This protocol differs from other stablecoins, like Usual or Ethena, in that yield is derived primarily from OTC Locked Tokens, where the delta is fully hedged, and the remainder of the portfolio is deployed to Liquid Strategies to maintain sufficient liquidity buffer in times of capital stress.

NUSD maintains its peg through delta-neutral strategies, onchain transparency, and overcollateralization:

• Delta-Neutral Hedging: Derivatives and perpetual futures offset directional risk, keeping NUSD stable during market volatility.

• OTC Discounts: Discounted OTC asset purchases provide a safety margin, supporting the peg even in challenging conditions.

• Duration Matching: The protocol aligns asset and liability durations to ensure sufficient liquidity for redemptions.

• Liquid Reserves: Stablecoins (e.g., USDT, USDC, USDe) and liquid delta-neutral positions back NUSD, maintaining stability under stress.

NUSD is fully backed by a diversified portfolio of assets designed to provide security, transparency, and resilience.

Portfolio Composition - NUSD is backed by a mix of:

• OTC-acquired crypto assets: Purchased at significant discounts, providing a higher margin of safety.

• Stablecoins (e.g., USDT, USDC, USDe): Highly liquid and composable within DeFi and CeFi ecosystems.

• Delta-Neutral Positions: Liquid positions that generate yield while mitigating directional risk.

Transparency: All assets are confirmed using a combination of ZK-proofs, custodian attestations, and third party audits.

Risk Management Framework: The protocol employs a robust risk management framework that includes stress testing, margin monitoring, and proactive position adjustments to protect the backing assets and ensure their security.

If NUSD temporarily loses its peg, the protocol has several mechanisms in place to restore stability:

• Market Incentives: Arbitrage opportunities naturally arise when NUSD deviates from its peg, incentivizing traders and market makers to buy or sell NUSD and redeem against USDC 1:1 to bring its price back in line with its intended value.

• Delta Hedging Adjustments: The protocol adjusts its derivatives and perpetual futures positions to rebalance the collateral portfolio and stabilize NUSD's value.

• Reserve Deployment: Liquid reserves, including stablecoins and delta-neutral positions, can be rapidly deployed to support the peg and meet redemption demands.

• Proactive Adjustments to Backing: If market conditions are extreme, the protocol may temporarily scale down exposure to volatile assets or rebalance its portfolio to prioritize stability over yield. The combination of these measures ensures that NUSD can recover its peg efficiently, even during periods of high market volatility.

While the locked token strategy involves longer-term, illiquid investments, the protocol mitigates these risks through careful design, liquidity management, and diversification:

• OTC Discounts: Locked tokens are purchased at discounts, providing a safety margin even in adverse markets.

• Delta-Neutral Hedging: Market risk is reduced through hedging strategies, limiting exposure to price fluctuations.

• Diversified Portfolio: Locked tokens are balanced with liquid assets like stablecoins and delta-neutral positions, ensuring operational liquidity.

• Secondary Market Access: Partnerships with OTC brokers and secondary markets enable asset liquidation to generate additional liquidity.