FAQ

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.

• • 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.

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

• 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

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

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.

• • 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

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

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

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.