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FAQ

General Questions

1. How is this protocol different from other stablecoins, like Usual or Ethena?

  • Yield is derived primarily from OTC Locked Tokens, where the delta is fully hedged
  • The remainder of the portfolio is deployed to liquid strategies to maintain sufficient liquidity buffer in times of capital stress

2. How can I trust that NUSD will maintain the Stablecoin peg?

  • NUSD maintains its peg through delta-neutral strategies, onchain transparency, and overcollateralization:
    • Delta-Neutral Hedging: Derivatives and perpetual futures offset directional risk, keeping NUSD stable during market volatility.
    • OTC Discounts: Discounted OTC asset purchases provide a safety margin, supporting the peg even in challenging conditions.
    • Duration Matching: The protocol aligns asset and liability durations to ensure sufficient liquidity for redemptions.
    • Liquid Reserves: Stablecoins (e.g., USDT, USDC, USDe) and liquid delta-neutral positions back NUSD, maintaining stability under stress.

3. How is NUSD backed, and how do I know it's secure?

  • NUSD is fully backed by a diversified portfolio of assets designed to provide security, transparency, and resilience
  • Portfolio Composition: NUSD is backed by a mix of:
    • OTC-acquired crypto assets: Purchased at significant discounts, providing a higher margin of safety.
    • Stablecoins (e.g., USDT, USDC, USDe): Highly liquid and composable within DeFi and CeFi ecosystems.
    • Delta-Neutral Positions: Liquid positions that generate yield while mitigating directional risk.
  • Transparency:
    • All assets are confirmed using a combination of ZK-proofs, custodian attestations, and third party audits
  • Risk Management Framework:
    • The protocol employs a robust risk management framework that includes stress testing, margin monitoring, and proactive position adjustments to protect the backing assets and ensure their security.
    • For more information, see Risks

4. What happens if NUSD loses its peg?

  • If NUSD temporarily loses its peg, the protocol has several mechanisms in place to restore stability:
    • Market Incentives: Arbitrage opportunities naturally arise when NUSD deviates from its peg, incentivizing traders and market makers to buy or sell NUSD and redeem against USDC 1:1 to bring its price back in line with its intended value. See Peg Mechanism
    • Delta Hedging Adjustments: The protocol adjusts its derivatives and perpetual futures positions to rebalance the collateral portfolio and stabilize NUSD's value.
    • Reserve Deployment: Liquid reserves, including stablecoins and delta-neutral positions, can be rapidly deployed to support the peg and meet redemption demands.
    • Proactive Adjustments to Backing: If market conditions are extreme, the protocol may temporarily scale down exposure to volatile assets or rebalance its portfolio to prioritize stability over yield.
  • The combination of these measures ensures that NUSD can recover its peg efficiently, even during periods of high market volatility.

5. Isn't the Locked Token Funding Pool risky since the investments are illiquid?

  • While the locked token strategy involves longer-term, illiquid investments, the protocol mitigates these risks through careful design, liquidity management, and diversification:
    • OTC Discounts: Locked tokens are purchased at discounts, providing a safety margin even in adverse markets.
    • Delta-Neutral Hedging: Market risk is reduced through hedging strategies, limiting exposure to price fluctuations.
    • Diversified Portfolio: Locked tokens are balanced with liquid assets like stablecoins and delta-neutral positions, ensuring operational liquidity.
    • Secondary Market Access: Partnerships with OTC brokers and secondary markets enable asset liquidation to generate additional liquidity.
  • For more information, see Liquidity Risks

6. What will happen if there's a flight to safety and users mass redeem NUSD?

  • 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 delta-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 delta-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.

Tokenomics and Incentives

1. What is the purpose of the NTRL token?

The NTRL token is the core governance and value-accrual asset of the Neutrl protocol. It plays a multi-faceted role:

  • Governance: NTRL holders govern key protocol parameters, including yield allocation, risk thresholds, collateral types, insurance pool management, and product expansion decisions.

Security and Risk Management

1. How do you ensure the protocol is secure from exploits or hacks?

  • 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 modular, battle-tested frameworks Contracts are built using 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.

2. What happens if the collateral value drops significantly?

  • 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 ensure the protocol remains resilient even during severe market volatility.

3. How do you manage counterparty risk for token purchases?

  • The protocol minimizes 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.
  • For more details, see Counterparty Risks

4. How do you manage exchange counterparty risk?

  • 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

5. How do you manage liquidation risk?

  • Liquidation risk is managed through:
    • Leverage Limits: Conservative leverage limits (max 2x) 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

Transparency and Governance

1. How can users trust the team and the protocol?

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.

2. How are governance decisions made?

Governance is powered by the NTRL token, with holders able to propose and vote on protocol changes, including:

  • Yield allocation and incentive design
  • Risk parameters and treasury management
  • New collateral types or strategy integrations
  • Treasury spending and ecosystem grants
  • Insurance fund deployments and backstop mechanisms

Proposals may initially go through a community discussion phase, followed by a formal onchain vote via a governance interface (to be launched post-TGE).

In the early stages, a core governance council will ensure operational stability, with progressive transition toward full community governance as NTRL is distributed more widely.

3. What transparency information do you provide? How do you ensure the accuracy of this information?

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

Trust in DeFi must be earned — and at Neutrl, transparency is not an option, it's foundational.

The content on this page is for general informational and illustrative purposes only and does not constitute legal, tax, or investment advice. Information may be incomplete, outdated, or subject to change without notice. No reliance should be placed on the accuracy or completeness of any material presented. Past performance is not indicative of future results. Always consult your own legal, tax, and financial advisors before making any decisions.