Decentralized Reserve Currency: What Is It and How Does It Work?
Decentralized reserve currencies are rising in popularity, disrupting the traditional financial system. Protocols like Nirvana are decentralized reserve currencies on the Solana network.
Nirvana takes this a step further, though. In a world packed with permanent losses, Nirvana promises a store of wealth backed by real value thanks to its unique mechanism. But what exactly is a decentralized reserve currency? Let’s see.
What Is a Decentralized Reserve Currency?
The term reserve currency refers to a currency that is essentially backed by a reserve. This is just like Central Banks, essentially, and how they manage currencies under their control using reserve assets. However, unlike banks, a Decentralized Reserve Currency manages its currency with cryptocurrency reserve assets maintained by the Decentralized Reserve Currency Protocol. This simply means that the price of the issued token is backed by a reserve and offers token holders the confirmation that the token’s value will not fall below a specific floor value.
In the case of Nirvana, the ANA token, which acts as its native token, is backed by a host of diverse reserves, managed and maintained by Nirvana. This ensures that the token has an intrinsic value guaranteed by the protocol.
The Nirvana Protocol – An Overview
The Nirvana protocol is a fully decentralized, trustless, and autonomous protocol. The team created a unique protocol that finds a neutral ground between inert stablecoins and free-flowing value. They’ve done this by having two tokens: one that serves as a store of value and the other as a store of wealth.
The Nirvana protocol connects the features of stability and volatility in the twin tokens: NIRV and ANA. The NIRV token is a static, decentralized stablecoin that acts as a store of value by concentrating and diversifying stablecoin liquidity. The ANA token is a volatile, yield-bearing investment instrument. But it also has a reserve-backed floor price that rises, making it less volatile than many other crypto assets.
In this way, the ANA token acts as a store of wealth, the price of which is stabilized by a rising floor price and is backed by a diversified basket of stablecoins. This means that the ANA token can never trade beneath the floor price. In addition, ANA generates yield through staking. ANA holders can stake their tokens with Nirvana and earn prANA reward tokens. prANA rewards allow holders to buy ANA at the current floor price.
The NIRV token is Nirvana’s superstable token that maintains its value through a fully decentralized peg. The stability of the NIRV token is derived from the stability of other stablecoin implementations that work in tandem. Nirvana pegs the value of the NIRV token as $1, so if the price of ANA is $12, Nirvana would accept a payment of 12 NIRV for 1 ANA token. In the event that NIRV trades below its $1 peg, it is purchased by an arbitrageur, then used to buy ANA at a discounted price, and then subsequently sold back to Nirvana.
The NIRV token has several use cases, such as:
- Leveraging exposure to ANA with zero risk of liquidation
- Reducing risk
- Negative interest loans
The Nirvana protocol operates with robust documentation, SDKs, and open-source code. It offers complete transparency as every component of the algorithm and assets in reserve will be available and explainable for the community. The core of Nirvana is thus sustainable growth with low volatility.
Nirvana Protocol’s Unique Mechanism: Two Tokens with a Rising Floor
Nirvana is a dual-token ecosystem that creates stable NIRV and volatile ANA, both supported by a rising floor.
Each ANA token is backed by a group of stable tokens stored in a protocol-owned reserve. As the reserve grows, the protocol will automatically raise the floor price for ANA tokens, which permanently locks in the gains. Holders can also sell their ANA tokens back to the protocol for the same floor price at any point in time.
On the other hand, NIRV is a second-order stablecoin maintaining its value through a fully decentralized peg. The token is backed by a diverse basket of stablecoins that strengthens and de-risks the peg for NIRV. Users can lock their ANA tokens and mint NIRV equal to the floor price of the ANA tokens.
The Nirvana team strives to create a sustainable engine for algorithmic wealth. The team is currently working towards designing and testing an array of new features for the product. Moreover, with its efficient solution to protocol-owned liquidity, the network also has endless upside.
Nirvana’s Fair Launch Auction officially went live on the 6th of April. Users wishing to participate in the launch can simply visit the Nirvana website and purchase ANA. Nirvana’s unique reverse auction adds an artificial boost to the token’s price, allowing the protocol to boost decays to zero. This approach will enable the auction’s seamless transition into its ordinary pricing function while discouraging front-running attacks and promoting fair distribution. The auction will end at 11:59pm UTC on 10 April 2022.