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Marketplace

In addition to modulating the NEB token incentives for rebalancing which enable the proper function of clusters, Nebula also manages a decentralized marketplace for cluster tokens, using the Terraswap as an automated market-maker (AMM) for liquidity pools.

While cluster tokens are expected to trade on a number of different exchanges, Nebula's default cluster market is considered the base layer marketplace recognized by the protocol. Nebula Protocol provides NEB token rewards to incentivize users to participate in maintaining market liquidity and price-parity.

Mechanisms#

Cluster Token Liquidity#

To facilitate a positive trading experience, the default marketplace for cluster tokens must aim to ensure the asset pools are liquid -- i.e. the market has a sufficient amount of capital to sustain healthy trading activity. To this effect, Nebula Protocol provides NEB tokens as an incentive to users who provide liquidity to Cluster Tokens against UST.

To do so, users will can provide Cluster Tokens and UST to Terraswap, and stake the received CT-UST LP tokens to earn a portion of the new NEB tokens released into the supply per block. LP tokens that are staked can be withdrawn anytime with no time delay, and used to withdraw liquidity back from the pool. It is important to note that this operation is affected by "impermanent loss" and you can potentially receive liquidity of notional value less than what you started with.

Rewards#

Once a user has staked their CT-UST LP tokens, they will begin accruing rewards every block. The rewards for LP stakers come from new NEB tokens released into circulation by the protocol, which is determined by the NEB token distribution schedule. The supply will be inflationary until it reaches the cap, after which no new NEB tokens will be introduced.

Each Cluster Token has a weight associated with it, which determines how many NEB tokens it receives out of the NEB tokens introduced per block. A user who stakes CT-UST LP tokens earns NEB tokens from each of the Cluster Token staking pools they contribute to.

How much NEB tokens each user who stakes CT-UST LP tokens is dependent on several factors which can be modified by governance:

  • the reward weight of the particular cluster
  • user's share of CT-UST LP out of total for that staking pool
  • NEB token distribution schedule

In general, a user can expect to continuously accumulate NEB token rewards proportional to the size of CT-UST LP deposited, for each cluster for which they provide CT-UST liquidity.

Arbitrage#

Another property that Nebula's default marketplace aims to preserve is price-parity between a unit Cluster Token and the underlying assets in the cluster's inventory, known as the NAV (net asset value). Since Nebula Clusters are continuously rebalanced by users performing CREATE / REDEEM operations every block, the cluster token's price is expected to converge toward the theoretical NAV, within a small band of error. As cluster tokens can be redeemed for the underlying assets, arbitrage pathways can exist.

In addition to the profit generated from arbitrage, Nebula Protocol will also provide a NEB token reward for users who performing the arbitrage operation, implemented through an incentive campaign.

CT Price > NAV#

If the Cluster Token price is greater than its NAV, users are incentivized to bring its price down by increasing selling pressure of the Cluster Token on Terraswap. A user can use UST, purchase assets on Terraswap in appropriate amounts to issue a CREATE operation to mint new CTs, and then sell those CTs on Terraswap for UST, earning a profit (assuming the arbitrage is successful).

Instructions for performing this on the web app can be found [here].

CT Price < NAV#

If the Cluster Token price is less than its NAV, users are incentivized to bring its price up by increasing buying pressure of the Cluster Token on Terraswap. A user can use UST to purchase Cluster Tokens on Terraswap, redeem those assets, and sell them on Terraswap for UST, earning a profit (assuming the arbitrage is successful).

Instructions for performing this can be found [here].

Rewards#

Like the LP reward mechanism described in the section above, Nebula Protocol rewards users who perform arbitrage with NEB tokens proportional to the amount of liquidity used in the operation. Users must perform the arbitrage through the Nebula Incentives campaign, which tallies up the notional value of arbitrage liquidity per user each week and distributes rewards proportional to their contribution.