In the current cryptocurrency ecosystem, we can find many Stablecoins that follow the price of various legal tender currencies (usually the US dollar). The most important and secure Stablecoins have a key point in common for their operation: backing.
In broad terms, tokens are identified with backing in fiat currency (USDC) and tokens that are backed by other cryptocurrencies (DAI). In either case, backing is central to maintaining the parity and stability of stablecoins.
In the case of Num-S, they are designed with a hybrid collateralization model. This means that, unlike other Stablecoins, Num-S can be issued with collateralization of cryptocurrencies, legal tender currencies, and other assets. Therefore, to understand the backing of the coins, we must first understand their issuance.
Issuance of Num-S
The issuance of Num-S is done through various mechanisms designed by Num Finance to ensure that all tokens in circulation are collateralized.
• The first way to issue Num-S is through the cryptocurrency collateral loan mechanism. This mechanism is already in practice and is being used by many users.
In a collateral loan, the user requesting the loan (issuing Num-S) must leave one of the cryptocurrencies accepted as collateral in Num Finance’s possession as a guarantee. When the collateral is sent, the user can take out a loan for a smaller amount in one of the active Num-S. That is, loans are over-collateralized. Once Num Finance receives the collateral, a new issuance of tokens is made, and the loan is delivered to the users. Conversely, when the user repays the loan, the returned Num-S is removed from circulation, and the user can access their collateral again. In this way, all tokens that are delivered as loans are backed. We can see very similar mechanisms in the operation of other Stablecoins such as DAI or LUSD.
To read more about loans, you can go to the article on the subject.
• Another issuance path that Num Finance designed is exchange in Liquidity Pools. These pools are assembled to expand access to tokens, provide liquidity to the market, and provide a reference price.
Under this scheme, Num Finance constitutes a liquidity pool between a Num-S and a dollar Stablecoin (USD-S). Once the pool is in operation, users can freely access to issue Num-S in exchange for the USD-S with which the pair was made. In turn, users can withdraw Num-S from circulation in exchange for that USD-S. For example, the two active PancakeSwap pools at this time are nuARS/USDC and nuPEN/USDC. For more information, you can read the article on Liquidity Pools on NumBlog.
• Finally, the third issuance path is a mechanism that is not yet available: the direct purchase of Num-S from Num Finance. In the future, users will be able to buy Num-S using various payment methods. Unlike the collateral loan mechanism, when a user uses this mechanism, they do not get a loan but make a purchase of Num-S and have no future obligation to Num Finance.
In this case, Num Finance receives an asset for a value equivalent to the Num-S that is issued, and the user receives Num-S. These assets can be other cryptocurrencies, legal tender currencies, or other assets. All assets received constitute the NFR (Num Finance Reserve). The NFR acts as the backing of all Num-S issued through the purchase path and will operate similarly to the Peg Stability Module (PSM) of Maker DAO. This reserve will contribute to the stability and scalability of every Num-S.
Through these three emission mechanisms that we have designed, we ensure that no Num-S tokens are issued without the corresponding backing. Additionally, users can access the Reserve Reports that we publish every month.