristics are not yet determined. The network is currently tuned for expansion of HOOK supply, which when paired with the staking, bonding, and yield mechanics of Neverland, result in a fair amount of volatility.
HOOK could be traded at a very high price because the market is ready to pay a hefty premium to capture a percentage of the current market capitalization. However, the price of HOOK could also drop to a large degree if the market sentiment turns bearish. We would expect significant price volatility during our growth phase so please do your own research whether this project suits your goals.
When you buy and stake HOOK, you capture a percentage of the supply (market cap) which will remain close to a constant. This is because your staked HOOK balance also increases along with the circulating supply. The implication is that if you buy HOOK when the market cap is low, you would be capturing a larger percentage of the market cap.
Rebase is a mechanism by which your staked HOOK balance increases automatically. When new HOOK are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see CLOCK (staked HOOK) balance instead of HOOK, the protocol utilizes the rebase mechanism to increase the CLOCK balance so that 1 CLOCK is always redeemable for 1 HOOK.
Reward yield is the percentage by which your CLOCK (staked HOOK) balance increases on the next epoch. It is also known as rebase rate. You can find this number on the Neverland Staking Page.
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of Neverland, your CLOCK (staked HOOK) represents your principal, and the compound interest is added periodically on every epoch (8 hours) thanks to the rebase mechanism.
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a daily compound interest of 2%, if you start with a balance of 1 HOOK on day 1, after a year, your balance will grow to about 1377. That is a lot!
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
The number of HOOK distributed to the staking contract is calculated from HOOK total supply using the following equation:
Note that the reward rate is subject to change by the protocol.
As illustrated above, your HOOK balance will grow exponentially over time thanks to the power of compounding. Let's say you buy an HOOK for $400 now and the market decides that in 1 year time, the intrinsic value of HOOK will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 HOOKs by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for HOOK now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your HOOK balance to grow exponentially and make this a worthwhile investment.
There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every HOOK with 100 KUSDT, the intrinsic value will be 100 KUSDT.
Let’s say the protocol targets an 1,000,000% APY, this would translate to a daily growth of about 2.56%.
If there are 100,000 of HOOK staked right now, the protocol would need to mint an additional 2,555 HOOK to achieve this daily growth. This is achievable if the protocol can bring in at least $2,555 of daily revenue from bond sales. If protocol fails to raise that much of revenue, reward yield can be adjusted to secure long enough runway.
No. Once you have staked HOOK and received CLOCK with Neverland, your CLOCK (staked HOOK) balance will auto-compound on every epoch. That increase in balance represents your rebase rewards.
Neverland used minting instead of bonding since we thought there are few people who has experience of trading bonds but most of the crypto traders should be familiar with mint, which means creating a new coin/token. However, it works perfectly same as bonding on OlympusDAO.