# Neutrl Documentation > This Portal links to the key resources on Neutrl to understand the fundamentals of the Protocol. ## **General Risk Disclosures** **General Risk Disclosures** Please consider the information in this Risk Disclosure Statement ("Statement") as a general overview of the risks associated with the services offered by ZERO DELTA FOUNDATION, CAVERNA AUCTUS INC., and their affiliates (the "Services") made for your awareness only. We do not intend to provide investment or legal advice through this Statement and make no representation that the Services described herein are suitable for you or that information contained herein is reliable, accurate, or complete. We do not guarantee or make any representations or assume any liability regarding financial results based on the use of the information in this Statement, and further do not advise to rely on such information in the process of making a fully informed decision whether or not to use the Services. The risks outlined in this Statement are not exhaustive and this Statement only outlines the general nature of certain risks associated with crypto assets, and does not discuss in detail all risks associated with holding or trading crypto assets. Users should undertake their own assessment as to the suitability of using crypto assets and associated Services based on their own investigations, research and based on their experience, financial resources, and goals. You should not deal with crypto assets unless you understand their nature and the extent of your exposure to risk. Note that specific disclosures and terms of service will apply with respect to various offerings of Neutrl, which will be published separately. Users should refer to those terms in addition to the disclosures herein when deciding whether to utilize the Services. For the purpose of this Statement "you", "your", and "User" mean a user of our services and "we", "us", "our", or "Neutrl", mean ZERO DELTA FOUNDATION and CAVERNA AUCTUS INC. Users are strongly advised to read this Risk Disclosure Statement carefully before deciding to start using the Services. **RISK OF LOSS IN TRADING CRYPTO ASSETS CAN BE SUBSTANTIAL AND YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH ACTIVITY IS APPROPRIATE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD BE AWARE OF THE FOLLOWING:** **Crypto Assets Are Not Legal Tender In Most Jurisdictions** Most crypto assets are not backed by any central government or legal tender (except in few, discrete cases), meaning each country has different standards. There is no assurance that a person who accepts crypto assets as payment today will continue to do so in the future. Holders of crypto assets put their trust in a digital, decentralized, and partially anonymous system that relies on peer-to-peer networks and cryptography to maintain its integrity, and neither vendors nor individuals have an obligation to accept crypto assets as payment in the future. **Loss of Value, Volatility, and Uncertainty of Future Performance** There is typically limited or no fundamental reasoning behind the pricing of crypto assets, creating the risk of volatility and unpredictability in the price of crypto assets relative to fiat currencies. Crypto assets have had historically higher price volatility than fiat currencies, including irrational and extreme moves in price as the process for valuation can be speculative and uncertain. **Liquidity Risk** Crypto assets can have limited liquidity that can make it difficult or impossible to sell or exit a position when desired. This can occur at any time, especially during periods of high volatility. **Issuer Risk (only with regard to NUSD)** There is a risk that CAVERNA AUCTUS INC., as the sole issuer of NUSD, may not be able, temporarily or permanently, to maintain its reserves in a way that sustains full redemption obligations for NUSD holders. Any significant shifts in redemptions, demand, or market structure may impact CAVERNA AUCTUS INC.'s ability to fulfill obligations to NUSD holders in a timely and consistent manner. **Market Forces** Trading in crypto assets may be susceptible to irrational market forces, such as speculative bubbles, manipulation, scams, and fraud. **Financial Crime and Cyber Attacks** Cyber crime relating to crypto assets can be more prevalent than other financial crime as the ecosystem is entirely digital and traditional governance and risk mitigants may be lacking. For example, a 51% attack is an attack on a blockchain by any person or group of persons who control more than 50% of the network. Attackers with majority control of a network can interrupt the recording of new blocks, alter payment history, and subvert funds. Users are susceptible to malware, fake/hijacked addresses, and other forms of cyber-attacks and should always take care of passwords and double-check addresses and URLs before loading software or interacting with any platform, protocol, or service. **Absence of Control** Neutrl is not a broker, agent, or advisor and has no fiduciary relationship or obligation to Users in connection with any transaction or other decision or activity undertaken by you using the Services. We do not control whether your use of the Services is consistent with your financial goals. It is up to Users to assess whether their financial resources are appropriate for their respective activity with us and their risk appetite in the products and services you use. **Availability of Services** We do not guarantee that the Services will be available at any given time or that the Services will not be subject to unplanned service interruptions or network congestion. You may not be able to buy, sell, store, transfer, redeem, send, or receive crypto assets when you want to. **Technology Risk** The risks of crypto assets being transacted via new technologies (including distributed ledger technologies) include, among other things, anonymity, irreversibility of transactions, accidental transactions, transaction recording, and settlement. Transactions in crypto assets on a blockchain rely on the proper functioning of complex software, which exacerbates the risk of access to or use of crypto assets being impaired or prevented. Moreover, there is risk of failures, defects, hacks, exploits, protocol errors, or unforeseen circumstances that might occur in connection with a crypto asset or the technologies on which the crypto asset is based. **Irreversible Transactions** Transactions in crypto assets are generally irreversible. As a result, losses due to fraudulent or accidental transactions may not be recoverable. **Third Party Risk** Third parties such as payment providers, custodians, exchanges, and banking partners may be involved in the provision of the Services. You may be subject to the terms and conditions of these third parties, and Neutrl cannot be responsible for any losses these third parties may cause you. **Taxation and Disclosure of Information** You are responsible for determining the taxes to which you may be subject and their application when using the Services. It is your responsibility to report and pay any taxes that may arise from transactions and you acknowledge that Neutrl does not provide legal or tax advice regarding such transactions. If you have concerns about your tax treatment or obligations you may wish to seek independent advice. You understand that when, where, and as required by applicable law, Neutrl will disclose available information relating to transactions, transfers, distributions, or payments to the appropriate regulatory and tax authorities or other public authorities. Similarly, when, where, and as required by applicable law, Neutrl will withhold taxes related to your transactions, transfers, distributions, or payments. **No Investment and Legal Advice** Communications or information provided by Neutrl shall not be considered or construed as investment advice, financial advice, trading advice, or any other type of advice. The User is the only party who can determine whether an investment, investment strategy or related transaction is appropriate based on his or her personal investment objectives, financial situation, and risk tolerance, and shall be solely responsible for any losses or liabilities that may result. **Regulatory Risk** The regulation of crypto assets and platforms is uncertain in many jurisdictions and Neutrl cannot be held responsible for compliance with legal rules of countries from which customers, on their own initiative, access the Services. Moreover, changes in rules applicable to crypto assets may considerably impact the prices of those assets and are unpredictable. You further acknowledge the above list of risks is non-exhaustive and there may also be unpredictable risks. ![The next generation of yield](/banners/neutrl-tagline-banner.png) ## **What is Neutrl?** ### **Neutrl: Scalable Synthetic Dollar** Neutrl is a synthetic dollar designed to unlock untapped yield opportunities in OTC and altcoin markets. Neutrl leverages OTC arbitrage, funding rate inefficiencies, and DeFi-native market-neutral strategies to provide a single, high-yield access point for capital allocators. *** #### **How Neutrl Works** :::steps ##### **Yield Generation with Market Neutrality** Neutrl creates a synthetic dollar, **NUSD**, that captures asymmetric yield opportunities whilst aiming to maintain market neutrality. This is achieved through: * **OTC Arbitrage**:\ Neutrl acquires crypto assets at deep discounts through OTC deals, with enforced onchain settlement via smart contracts or qualified custodians. These are then hedged using perpetual futures, capturing unmatched yield potential. * **Market-Neutral Hedging**: To stabilize NUSD's value, Neutrl uses derivatives to hedge market exposure. This is intended to reduce directional exposure. ##### **Basis and Funding Arbitrage** Neutrl leverages **basis arbitrage** opportunities in perpetual futures markets to generate additional yield: * **What is Basis Arbitrage?**\ In perpetual futures markets, the futures price of an asset often deviates from its spot price due to supply and demand imbalances, called a **"basis spread"**. Neutrl capitalizes on this spread by simultaneously holding a long position in the spot market and a short position in the futures market. * **Funding Rate Arbitrage**:\ Perpetual futures contracts require traders to pay or receive funding fees to maintain price parity with the spot market. Neutrl takes advantage of this by capturing **positive funding rates**, where short positions (held by the protocol) receive periodic payments from traders holding long positions. * **Market-Neutral Strategy**: By combining spot and futures positions, Neutrl is designed to reduce directional exposure while generating yield from the **basis spread** and **funding rate payments**. ##### **Key Features of NUSD** * **Synthetic Dollar**:
NUSD is backed by a diversified portfolio, offering a **higher margin of safety** compared to traditional basis trades. OTC discounts enhance the protocol's stability and yield potential. * **Free to Use in CeFi and DeFi**:
NUSD integrates seamlessly across both CeFi and DeFi ecosystems, with **high composability** for use cases such as lending, trading, and liquidity provision. * **Peg Stability Mechanism**:
The protocol maintains NUSD's peg by using **delta hedging derivatives** against its backing assets. This stabilizes NUSD while capturing yield from spot crypto assets and futures markets. ::: Neutrl's NUSD is not the same as a fiat stablecoin like USDC or USDT. NUSD is a synthetic dollar, backed with crypto assets, liquid synthetic dollars and corresponding short futures positions. This means that the risks implicated by interacting with NUSD are inherently different. Please refer to our extensive [Risks Section](/risks) for more information. *** #### **The Neutrl Flywheel Effect**
![TVL Feedback Loop](/imgs/TVL_Feedback_Loop_1920.png)

A powerful positive flywheel powers Neutrl's TVL growth, stickiness and increased yields

When new NUSD flows in, **sNUSD's headline yield is marginally diluted**, and starts the flywheel effect as capital seeks higher yield: :::steps ##### **Yield Compression** As yield compresses, investors seek out higher yielding and riskier opportunities. As liquid APY drifts toward the onchain cash-equivalent rate, yield-seekers look for higher yield. They may stake their NUSD, convert to sNUSD, or extend their existing locks to 6-, 9- or 12-month terms. ##### **Longer Lock Durations** Longer lock durations unlock more opportunities. With more capital allocated to longer terms, the protocol can deploy into more and larger OTC and basis arbitrage opportunities that are more viable at scale. ##### **Higher Deployment** Higher deployment increases APY. Higher yield flows back into the yield pool, automatically reindexing sNUSD and increasing APY. ##### **Increased Yield** Increased yield attract new deposits. As yields rise, they attract a new wave of deposits, increasing TVL and restarting the cycle. ::: This positive feedback loop continues until the market exhausts attractive longer-tenor opportunities. Because the flywheel mechanism is fully automated—without discretionary adjustments or human committees—Neutrl can navigate volatile market conditions while maintaining smooth redemptions and competitive yields. Increased deposits expand capacity, higher capacity raises yields, and rising yields attract further deposits. ## **Why Neutrl?** Traditional onchain dollars slowly erode your purchasing power; by contrast, Neutrl gives it steady growth by unlocking access to yield typically reserved for hedge funds, OTC desks, and high-net-worth wallets. ##### The problem :::steps ##### **Institutional-grade yield is gated** The most lucrative opportunities - carry trades, basis spreads, and funding-rate arbitrage - are locked behind the gates of OTC desks and prime brokers. These require millions of dollars in capital, established relationships, and costly legal expertise. ##### **Public stablecoins keep the profits** Leading stablecoins like USDC, USDT, and their clones earn on their collateral but pass little to nothing back to holders. Your dollar stays stagnant while the issuer reaps the rewards. ##### **DIY yield strategies are fragile** Retail yield farms are unreliable - often spiking briefly before decaying. Managing these strategies is a full-time job with many risks, including smart-contract failures, volatile yield, and systemic implosions. ::: ##### Our answer Neutrl simplifies the playbook for wealth generation in crypto. We combine three institutional-grade strategies - liquid basis trades, onchain cash-equivalent rates, and arbitrage opportunities - into a single, cohesive protocol.
Token What you get
NUSD NUSD A spendable, highly capital efficient, and composable synthetic dollar with redeemability for approved participants.
sNUSD sNUSD A high-yield synthetic dollar that auto reindexes with protocol's net income.
![Mission](/imgs/Mission_1920.png)
##### Why Neutrl's Synthetic Dollar Outperforms Legacy Stablecoins :::steps ##### **Visible Yield** Your balance grows every day; no need to chase pools or wrap your coins. ##### **Onchain Risk Management** Assets and liabilities are locked in a duration ladder, minimizing maturity mismatches and ensuring stability. ##### **Equal Access** With no privileged access, every holder - from individuals to large institutions - earns the same institutional-grade yields, all with the same token. ::: By blending crypto-native trading yields with institutional-grade strategies, Neutrl unlocks a new class of decentralized, high-yield opportunities for both traders and liquidity providers. ## **How Neutrl Works**
![Typical Neutrl user flow: 1) Deposit → mint nUSD 2) Stake → earn sNUSD yield 3\) Lock → boost rewards.](/imgs/How_Neutrl_Works_1920.png)

Typical Neutrl user flow: 1) Deposit → mint nUSD 2) Stake → earn sNUSD yield 3\) Lock → boost rewards.

### **NUSD** Issuance & Redemption :::steps ##### **Deposit collateral** * Eligible assets: **USDC, USDT, USDe** * Any time you deposit one of these tokens to the **Router Contract,** the system settles your deposit onchain. ##### **Receive the receipt token** * The router mints **NUSD 1 : 1** against your collateral and returns it to your wallet in the same transaction. ##### **Institutional custody & deployment** * Collateral routes to segregated vaults at institutional custodians (Fireblocks, Copper, Ceffu etc.). * From there it is deployed into **market-neutral, duration-matched strategies** that power the protocol's yield engine. ##### **Unmatched liquidity** * NUSD is an ERC20, with plug-and-play across CEX margin accounts, DeFi money-markets and onchain primitives. ::: ### Staking **NUSD → sNUSD** :::steps ##### **Stake** * Stake your NUSD into the **Staking Contract** to convert it into **sNUSD**. ##### **Earn the Neutrl rate** * All protocol income - basis arbitrage, OTC carry, onchain reference yield pools - flows to the yield pool. * Every epoch the pool **re-indexes sNUSD balances** ::: :::info Unstake at any time to receive NUSD plus accrued yield through the standard 10-day cooldown or via instant unstaking. ::: ### Locking **NUSD / sNUSD / LP tokens** :::steps ##### **Choose a lock tenor** * Lock assets for **6 to 12 months** inside the **Locking Contract**. ##### **Boost your rewards** * Longer locks earn higher points → a larger slice of future emissions & incentive campaigns. ##### **Future-proof distribution** * The protocol may evolve to a **weighted-average maturity** model, seamlessly routing more yield toward longer-dated lockers to balance duration. ::: ## **NUSD** NUSD is a synthetic dollar backed by a diversified portfolio of yield bearing crypto-native assets as well as optimised liquid basis positions. Neutrl's NUSD is not the same as a fiat stablecoin like USDC or USDT. NUSD is a synthetic dollar, backed with crypto assets, liquid synthetic dollars and corresponding short futures positions. This means that the risks implicated by interacting with NUSD are inherently different. Please refer to our extensive [Risks Section](/risks) for more information. ### **Minting NUSD** Currently NUSD minting is via a permissionless process. NUSD is minted by depositing liquid assets, such as USDC, USDT or USDe, on 1:1 dollar value basis. NUSD can also be bought on the secondary market via different liquidity venues. ### **Redeeming NUSD** Approved KYB/KYC counterparties may redeem NUSD for backing assets (USDC, USDT, or USDe). Upon redemption, the protocol burns the corresponding NUSD tokens and transfers the equivalent value in the selected backing asset to the user. Currently NUSD redemptions are only open to users who have passed relevant KYC procedures with the protocol. ##### Liquidity Management The protocol employs a dynamic liquidity management system through the `AssetReserve` contract, optimizing between capital efficiency and redemption availability. **Instant Redemptions** The AssetReserve maintains a dynamically calibrated liquid buffer designed to serve immediate redemption requests. When the requested redemption amount falls within the available buffer capacity, transactions are processed instantly with no delays. **Queued Redemptions** For redemption requests exceeding the current liquid buffer: :::steps ##### The protocol generates a redemption request and adds it to the processing queue ##### All queued requests aim to be fulfilled within a 48-hour processing window but is not guaranteed ::: :::info Users retain full visibility of their redemption status throughout the process. ::: ## **Peg Mechanism** **Maintaining Stability: The Foundation of NUSD** Ensuring a stable peg is critical to the reliability and utility of NUSD. The protocol employs arbitrage-driven mechanisms to maintain NUSD's $1 peg, even during periods of market volatility. *** **Backing and Liquidity Management** * NUSD is backed by a diversified portfolio of assets, with a portion held in major stablecoins to facilitate **redemptions**. * A fraction of the reserves (e.g., 0.50%) is held directly in the mint-and-redeem contract to enable immediate redemptions, while the protocol systematically replenishes this balance from the broader reserve pool. * This ensures that NUSD holders can always redeem their tokens for stablecoin, providing liquidity and stability even during periods of heightened redemption activity. *** The redeemability of NUSD for an equivalent value in stablecoins ensures that its price remains stable during temporary liquidity shocks or market dislocations. This mechanism, supported by built-in arbitrage incentives, creates a self-correcting system that helps maintain NUSD’s peg even during periods of high demand or volatility. Redemptions may take up to 48 hours to process and can be queued during periods of elevated activity. ## **Portfolio Allocation** The protocol's portfolio is strategically allocated to balance liquidity, yield generation, and risk management. This allocation ensures the stability of NUSD while maximizing yield for sNUSD stakers. The portfolio can be divided into three main categories: :::steps ##### **Liquid Reserves (Stablecoins and Yield-Bearing Instruments)** * **Allocation**: A portion of the portfolio is held in highly liquid stablecoins (e.g., USDC, USDT, USDe) and yield-bearing stablecoins. * **Purpose**: * Provides immediate liquidity to ensure NUSD holders can redeem from protocol reserves. * Funds the **base yield** distributed to sNUSD. * **Risk Profile**: These assets are lower-risk and highly liquid, ensuring the protocol can meet redemption demands and maintain stability during periods of market stress. ##### **Hedged OTC Positions (Discounted Assets)** * **Allocation**: The protocol allocates a portion of its portfolio to acquire crypto assets at a discount through OTC deals. * Locked tokens are hedged to eliminate price risk, and the protocol may strategically sell or stake these assets to capture additional yield. * **Risk Profile**: While OTC positions carry slightly higher risk due to market and liquidity factors, the protocol mitigates this through diversification, hedging, and careful risk management. ##### **Market-Neutral Yield Strategies** * **Allocation**: A portion of the portfolio is deployed in market-neutral strategies, such as: * Perpetual futures funding arbitrage. * Basis trading (e.g., capturing spreads between spot and futures markets). * **Purpose**: * Generates yield by exploiting inefficiencies in derivatives markets. * Seeks to reduce exposure to directional price movements. * **Risk Profile**: These strategies remain subject to market and liquidity risks. ::: *** ##### Duration Matching Approach
![Duration Matching](/imgs/Duration_Matching_1920.png)

Illiquid OTC assets may be selected with matched durations based on known maturities of liabilities, increasing profitability and reducing liquidity crunch risk

A fundamental principle of the protocol is ensuring that liabilities are duration-matched with the assets it holds. This "duration match" is one of the protocol's risk-management mechanisms. The benefits are clear: * **Reduces Forced Selling:** By aligning the maturity of liabilities with assets, the protocol avoids the need to sell positions at a discount during redemptions. This eliminates fire-sale risks, ensuring stability even during high withdrawal periods. * **Regulatory Compliance:** Supervisors, auditors, and potential partners view a lower weighted-average maturity gap as a safer structure. This enhances the protocol's credibility, paving the way for partnerships, regulatory approvals, and increased TVL growth. * **Optimizes Capital Efficiency:** With redemptions funded by maturing assets, Neutrl can maintain a leaner cash buffer and deploy more capital into productive trades—boosting net yields for sNUSD holders. As users roll their positions from one lock to the next, the protocol re-ladders its assets - closing matured positions and reallocating capital into new positions further along the curve. In cases where inflows and outflows are not perfectly synchronized, the protocol may allocate a portion of shorter-term assets (e.g., a 6-month position) into the next tenor (e.g., a 9-month trade). This ensures continuity in the ladder while avoiding idle capital drag. While this approach may lead to some bunching of redemptions further down the line, the protocol has mechanisms in place to mitigate this risk. Immediate liquidity from secondary markets and third-party credit lines can alleviate potential redemption queues (see Redemption section for details). The result: **higher, more sustainable yields for sNUSD holders and faster, more reliable redemptions for NUSD users.** *** **Dynamic Allocation Strategy** The protocol employs a **dynamic allocation strategy** to adapt to changing market conditions and optimize risk-adjusted yield. Key principles include: :::steps ##### **Liquidity Prioritization** * A percentage of the portfolio is always allocated to liquid reserves to ensure the protocol can meet redemption demands. * The overall portfolio is duration matched to the protocol's underlying liabilities ##### **Yield Optimization** The protocol balances short-term, liquid investments (e.g., yield-bearing stablecoins) with higher-yield, longer-term investments (e.g., OTC positions and market-neutral strategies). ##### **Risk Management** * Assets are diversified across multiple strategies to reduce concentration risk. * Hedging is employed to manage risks associated with locked tokens and market positions. ##### **Treasury Growth** Some portion of yields are retained in the reserve fund, allowing the protocol to strengthen its financial stability for times of market stress ::: **Putting the Philosophy into Practice** Crypto markets swing from fear to euphoria faster than any traditional markets. This volatility demands a nimble and adaptive allocator. Neutrl's strategy is designed to respond dynamically to changing market conditions: * **OTC Sleeve:** Deal flow is highly opportunistic. In some weeks, attractive 6- or 9-month deals may surface; in others, suitable opportunities may be scarce. The protocol only deploys into positions when yield exceeds our risk-adjusted hurdle rate and aligns with the duration ladder. If no suitable deals are available, we simply wait. * **Liquid strategy:** Capital is deployed only when the expected yield beats both the cash-equivalent yield-bearing rate stablecoin benchmark and the internal excess-yield target. This ensures protocol safety by preserving over-collateralization, liquidity buffers, and minimal weighted-average maturity gaps. Because the liability curve is constantly evolving - users can roll, extend, or redeem - the allocation engine continuously rebalances. Buckets that shrink are allowed to roll off, while buckets that grow are funded by closing surplus trades. If the market offers favourable spreads, new positions may be opened further out on the curve. The result is an allocation strategy that adapts to the protocol's liabilities in real time—remaining liquid and defensive during bearish conditions, while maximizing opportunities during bullish markets.
![Asset Allocation](/imgs/Asset_Allocation_Graphic_1920.png)

Assets backing NUSD/sNUSD adapt dynamically based on prevailing market conditions and ambient yield opportunities

*** ##### **Example Portfolio Allocation Breakdown** Below is an example of how the protocol might allocate its portfolio under normal market conditions: | **Asset Category** | **Allocation (% of Portfolio)** | **Purpose** | | --------------------------------------- | ------------------------------- | ------------------------------------------------- | | Liquid Reserves (Yield bearing Dollars) | 20% | Ensures liquidity and base yield. | | Hedged OTC Positions | 20% | Generates revenue via discounts and staking. | | Market-Neutral Strategies | 60% | Provides yield through market-neutral strategies. | *Note: The exact allocation will vary depending on market conditions, protocol growth, and liquidity needs.* ## **Protocol Revenue** ### **Protocol Revenue and Distribution Model** The protocol generates revenue from diversified strategies designed to optimize risk-adjusted yield while ensuring sNUSD holders benefit from stable and predictable yields. The primary revenue streams are as follows: :::steps ##### **Hedged OTC Deal Discounts** **Mechanism:** The protocol acquires crypto assets at significant discounts through OTC transactions. These assets may include locked tokens, which are hedged to mitigate price risk, or liquid tokens, which can be deployed immediately. **Revenue Generation:** The discount creates an immediate unrealized gain, while hedging is intended to reduce directional exposure. Locked tokens may further generate staking yields. ##### **Market-Neutral Yield Strategies** **Mechanism:** The protocol deploys a portion of the collateral into market-neutral strategies, such as perpetual futures funding arbitrage and basis trading. These strategies seek to capture yield by exploiting inefficiencies in derivatives markets while reducing directional price exposure. **Revenue Generation:** Yield may be earned from funding rate differentials or price spreads. ##### **Yield-Bearing Stablecoins** **Mechanism:** A portion of the protocol's reserves is allocated to yield-bearing stablecoins or earning the cash-equivalent rate, which track the overnight "tradfi" risk-free interest rate. **Revenue Generation:** These positions generate predictable and low-risk yield, which serves as the primary reserves for redemptions and capital requirements. ::: #### How Revenue is Distributed The protocol ensures that revenue generated from its various strategies is distributed fairly and efficiently to sNUSD holders, aligning incentives between short-term stability and long-term protocol growth. #### **Staking for sNUSD** **Mechanism:** To access the yield generated by the protocol's revenue streams, NUSD holders must stake their tokens to receive sNUSD. sNUSD holders benefit from the protocol's broader revenue streams, including profits from OTC deal discounts and market-neutral strategies. **Why Staking is Required:** * Staking aligns incentives by encouraging holders to lock their capital and participate in the protocol's growth. * It also allows the protocol to better manage liquidity and allocate resources efficiently. #### **Revenue Distribution Model** All yield generated by the protocol accrues directly to sNUSD. This applies to both short-term and long-term revenue sources. In addition, OTC arbitrage profits and other potentially illiquid strategies may have lumpy yield profiles and as a result Neutrl reserves the right to smoothen out these windfalls for sNUSD holders at its discretion over the course of days or weeks. Pacing will depend on factors including relative size of profits relative to overall book size, current staking/redemption flow and prevailing yield conditions in the market.
![sNUSD\_Yield](/imgs/Yield_1_1920.png)

Protocol revenue flows from diverse strategies accrue to sNUSD holders through appreciation of the exchange rate

:::steps ##### **Short-Maturity Yields:** * Sources: * Revenue from liquid and short-term instruments, such as: * Market-neutral strategies (e.g., funding rate arbitrage, basis trading) * Yield-bearing stablecoins * Secondary market sales of OTC-acquired assets * Distribution: * These yields accrue to sNUSD, increasing its exchange value compared to NUSD * Example: If the protocol earns $1M in profits from market-neutral strategies, this revenue is reflected in the increasing value of sNUSD ##### **Long-Maturity Yields:** * Sources: * Revenue from longer-term hedged locked tokens acquired via OTC deals * Distribution: * These yields also accrue to sNUSD, with the underlying dollar-denominated yield retained in the protocol treasury * The appreciation in value is reflected in the sNUSD/NUSD exchange rate * Rationale: * By accruing long-term yields to sNUSD, the protocol aligns stakers with its success * The protocol retains reserve assets to build capital buffers for times of market stress ::: #### **Dynamic Yield Accrual** The overall yield accrued to sNUSD depends on the maturity profile of the protocol's revenue streams: ##### **High Liquidity Periods:** * When the protocol's revenue is primarily generated from short-term strategies, yield accrual to sNUSD will be more immediate and predictable ##### **Long-Term Growth Periods:** * When revenue is skewed toward long-term yield (e.g., locked tokens), yield accrual will reflect a longer-term appreciation profile * This dynamic accrual model ensures flexibility, balancing short-term liquidity needs with long-term growth objectives #### **Example of Revenue Flow and Distribution** **Revenue Generation:** * The protocol earns $800K from market-neutral strategies, $200K from short-term cash-equivalent (reference) yields, and $500K in unrealized gains from locked tokens acquired via OTC deals. **Staked Yield Distribution:** * The $1M from market-neutral strategies and cash-equivalent yield accrues to sNUSD holders through an increase in the sNUSD/NUSD exchange rate * The $500K in locked token gains also accrues to sNUSD value, with the dollar value of the locked tokens retained in the protocol treasury **Outcome for Stakers:** * Stakers benefit from the full yield generated by the protocol through a continuously appreciating sNUSD value relative to NUSD * This maximizes both immediate yield and exposure to protocol growth #### Key Benefits of the Distribution Model **Fairness and Flexibility:** * The model ensures all yields, both short-term and long-term, accrue directly to stakers through sNUSD appreciation **Stability and Growth:** * Retaining long-term yields in the treasury strengthens the protocol's reserves, ensuring stability and liquidity during market stress **Incentive Alignment:** * Stakers benefit directly from protocol growth through sNUSD appreciation, fostering long-term participation and alignment with the protocol's success **Liquidity Management:** * By requiring staking for additional yield, the protocol can better manage liquidity and ensure efficient capital allocation ## **sNUSD** #### Earning Yield Neutrl distributes generated yield exclusively to sNUSD holders. Users stake NUSD tokens through the staking contract to receive sNUSD, which represents their proportional share of the yield-bearing vault. #### Unstaking process When unstaking, sNUSD tokens are burned and users receive their proportional amount of NUSD based on the current exchange rate. By default, the protocol offers an instant unstaking option, allowing users to convert sNUSD to NUSD immediately. When using this option, the user transfers sNUSD and receives the corresponding amount of NUSD instantly, minus a small instant unstaking fee. This fee covers the operational cost of unwinding the underlying strategy positions required to release liquidity. The instant unstaking fee currently starts at 1%, but it may be adjusted over time depending on market conditions and available liquidity. This mechanism does not rely on external liquidity providers or secondary markets. Instead, the conversion is handled directly by the protocol, making the process predictable and capable of handling large transaction sizes without slippage or liquidity constraints. Users who prefer not to use instant unstaking can select the queued unstake option, which follows the standard 10-day cooldown period before NUSD becomes withdrawable. :::info The cooldown period ensures that there is enough time to unwind the collateral to meet the redemption ::: #### Yield Accrual Mechanism :::steps ##### **Staking NUSD** * Users deposit NUSD into the staking contract * The contract mints sNUSD based on the current sNUSD:NUSD exchange rate * Initial exchange rate: 1 sNUSD = 1 NUSD * The exchange rate changes over time as yield accumulates ##### **Yield Distribution** * Protocol generates yield through market-neutral strategies and revenue-generating activities * Yield continuously flows into the staking contract, increasing total NUSD reserves ##### **Passive Growth** * Yield accrual requires no user intervention * Yield is automatically reflected in the sNUSD redemption value ::: #### Calculation & Example ``` sNUSD:NUSD ratio = total sNUSD supply / (total NUSD staked + total protocol revenue deposited in NUSD terms) ``` | Time period | sNUSD supply | Protocol revenue (NUSD) | sNUSD : NUSD ratio | sNUSD Received for 1 NUSD Staked | NUSD Received for 1 sNUSD Burned | | ----------- | ------------ | ----------------------- | ------------------ | -------------------------------- | -------------------------------- | | Day 0 | 5,000,000 | 0 | 1 | 1 | 1 | | Day 90 | 5,000,000 | 250,000 | 1.05 | 0.95 | 1.05 | | Day 180 | 5,000,000 | 500,000 | 1.1 | 0.9 | 1.1 | | Day 270 | 5,000,000 | 750,000 | 1.15 | 0.87 | 1.15 | | Day 365 | 5,000,000 | 1,000,000 | 1.2 | 0.833 | 1.2 | ## **Transparency** Transparency is at the heart of Neutrl, ensuring that users have confidence in the stability, security, and operations of NUSD. Through regular reserve audits, custody attestations, and real-time onchain visibility, the protocol provides full accountability and trust to its community. Independent third parties looking to assess the health and solvency of the protocol can do so through Neutrl’s Transparency Dashboard,which provides real-time visibility into reserves and liabilities. :::steps ##### **Reserve Audits** The protocol undergoes routine reserve audits conducted by independent third-party firms. These audits review the reserve information published by the protocol. * **Independent Verification**: Reserve audits are performed by reputable audit firms to confirm that the protocol's reserves meet or exceed the required backing for NUSD. * **Transparency and Accessibility**: Audit reports are published and made publicly available to all users, ensuring full visibility into the reserve backing. * **Regular Schedule**: Audits are conducted periodically (e.g., monthly or quarterly) to provide consistent and ongoing assurance of the protocol's backing. ##### **Custody Attestations** The safety and security of reserve assets are equally important to maintaining trust. Custody attestations are carried out to verify that reserve assets are securely held and readily accessible for redemptions. * **Trusted Custodians**: Reserve assets, including USDC and other stablecoins, are held with regulated and secure custodians to ensure their safety. * **Public Disclosure**: The results of custody attestations are shared with the community, reinforcing confidence in the protocol's operational transparency. ##### **Onchain Transparency** The protocol leverages blockchain technology to provide real-time visibility into its operations and reserves. Users can independently verify key metrics through publicly accessible tools. * **Reserve Visibility**: The reserve holdings and transactions are fully visible onchain via public block explorers, allowing users to independently confirm the protocol's reserves. * **Dashboard Metrics**: The protocol's dashboard provides real-time updates on critical data, including USDn's circulating supply, reserve composition, and staking activity. * **Immutable Records**: All reserve-related activities are permanently recorded on the blockchain, ensuring transparency and traceability. ##### **Transparency Reports** To supplement oncchain data and audits, the protocol publishes regular transparency reports that summarize its operations, reserves, and key metrics. * **Reserve Updates**: Transparency reports detail the composition and status of the reserves, including stablecoin balances and yield-generating allocations. * **Audit and Attestation Results**: The findings from reserve audits and custody attestations are included in the reports, providing a comprehensive overview of the protocol's financial health. * **Incident Reporting**: Any deviations, such as temporary liquidity imbalances, are disclosed in these reports alongside the steps taken to address them. ::: ## **Minting** #### Minting NUSD NUSD minting is permissionless with discretionary and smart contract related safeguards enforcing full collateralization, security and efficiency.
![MintingFlow](/imgs/MintFlow.png)

NUSD minting process flow

#### Process flow :::steps ##### **Initiation** Users interact with the `Router.sol` contract by calling the `mint()` function with the following parameters: * Collateral asset address * Deposit amount * Beneficiary address for NUSD receipt ##### **Collateral Transfer** The Router executes a transfer of collateral tokens from the user to the `AssetReserve.sol` contract, ensuring all backing assets remain under protocol custody before any NUSD issuance. ##### **Routing to Minter** Based on the collateral type, the Router delegates the minting request to the appropriate Minter contract. ##### **Valuation & Calculation** The Minter contract performs critical valuation steps: * Queries onchain price oracles * Determines current USD value of deposited collateral * Calculates NUSD output amount considering: * **Slippage tolerance**: `order.nusdAmount` serves as minimum acceptable output * **Rate limits**: Enforces `maxMintPerBlock` to prevent manipulation ##### **NUSD Creation** Upon validation of all parameters, the Minter executes: * Calls `mint()` function on `NUSD.sol` contract * Increases total NUSD supply atomically * Credits newly minted tokens to the specified beneficiary ::: ## **Redemption** The redemption system, available to whitelisted KYC participants, provides two execution paths based on AssetReserve liquidity availability, ensuring users maintain continuous access to their collateral.
![RedemptionFlow](/imgs/RedemptionFlow.png)

NUSD redemption process flow

##### Instant Redemption The primary redemption path, executed when AssetReserve holds sufficient collateral to immediately fulfill requests. **Process Flow** :::steps ##### **Initiation** User calls `redeem()` on `Router.sol` with parameters: * NUSD amount to redeem * Desired collateral asset * Beneficiary address ##### **Liquidity Verification** * Router queries AssetReserve liquidity status * Executes `quoteRedemption()` to validate collateral availability * Routes to appropriate Redeemer contract upon confirmation ##### **Valuation & Calculation** The Redeemer contract performs: * Fair market value determination for NUSD-to-collateral conversion * Output calculation considering: * **Slippage protection**: `order.collateralAmount` as minimum output * **Rate limiting**: Enforces `maxRedeemPerBlock` constraints ##### **NUSD Burning** * Redeemer executes `burn()` on `NUSD.sol` contract * User's NUSD removed from total supply * Transaction atomically reduces circulating NUSD ##### **Collateral Release** * Router calls `processRedemption()` on AssetReserve * Collateral transfers to beneficiary address ::: ##### Queued Redemption Alternative path activated when requested collateral temporarily exceeds available AssetReserve liquidity. **Process Flow** :::steps ##### **Initiation & Liquidity Assessment** * User initiates standard redemption via `Router.sol` * Router detects insufficient collateral for immediate execution ##### **Request Queuing** * User's NUSD transferred to Router contract for custody * Router generates redemption Order with: * Unique request ID (auto-incremented) * Status: `PENDING` * Storage in `redemptionRequests` mapping ##### **Keeper Monitoring** Authorized keepers (REDEMPTION\_KEEPER\_ROLE) monitor and execute: * Track AssetReserve liquidity replenishment * Identify serviceable pending requests * Call `serveRedemptionRequest()` with request ID ##### **Deferred Execution** Upon keeper activation: * Router retrieves queued Order details * Executes standard redemption flow using custodied NUSD * Redeemer performs oracle valuation and burning * AssetReserve releases collateral to original beneficiary * Updates request status to `COMPLETED` ::: ##### System Guarantees This dual-path architecture ensures: * **Liquidity Efficiency**: Instant redemptions when possible * **Redemption Certainty**: Queued system guarantees eventual execution * **Transparency**: All pending requests tracked onchain * **Protocol Stability**: Rate limits prevent liquidity runs The system prioritizes user experience while maintaining protocol solvency, creating a robust redemption infrastructure that adapts to varying liquidity conditions. ## **Smart Contract Architecture** Neutrl implements a modular architecture centered on NUSD, its native synthetic dollar. The protocol's smart contract infrastructure enables transparent minting and redemption of NUSD against multiple collateral types while providing yield generation through an integrated staking mechanism. The architecture prioritizes modularity, segregating core functionalities into specialized systems and contracts. This design philosophy enhances security, simplifies maintenance, and ensures transparent onchain operations. The NUSD minting and redemption system employs a modular architecture centered on `Router` as the primary interface. Users deposit collateral to mint NUSD or burn NUSD to redeem collateral, with all assets secured in `AssetReserve`. From `AssetReserve`, designated custodians wallet (Fireblocks, Copper) can settle assets off-chain to execute trading strategies. Specialized `Minter` and `Redeemer` contracts handle asset-specific logic while maintaining standardized flows. The system features dual redemption paths—instant and queued—ensuring continuous liquidity access regardless of reserve conditions. This design enables flexible multi-collateral support with consistent security and operational efficiency. #### Core Systems Neutrl operates through two primary interconnected systems that govern the complete lifecycle and utility of NUSD. :::steps ##### **NUSD Minting & Redemption System** Manages the minting and redemption of NUSD tokens through collateral deposits and withdrawals, maintaining collateralization and the synthetic dollar peg. ##### **NUSD Staking & Value Accrual System** Facilitates yield distribution to protocol participants through the sNUSD staking mechanism, enabling yield distribution for NUSD holders. ::: ## **Staked NUSD** The staking system centers on `sNUSD`, an ERC4626-compliant vault where users deposit NUSD to receive sNUSD shares representing their proportional claim on vault holdings. These shares appreciate in value as the protocol accrues and distributes yield through a reward mechanism.
![YieldDistribution](/imgs/YieldDistribution.png)

Yield distribution mechanism for sNUSD stakers

##### Yield Generation Flow `YieldDistributor` manages the complete yield lifecycle: :::steps ##### **Collection** Aggregates yield tokens from external sources and protocol revenue streams ##### **Conversion** Utilizes `Router` infrastructure to convert yield tokens to NUSD ##### **Distribution** Transfers newly minted NUSD to sNUSD ::: ##### Unstaking Process The system enforces a structured withdrawal mechanism: :::steps ##### **Cooldown Initiation** * Users call `cooldownAssets()` or `cooldownShares()` on sNUSD * Underlying NUSD transfers to `Silo` contract for temporary custody ##### **Cooldown Period** * Funds remain locked in Silo for `cooldownDuration` * Prevents immediate withdrawal after unstaking request ##### **Final Withdrawal** * After cooldown expires, users call `unstake()` on sNUSD * sNUSD instructs Silo to release NUSD to user * Completes the unstaking cycle ::: import { Tabs } from "../../components/Tabs"; import { ContractTable } from "../../components/ContractTable"; ## Neutrl Deployed Contracts ), }, { label: "Plasma", children: ( ), }, { label: "Arbitrum", children: ( ), }, ]} /> import { ContentCard } from "../../components/ContentCard"; import { FileText } from "lucide-react"; ## Audits Neutrl protocol undergoes regular security audits to ensure the integrity and safety of smart contracts and protocol operations. import Accordion from "../../components/Accordion"; import { ContentCard } from "../../components/ContentCard"; import { HelpCircle, Coins, Shield, Eye } from "lucide-react"; ## **FAQ**
#### General Questions Yield is primarily generated from OTC Locked Tokens, where positions are typically hedged to manage risk. The remainder of the portfolio may be allocated to liquid strategies intended to support a liquidity buffer during periods of capital stress. NUSD is designed to maintain its peg through market-neutral strategies, onchain transparency, and, where applicable, overcollateralization. These mechanisms are intended to support peg stability but do not guarantee the peg or solvency:

  • • Market-Neutral Hedging:
    Derivatives and perpetual futures are used with the intent of helping offset directional risk during market volatility.

  • • OTC Discounts:
    Discounted OTC asset purchases may provide a margin of safety that can support the peg in challenging conditions.

  • • Duration Matching:
    The protocol aims to align asset and liability durations to help support liquidity for redemptions.

  • • Liquid Reserves:
    Stablecoins (e.g., USDT, USDC, USDe) and other liquid positions may form part of NUSD's backing and are intended to support operations under stress. Stability is not guaranteed.
NUSD is designed to be backed by a diversified portfolio of assets intended to support security, transparency, and resilience. Backing composition and risk controls can change over time, and no backing arrangement eliminates risk of loss.

1/ Portfolio Composition - NUSD may be backed by a mix of:

  • • OTC-acquired crypto assets:
    Often purchased at discounts, which may provide an additional margin of safety.

  • • Stablecoins (e.g., USDT, USDC, USDe):
    Liquid assets that may be used across DeFi and CeFi ecosystems.

  • • Market-Neutral Positions:
    Liquid positions that may generate yield while seeking to limit directional exposure.

2/ Transparency:
  • Assets may be confirmed using a combination of ZK-proofs, custodian attestations, and third-party audits where applicable.

3/ Risk Management Framework:
  • The protocol uses risk-management practices that may include stress testing, margin monitoring, and position adjustments intended to help protect backing assets. These practices do not guarantee security or prevent loss.

    For more information, see [Risks](/risks/)
If NUSD temporarily loses its peg, the protocol may use several mechanisms intended to help restore stability. Recovery is not guaranteed:

  • • Market Incentives:
    Arbitrage opportunities may arise when NUSD deviates from its peg, which can incentivize market participants to buy or sell NUSD and, where they are eligible, redeem against USDC on applicable terms in ways that help bring price back toward its intended value.

  • • Hedging Adjustments:
    The protocol may adjust derivatives and perpetual futures positions to help rebalance the collateral portfolio and support NUSD's value.

  • • Reserve Deployment:
    Liquid reserves, including stablecoins and market-neutral positions, may be deployed to help support the peg and meet redemption demand where practicable.

  • • Proactive Adjustments to Backing:
    In extreme market conditions, the protocol may temporarily reduce exposure to more volatile assets or rebalance the portfolio to prioritize stability over yield.

These measures are intended to help support peg recovery but do not ensure it. Yes, locked-token strategies can involve longer-term, less liquid investments and carry material risk. The protocol seeks to manage these risks through design choices, liquidity management, and diversification, but risk cannot be eliminated:

  • • OTC Discounts:
    Locked tokens are typically purchased at discounts, which may provide a margin of safety in adverse markets.

  • • Market-Neutral Hedging:
    Hedging strategies may be used with the intent of limiting directional price exposure.

  • • Diversified Portfolio:
    Locked tokens may be balanced with more liquid assets such as stablecoins and market-neutral positions to help support operational liquidity.

  • • Secondary Market Access:
    Partnerships with OTC brokers and secondary markets may help enable asset sales when additional liquidity is needed. Availability and pricing are not guaranteed.

For more information, see [Liquidity Risks](/risks/liquidity-risks) In the event of a mass redemption (e.g., during periods of extreme market stress), the protocol has mechanisms in place to manage liquidity and protect NUSD holders:

  • • Liquid Reserves:
    A portion of the protocol's backing assets consists of liquid stablecoins (e.g., USDT, USDC, USDe) and market-neutral positions. These reserves can be quickly deployed to meet redemption requests.

  • • OTC Discounts Provide Cushion:
    The discounted cost basis of OTC-acquired assets ensures that the protocol's collateral has a higher margin of safety, even if some assets are sold under stressed conditions.

  • • Gradual Unwind of Positions:
    In the event of a liquidity crunch, the protocol can gradually unwind positions to avoid unnecessary slippage or losses.

  • • Dynamic Hedging Adjustments:
    The protocol's market-neutral strategies are designed to adapt to changing market conditions, helping to stabilize the collateral portfolio during periods of heightened redemption activity.

  • • Reserve Fund Support:
    The protocol's reserve fund acts as a safety net, providing additional liquidity to meet redemption demands and maintain market confidence.

While a mass redemption scenario represents an extreme stress test, the protocol's focus on liquidity, diversification, and risk management ensures it can respond effectively without compromising USDn's stability or long-term viability. #### Security and Risk Management
  • • Audits by Top-Tier Firms:
    All smart contracts powering Neutrl — including minting, redemption, staking, and collateral management — are audited by independent security firms prior to deployment. Additional audits are conducted with each major upgrade.

  • • Modular, Minimally Permissive Architecture:
    Contracts are built using modular, battle-tested frameworks with strict access controls and minimal privileges. Wherever possible, immutable contracts or time-locked upgrade paths are used to limit attack surfaces and governance abuse.

  • • Off-Exchange Custody & Segregation:
    Assets deployed to exchanges for hedging are managed through segregated, monitored accounts with read-only API keys and withdrawal restrictions, reducing centralised risk vectors.

  • • Real-Time Monitoring & Risk Parameters:
    The protocol continuously monitors margin ratios, funding rate shifts, and position health. Automated risk guards are built into the system to prevent overexposure or cascading liquidations during volatile market conditions.

  • • Bug Bounties & White Hat Engagement:
    Before public mainnet launch Neutrl will launch a public bug bounty programme to incentivise ethical hackers to discover and responsibly disclose vulnerabilities.

  • • Transparency and Response Planning:
    In the unlikely event of a vulnerability, the Neutrl team is prepared with a pre-coordinated incident response plan, including governance pause functions, user communication protocols, and asset safeguarding procedures.
If collateral value drops significantly, the protocol mitigates risk through:
  • • Overcollateralization:
    Assets are secured with significant safety margins, with OTC-acquired discounts providing additional protection.

  • • Dynamic Hedging:
    Derivatives are used to neutralize directional risk and stabilize the portfolio value.

  • • Reserve Deployment:
    Liquid reserves, including stablecoins, are deployed to support NUSD's peg and meet redemptions.

  • • Portfolio Rebalancing:
    Allocations are adjusted to prioritize stability during downturns.

  • • Stress Testing:
    Regular simulations ensure collateral buffers can withstand extreme market conditions.

These measures are intended to help support collateral value but do not ensure it. The protocol manages counterparty risk in OTC purchases through:
  • • Due Diligence:
    Counterparties are vetted for AML/KYC compliance, financial health, and reputation.

  • • Enforced Delivery:
    Smart contracts, escrow mechanisms, or collateralized deals ensure token delivery.

  • • Diversification:
    Transactions are spread across multiple counterparties to limit exposure.

  • • Legal Safeguards:
    Binding agreements include enforcement measures in case of default.

These measures help manage counterparty risk but do not fully mitigate it. For more details, see [Counterparty Risks](/risks/counterparty-risks) Exchange risk is mitigated by:
  • • Off-Exchange Settlement:
    Providers like Copper's Clearloop custody assets off exchanges, reducing custodial risk.

  • • Diversification:
    Trading activity is spread across multiple exchanges with strict concentration limits.

  • • Real-Time Monitoring:
    Exchange solvency and operational health are actively tracked, with positions adjusted if risks emerge.

  • • Frequent PnL Settlement:
    Unrealized profits are regularly settled to minimize funds left on exchanges.

  • • Failover Mechanisms:
    If an exchange fails, positions are reallocated to other venues or instruments.

For more details, see [Exchange Risks](/risks/exchange-risks) Liquidation risk is managed through:
  • • Leverage Limits:
    Conservative leverage limits reduces the likelihood of margin calls.

  • • Overcollateralization:
    Margin buffers ensure positions remain secure during volatility.

  • • Dynamic Monitoring:
    Real-time tracking of margin levels allows proactive collateral deployment.

  • • Position Diversification:
    Positions are spread across exchanges to avoid concentration risks.

  • • Stress Testing:
    Simulations prepare for extreme market scenarios.

  • • Reserve Fund Support:
    Liquid reserves are available for margin top-ups during stress events.

  • • 24/7 Oversight:
    A global trading team ensures rapid intervention when needed.

For more details, see [Margin Risks](/risks/margin-risks) #### Transparency and Governance Neutrl is built on the principles of transparency, accountability, and verifiable performance. Trust is earned through:
  • • Onchain transparency:
    All critical contract interactions — including minting, redemptions, staking, collateral management, and strategy performance — are visible and auditable onchain.

  • • Off-exchange custody controls:
    The protocol uses verifiable custody arrangements for assets held on exchanges, with risk parameters enforced by smart contracts.

  • • Credible backing:
    The team is supported by respected investors and advisors from across DeFi, trading, and institutional markets.

  • • Experienced team:
    Neutrl is led by individuals with backgrounds in high-frequency trading, portfolio management, OTC structuring, and DeFi protocol architecture.

Over time, the protocol will progressively decentralise through onchain governance, enabling the community to shape and secure Neutrl's evolution. Neutrl provides real-time, public access to key protocol data:
  • • Strategy dashboards:
    Showing live performance of OTC arbitrage and hedged positions

  • • Collateral composition:
    Breakdown of NUSD backing assets and their risk profiles

  • • Protocol revenues and fees:
    Real-time and historical earnings from funding, arbitrage, and spreads

  • • TVL and user activity:
    Usage metrics, staking, mint/redeem flows, and PLP participation
All data is onchain where possible and supplemented by off-chain attestations (e.g. exchange custody balances, OTC deal documentation).
Accuracy is ensured through:
  • • Third-party audits of smart contracts and risk models
  • • Use of reputable oracles and indexers for pricing and position tracking
  • • Eventual implementation of proof-of-reserve frameworks for off-chain holdings

Independent third parties looking to assess the health and solvency of the protocol can do so through Neutrl’s Transparency Dashboard, which provides real-time visibility into reserves and liabilities. Trust in DeFi must be earned — and at Neutrl, transparency is not an option, it's foundational. ## **Security** ### **Risk management** To ensure the security and efficiency of the protocol, Neutrl implements: * **Custody Solutions** – Off-exchange settlement via Copper Clearloop and Fireblocks mitigates counterparty risk. * **Exchange Diversification** – Trading activity is distributed across Binance, OKX, and other major platforms to reduce exposure to exchange-specific failures. * **Redundancy Mechanisms** – Liquidity pools and dynamic liquidity ratios guarantee seamless redemptions. * **Collateral Optimization** – Systematic hedging minimizes liquidation risk. **Insurance Pool** * Funded by protocol fees, this pool provides a buffer against extreme market events. ### **Smart Contract Security** The owner of all Neutrl protocol contracts is secured by an MPC (Multi-Party Computation) wallet at [`0x51De41ec06e779715d7FB71Ef83A736cFc903217`](https://etherscan.io/address/0x51De41ec06e779715d7FB71Ef83A736cFc903217). MPC wallets use advanced cryptography to distribute private key shares across multiple parties, requiring a threshold of signatures to authorize transactions without ever reconstructing the full private key in a single location. While the wallet appears as an EOA (Externally Owned Account) on-chain rather than a traditional multisig contract, it operates with a **4/6 signature threshold**, meaning any transaction requires approval from at least 4 out of 6 authorized signers. Additionally, the MPC wallet enforces **strict action policies** that limit the scope of possible operations, restricting what transactions can be proposed and executed to prevent unauthorized or malicious activities. **Transaction Monitoring** Neutrl integrates [Hypernative](https://hypernative.io/) to monitor every transaction initiated by the admin wallet in real-time. This monitoring layer provides an additional security mechanism to detect and prevent phishing attempts, malicious transactions, or unauthorized access before they can affect the protocol. ## **Counterparty Risks** Counterparty risk arises from the possibility that entities involved in OTC deals, secondary markets, custodians, or exchanges fail to honor their contractual obligations. This risk is particularly significant in OTC deals, where the protocol relies on counterparties to: * Deliver locked tokens as per agreed terms. * Uphold hedging arrangements or other contractual commitments. Failures by counterparties can result in financial losses, delayed transactions, or disruptions to the protocol's operations. Counterparty risk is also relevant in funding arbitrage, where centralized exchanges act as intermediaries for perpetual futures and other derivatives. *** ##### **Sources of Counterparty Risk** :::steps ##### **OTC and Secondary Market Deal Failures** Counterparties in OTC or secondary markets may fail to deliver locked tokens or other assets due to operational failures, insolvency, or fraudulent activity. Discrepancies between promised and delivered token allocations may occur, especially in deals involving vesting schedules or future unlocks. ##### **Exchange Counterparty Risk** Centralized exchanges (CEX) used for perpetual futures trading may introduce risk if they fail operationally, are insolvent, or engage in unethical practices. Risk arises from delays or failures in settling trades, transferring funds, or liquidating positions. ##### **Custodial Counterparty Risk** Custodians used for triparty escrow in OTC deals or for the safekeeping of collateral may fail to uphold their obligations. Risks include operational failure, insolvency, or non-compliance with regulatory requirements. ##### **Legal and Jurisdictional Risks** Counterparty risk is amplified in jurisdictions with weak legal systems, unclear enforcement mechanisms, or poor investor protections. Cross-border transactions may involve additional complexities, such as inconsistent regulatory frameworks or geopolitical risks. ##### **Collateral Default** In collateralized OTC transactions, counterparty risk extends to the collateral offered by the counterparty. If the collateral loses value or cannot be liquidated, the protocol may face losses. ::: *** ##### **Risk Mitigation Measures** :::steps ##### **Counterparty Due Diligence** * **Rigorous Vetting Process**: All counterparties undergo a thorough assessment process that includes: * **AML/KYC Compliance**: Ensuring counterparties meet anti-money laundering (AML) and know-your-customer (KYC) requirements. * **Financial Health Analysis**: Evaluating the financial stability and solvency of counterparties, including their balance sheets and historical performance. * **Operational Reliability**: Assessing the counterparty's operational track record, including their ability to deliver assets on time and fulfill contractual obligations. * **Market Reputation**: Reviewing the counterparty's reputation in the industry, including references from trusted parties and past deal performance. * **Red Flags and Exclusions**: Counterparties with a history of defaults, disputes, or unethical behavior are excluded from transactions. ##### **Enforced Delivery Mechanisms** * **Triparty Escrow Agreements**: Wherever possible, OTC deals are structured using qualified custodians as escrow agents. These custodians act as intermediaries to ensure that locked tokens are delivered as agreed. Escrow mechanisms reduce counterparty risk by holding funds or assets in a neutral third-party account until all conditions of the transaction are met. * **Smart Contract Enforced Vesting**: For token deals with vesting schedules, smart contracts are used to enforce the delivery of tokens. Smart contracts ensure that delivery is automated and trustless, reducing the risk of manual intervention or fraud. * **Collateralized Transactions**: In cases where escrow or smart contracts are not viable, deals are structured as collateralized transactions. Counterparties are required to post collateral (e.g., stablecoins, BTC, or ETH) that can be liquidated in the event of non-delivery or default. ##### **Diversification of Exposure** * **Transaction Diversification**: The protocol avoids concentrated exposure to any single deal or counterparty. OTC transactions are distributed across multiple counterparties and token issuances to minimize the impact of a single default. ##### **Legal Safeguards** * **Enforceable Agreements**: All OTC transactions are governed by legally binding agreements that clearly define the terms, conditions, and obligations of both parties. Agreements include provisions for dispute resolution, penalties for non-compliance, and performance guarantees. * **Recourse Mechanisms**: Contracts are designed to provide legal recourse in the event of a counterparty default. This includes access to arbitration or litigation in reputable jurisdictions. * **Choice of Jurisdiction**: Transactions are structured under legal frameworks in jurisdictions with strong investor protections and enforceable contract laws. ##### **Monitoring and Contingency Planning** * **Real-Time Monitoring**: Counterparty performance is monitored in real-time to detect early signs of default, such as delays in delivery or changes in financial health. Alerts are triggered for anomalies, allowing the protocol to take proactive measures. * **Contingency Plans**: Predefined contingency plans are in place for counterparty defaults, including liquidating posted collateral to cover losses, transitioning deals to alternative counterparties or custodians, and adjusting portfolio allocations to reduce reliance on high-risk counterparties. ##### **Risk Management for Custodians** * **Custodian Vetting**: Custodians used for escrow or collateral management undergo the same rigorous vetting process as other counterparties. This includes assessments of their operational capabilities, security protocols, and financial stability. * **Segregated Accounts**: Assets held by custodians are kept in segregated accounts to ensure they are not commingled with the custodian's own assets. Segregation protects the protocol's assets in the event of custodian insolvency. ::: These measures help manage counterparty risk but do not fully mitigate it. ## **Exchange Risks** The protocol relies on centralized and decentralized exchanges (CEX and DEX) to execute its **funding arbitrage** and **hedging activities**. Centralized exchanges are critical for trading perpetual futures, while decentralized exchanges provide additional liquidity and arbitrage opportunities. **Exchange Risk** arises when these venues experience operational disruptions, financial insolvency, regulatory crackdowns, or other failures that prevent the protocol from executing trades, settling positions, or accessing funds. Such events can lead to: * Losses due to the inability to settle positions. * Exposure to unrealized profits or collateral trapped on an exchange. * Disruptions in hedging activities, potentially leaving the protocol unhedged against market volatility. *** ##### **Sources of Exchange Risk** :::steps ##### **Insolvency or Bankruptcy** Centralized exchanges may become insolvent due to poor financial management, hack-related losses, or external market events. Examples include the collapse of FTX and Mt. Gox, which led to significant losses for users whose funds were trapped. ##### **Operational Failures** Exchanges may experience outages, degraded performance, or data inaccuracies during periods of high market volatility, preventing trades or liquidations from being executed in a timely manner. ##### **Regulatory Risks** Exchanges are subject to regulatory actions, including license revocations, trading restrictions, or asset freezes, which can impact users' ability to access funds. For example, regional bans on certain exchanges or assets may prevent the protocol from maintaining positions or withdrawing collateral. ##### **Custodial Risks** Funds deposited directly on exchanges remain under custodial control of the exchange, leaving them vulnerable to mismanagement, fraud, or loss in the event of exchange failure. ##### **Liquidity Risks** Thin order books or a sudden drop in exchange liquidity can create slippage and impact trade execution, especially for large positions. ##### **Smart Contract Risks (DEX-Specific)** Decentralized exchanges rely on smart contracts, which may be exploited, malfunction, or experience downtime, leading to losses or the inability to execute trades. ::: *** ##### **Risk Mitigation Measures** :::steps ##### **Off-Exchange Settlement** * Protocol assets are not fully deposited on centralized exchanges. Instead, **off-exchange settlement providers** (e.g., Copper's Clearloop, CEFFU's MirrorX) are used to custody assets and minimize direct exposure to exchange custodial risks. * These providers facilitate non-custodial trading workflows, allowing the protocol to execute trades without transferring full ownership of the collateral to the exchange. ##### **Diversification Across Exchanges** * The protocol spreads trading activity across multiple exchanges to reduce reliance on any single venue. * Strict concentration limits are enforced to ensure that no single exchange exceeds a predefined percentage of the protocol's trading activity or collateral exposure. * Exchanges are evaluated based on their financial health, liquidity, regulatory compliance, and operational reliability. ##### **Real-Time Monitoring** * The protocol continuously monitors exchange solvency, operational performance, and market conditions. * Factors monitored include exchange reserve transparency and proof-of-reserves data (where available), trade execution performance and latency, and regulatory developments affecting specific exchanges or jurisdictions. * If an exchange shows signs of trouble (e.g., withdrawal delays, regulatory scrutiny, or significant reserve outflows), the protocol reduces or closes positions on that exchange. ##### **Frequent Settlement of PnL** * Unrealized profits and losses (PnL) are settled frequently to prevent large balances from accumulating on any one exchange. * Settlement cycles are determined based on the operational characteristics of each exchange (e.g., daily settlement on Binance and Deribit, hourly settlements on Bybit). ##### **Failover Mechanisms** * In the event of an exchange failure, the protocol employs failover mechanisms to reallocate positions and maintain hedging activities. * Failover actions include transitioning open positions to alternative exchanges with sufficient liquidity, using alternative instruments such as deliverable futures or decentralized derivatives to maintain hedges, and adjusting portfolio allocations to reduce reliance on derivatives temporarily. ##### **Stress Testing and Contingency Planning** * The protocol conducts regular stress tests to simulate exchange failure scenarios, such as abrupt insolvency of a major exchange, withdrawal freezes or delays, and market-wide liquidity crises. * Contingency plans are developed based on the results of these tests to ensure the protocol remains operational under adverse conditions. ::: ## **Funding Risks** Neutrl uses perpetual futures contracts to hedge the delta in both OTC and funding arbitrage components. Perpetual futures contracts are subject to **Funding Rate**, where payments are exchanged between long and short position holders to maintain price alignment between the perpetual contract and the spot market. **Funding Risk** arises when the funding rates become persistently negative (i.e., the protocol must pay funding rather than receive it). This can impact the profitability of the strategy and potentially reduce the protocol's overall revenue. While this is a risk to strategy profitability, historical data shows that periods of negative funding rarely persist, and show mean-reverting characteristics. ##### **Risk Mitigation Measures** :::steps ##### **Dynamic Allocation of TVL** The protocol dynamically shifts capital between OTC/Secondary deals and funding arbitrage. During periods of negative funding, the protocol will shift allocation to arbitrage pairs exhibiting positive funding, or in the case of market stresses, shift to yield-bearing stablecoins to minimize impact on protocol yield. Conversely, during periods of favorable funding, TVL is allocated to arbitrage pairs exhibiting high positive funding to maximize yield. ##### **Reserve Fund** A reserve fund is maintained to absorb losses during occasional periods of negative funding. The reserve fund is capitalized using a portion of protocol revenue generated during periods of strong positive funding. ##### **Historical Behavior of Funding Rates** Funding rates for major assets (e.g., BTC, ETH) have historically shown a **mean-reverting, positively biased trend**. Analysis of data over the past three years indicates that negative funding periods are typically short-lived, and the annualized average funding rate remains positive (\~7.8% for BTC and \~9.15% for ETH). ##### **Hedging Funding Exposure** The protocol can hedge funding rate exposure by taking positions in alternative derivative instruments, such as calendar futures with fixed funding. ##### **Real-Time Monitoring and Adjustment** Funding rates across exchanges are monitored in real-time. Positions are adjusted dynamically to take advantage of exchanges offering the most favorable funding. ::: import { ContentCard } from "../../components/ContentCard"; import { DollarSign, Droplets, Users, Building2, Anchor, TrendingUp, } from "lucide-react"; ## **Risks** Neutrl is committed to transparency and strives to provide a comprehensive understanding of the risks associated with its operations. This document outlines the risks inherent in our strategies, the mechanisms we use to mitigate them, and how these risks are actively monitored and managed.
## **Liquidity Risks** Liquidity risk refers to the protocol's ability to meet redemption requests without negatively impacting the value of the portfolio. This risk is exacerbated by the mix of illiquid (OTC/Secondary deals) and liquid (funding arbitrage) assets in the portfolio. The illiquid nature of OTC/Secondary deals means that these positions ideally should be held to maturity. In order to meet redemption requests, the protocol must align its asset allocation with the duration of liabilities. ##### **Risk Mitigation Measures** :::steps ##### **Liability-Driven Allocation** * The protocol matches the liquidity profile of assets with the duration of liabilities. * Short-term deposits are allocated to funding arbitrage, while longer-term deposits are allocated to OTC/Secondary deals. ##### **Liquidity Buffers** * A majority of the TVL is held in liquid assets (e.g., stablecoins or funding arbitrage positions) as a buffer to handle unexpected redemption requests. ##### **Stress Testing** * The protocol conducts regular stress tests to simulate extreme market conditions and assess the liquidity of the portfolio. * Stress tests account for scenarios such as sudden mass redemptions or temporary market disruptions. ##### **Redemption Limits** * To protect the protocol from liquidity shortfalls, redemption requests may be queued or capped during periods of extreme market stress. * Redemption limits are designed to ensure the solvency of the protocol while minimizing disruption to users. ##### **Portfolio Rebalancing** * Positions are rebalanced periodically to ensure the portfolio remains aligned with liability maturities. * This includes reallocating capital from funding arbitrage to OTC/Secondary deals (or vice versa) based on liquidity needs. ##### **Secondary Market Liquidity** * Partnerships with OTC brokers and secondary markets may help enable asset sales when additional liquidity is needed. Availability and pricing are not guaranteed. ::: ## **Margin Risks** Margin risk refers to the potential for the protocol's trading positions to be forcibly liquidated by an exchange's risk management engine due to insufficient collateral to meet margin requirements. This risk is particularly relevant when the protocol uses **perpetual futures contracts** for hedging or arbitrage purposes. Forced liquidation occurs when the collateral value on an exchange account falls below the **Maintenance Margin Requirement (MMR)** set by the exchange. This can happen due to: * Sudden adverse price movements. * High leverage usage, amplifying the impact of price volatility. * Delays in adding collateral to replenish margin requirements. Liquidations result in realized losses, potentially disrupt the protocol's hedging or arbitrage strategy, and may expose the protocol to further risks if positions cannot be quickly re-established. *** ##### **Sources of Margin Risk** :::steps ##### **Excessive Leverage** High leverage amplifies the impact of price volatility, increasing the likelihood of margin calls and forced liquidations. ##### **Market Volatility** Sudden and extreme price movements in assets can rapidly erode collateral value, especially during low-liquidity periods or market crashes. ##### **Collateral Volatility** If the protocol uses volatile assets as collateral, fluctuations in their value can increase the risk of liquidation. ##### **Exchange-Specific Liquidation Mechanisms** Different exchanges use varying liquidation thresholds, risk engines, and margin call protocols. These inconsistencies can create additional complexity in managing margin risk. ##### **Delayed Reactions to Margin Calls** In fast-moving markets, delays in deploying additional collateral to meet margin requirements can result in liquidation. ##### **Liquidity Crises** In periods of market stress, a lack of liquidity can result in slippage during liquidation events, magnifying realized losses. ::: *** ##### **Risk Mitigation Measures** :::steps ##### **Leverage Limits** * The protocol employs strict leverage limits for perpetual futures positions to ensure that collateral buffers are sufficient to withstand significant market volatility. * Positions are typically over-collateralized, with a **margin utilization ratio** well below the maximum allowed on the exchange. ##### **Dynamic Margin Management** * The protocol actively monitors **margin ratios** across all exchanges in real-time using automated systems. * When margin levels approach critical thresholds, additional collateral is deployed immediately to prevent liquidation. * Automated alerts are triggered when margin utilization exceeds predefined thresholds (e.g., 50% utilization), enabling the team to act promptly. * Collateral top-ups are automated in most cases, with manual intervention available for exceptional circumstances. ##### **Diversified Exchange Usage** * Positions are distributed across multiple exchanges to reduce concentration risk and exposure to a single exchange's liquidation engine. * Each exchange's margin requirements, liquidation thresholds, and risk management systems are thoroughly analyzed to ensure compatibility with the protocol's trading strategy. ##### **Stress Testing for Margin Requirements** * The protocol conducts regular **stress tests** to simulate extreme market conditions, including sudden price crashes or rapid depegging of collateral, high volatility scenarios with cascading liquidations across multiple exchanges, and periods of low liquidity where slippage is significant during forced liquidations. * **Key Metrics Tested**: Margin utilization ratios, impact of price movements on collateral value and maintenance margin, and liquidity available to absorb additional collateral requirements. ##### **Proactive Position Reduction** * In periods of abnormal market conditions (e.g., extreme volatility or low liquidity), the protocol proactively reduces the size of its trading positions to minimize exposure. * This includes partially closing funding arbitrage positions or adjusting hedges to reduce margin utilization. ##### **Reserve Fund Support** * The protocol maintains a **reserve fund** that can be rapidly deployed to bolster margin positions if necessary. * This reserve is capitalized using a portion of protocol revenues and is held in stablecoins or other equivalently liquid assets. ##### **24/7 Coverage** * The protocol operates a **24/7 trading team** with global coverage, ensuring continuous monitoring of margin positions and market conditions. * The team is supported by automated systems for margin management, with manual intervention available in the event of abnormalities. ##### **Liquidity Management** * The protocol maintains sufficient liquidity to meet collateral requirements across all exchanges. * A portion of assets is held in highly liquid stablecoins to ensure immediate availability for margin top-ups. ::: ## **Stablecoin Risks** Stablecoins (e.g., USDC, USDT, USDe) serve as the primary funding source for the protocol and are essential for collateralization, liquidity management, and trading operations. While stablecoins are designed to maintain a 1:1 peg to fiat currencies like the U.S. dollar, they introduce unique risks that must be carefully managed to ensure the integrity of the protocol. The key risks associated with stablecoins include: :::steps ##### **Depegging Risk** * The risk that a stablecoin loses its peg to its underlying fiat currency, leading to price volatility and potential losses. * Depegging events can be triggered by market panic, liquidity crises, regulatory actions, or mismanagement of reserves. ##### **Regulatory Risk** * Regulatory scrutiny or government actions against stablecoin issuers could impact their availability, usability, or solvency. * Stablecoins may also face censorship risk, where specific addresses or transactions are blacklisted by issuers or regulators. ##### **Custodial Risk** * Many stablecoins are backed by fiat reserves held in regulated financial institutions. This introduces counterparty risk, as the solvency and operational reliability of these custodians can directly impact the stablecoin's stability. * Custodial exposure also makes stablecoins vulnerable to systemic banking crises or insolvencies, as seen with events such as the Silicon Valley Bank collapse. ##### **Issuer Solvency Risk** Stablecoins represent unsecured credit exposure to the issuer. If the issuer fails to maintain sufficient reserves or engages in risky practices, it could lead to insolvency and a loss of the stablecoin's value. ##### **Blockchain and Smart Contract Risks** Decentralized stablecoins may rely on smart contracts or onchain mechanisms for stability. These systems are vulnerable to exploits, bugs, or market manipulation. ::: ##### **Risk Mitigation Measures** :::steps ##### **Stablecoin Diversification** * The protocol avoids reliance on a single stablecoin to reduce exposure to risks associated with any one issuer, custodian, or reserve structure. * A "basket" of stablecoins, including fiat-backed stablecoins (e.g., USDC, USDT) and decentralized stablecoins (e.g., USDe), is used to diversify risk. * Allocations to stablecoins are periodically reviewed and adjusted based on market conditions, regulatory developments, and issuer reliability. ##### **Monitoring and Action** * Stablecoin solvency, reserve transparency, and price stability are closely monitored across major trading venues and onchain markets. * Metrics such as trading volume, liquidity depth, onchain reserves, and peg stability are continuously analyzed to detect early signs of instability. * If a stablecoin shows signs of instability (e.g., prolonged depegging, trade volume anomalies, or reserve concerns), the protocol rapidly reduces or closes positions in that stablecoin. ##### **Proactive Risk Management** * The protocol maintains contingency plans for severe stablecoin disruptions, including predefined thresholds for depegging or solvency concerns that trigger automatic reallocation of assets. * Hedging mechanisms (e.g., shorting a depegging stablecoin) may be employed during extreme market conditions to mitigate losses. ##### **Reserve Composition Transparency** * The protocol provides regular updates on its reserve composition through its transparency dashboards and audit reports * This includes detailed breakdowns of stablecoin holdings, liquidity buffers, and allocation strategies. :::