Audit Process Starts Next Week
Greetings, Numans! It’s been a while since our last development update, so thanks for your patience during this time. We’ve spent the past couple of months working on upgrades to the system—which weren’t in the original requirements—so the timeline has been a bit up in the air as we’ve worked through these details. At this time, we are happy to report that the audit process will start next week. The first part of the process is to conduct a private audit/bug bounty with the same security researcher we used for the bounty on the original vault back in February; he is a core developer and security researcher from Yearn and an accomplished auditor. The results of this will inform the next stage of the audit process—e.g., whether we proceed with Sherlock or another bug bounty, etc.
Upgrades Overview
The upgrades are new requirements that could come into play when the system is under great stress. Our goal for the final completion of the numa protocol is for it to be entirely decentralized and self-sufficient, and these upgrades cover the most extreme and unlikely market conditions. We will be updating the whitepaper to include these details over the coming days, though most of the high-level information can be found here.
The main component for the health of the numa protocol is the ratio of synthetic debt to the value of the vault. For example, a healthy numa protocol that pays high yield on staked nuMoney synthetics might have a vault value of $1,000,000 and a synthetic debt value of $300,000: this would mean a utilization of 30%. Conversely, an unhealthy, risky numa protocol that pays low yield on nuMoney synthetics might have a utilization of 90%. The collateral snowball and the seesaw mechanics should be enough to protect the protocol under stress, but we wanted to be extra safe for extreme levels of stress. (More information on these specific topics can be found on our X and will be added to the whitepaper with the updates).
So, what was added? These are the five new mechanisms, generally in the order in which they will be triggered:
Leverage and loans charge 0% interest up until a certain percentage of the vault value is utilized. If the percentage gets too high, then the loans start to be charged interest with the purpose of encouraging people to pay back loans and decrease the percentage used. The “seesaw” works alongside this and each of the following methods, since the yield of nuMoney synthetics will decrease as the utilization increases, while the loan interest increases. In addition to encouraging users to pay back their loans, they will be incentivized to unwind nuMoney positions, since they will have become higher risk and lower yield.
The next mechanism implemented will block users from minting nuMoney synthetics. Users will still be able to unwind synthetics back to the NUMA token at 1:1 or sell them on the market, but blocking the minting of additional synthetics should stop the ratio from getting worse and further encourage people to unwind nuMoney and loans.
Fraxlend’s PID controller: this mechanism automatically adjusts interest rates based on utilization, without any need for intervention. Essentially, if the utilization keeps increasing, then the interest rates on loans will start increasing rapidly—doubling every twelve hours—to force users to unwind their leverage and loans and bring the ratio down.
If utilization continues to increase, then the NUMA token sell fee will start to increase, in a similar mechanism to the PID controller for loans. By default, the NUMA sell fee is 5%, but this will increase rapidly if utilization gets extremely high—encouraging people to unwind and also rapidly decreasing the utilization ratio, since the higher sell fees will quickly generate more vault value.
Lastly, the protocol will start to derate nuMoney synthetics, also in a manner similar to the PID controller. Up until this point, users will still be able to unwind nuMoney synthetics at 1:1 by minting the NUMA token. For example, 1 nuUSD will start to be treated as 98¢ and then continue to be derated until the system becomes healthy again.
Again, we believe that the previously existing mechanisms of the collateral snowball and the seesaw are enough to protect the numa protocol, but we decided to push the protocol to its limit and make sure that even the most extreme and unlikely scenarios are protected. We’re excited that we’re now in the closing stretch, and we appreciate everyone’s support and patience. We will have more news in the coming weeks on how the audit is developing. As always, feel free to jump in our Telegram group and ask any questions.
