In the evolving landscape of decentralized finance (DeFi), risk management and protocol security are paramount. nftperp v2 introduces a sophisticated insurance fund to address these critical needs. This insurance fund acts as a safeguard against system debt while providing yield-generating opportunities for Liquidity Providers (LPs), thereby bolstering the protocol's financial integrity.
Security for the Protocol
The insurance fund is denominated in ETH and is designed to manage bad debt resulting from liquidations and protocol-level risks within the ClearingHouse. Operating as an ERC4626 Vault, the fund allows for straightforward liquidity contributions. In exchange, LPs receive an appreciating ERC20 token that reflects the protocol's profits.
Key Features:
Denomination in ETH: Ensures compatibility and ease of use within the Ethereum ecosystem.
ERC4626 Vault: Facilitates liquidity contributions and offers LPs an appreciating ERC20 token as a reward.
Incentives for Liquidity Providers
To incentivize participation, the insurance fund offers several attractive benefits for LPs:
Transaction Fee Allocation:
DLOB (Decentralized Limit Order Book): LPs earn 50% of the 30 basis points (bps) paid by takers per order filled by the DLOB, equating to 15bps.
AMM (Automated Market Maker): LPs receive a 16.67% share (5bps) of the orders filled by the AMM.
Liquidation Residuals:
LPs gain 50% of the leftover value from liquidated positions, which enhances the fund's ability to cover potential shortfalls.
Staking and Unstaking Mechanism
LPs can stake into the insurance fund at any time, minting NIP tokens in return. NIP, the insurance fund receipt token, represents a user's stake in the fund. Here are the key details:
Entry Fee: A 0.1% entry fee is required for staking, ensuring that the base balance of the insurance fund gradually increases over time.
NIP/WETH Ratio: The initial ratio is 1:1, which changes based on WETH inflow. More WETH inflow from fees and liquidations increases the value of NIP against WETH, while outflow for bad debt decreases it.
Lock-up Period: Contributions are locked for a minimum of 48 hours, ensuring stability and alignment with LPs' interests.
Withdrawal Period: After the lock-up period, LPs can withdraw their WETH and accrued rewards, following a 48-hour withdrawal window. Withdrawing WETH burns the corresponding NIP.
User Interface and Participation
To facilitate ease of participation, the nftperp user interface incorporates features that make it simple for LPs to stake and unstake their contributions. This promotes both financial benefits for LPs and the overall robustness of the nftperp ecosystem.
Contract Address
For those interested in participating, the insurance fund contract address is: 0x087E8C29d0743120A9b9d003F702FB7F450291ba.
By integrating these comprehensive features, nftperp v2's insurance fund not only enhances protocol security but also offers significant incentives for liquidity providers, ensuring a balanced and secure DeFi environment.