# Marketplace

In addition to modulating the NEB token incentives for rebalancing which enables the proper function of clusters, Nebula also manages a decentralized marketplace for cluster tokens, using the Astroport (opens new window) as an automated market-maker (AMM) for liquidity pools.

While cluster tokens are expected to trade on a number of different exchanges, Nebula's default cluster market is considered the base layer marketplace recognized by the protocol. In the initial days after the protocol launches, the protocol will provide NEB token rewards to incentivize users to participate in maintaining market liquidity and price-parity.

# Mechanisms

# Cluster Token Liquidity

To facilitate a positive trading experience, the default marketplace for cluster tokens must aim to ensure the asset pools are liquid - i.e. the market has a sufficient amount of capital to sustain healthy trading activity. To this effect, Nebula Protocol provides NEB tokens as an incentive to users who provide liquidity to Cluster Tokens against UST.

To do so, users can provide Cluster Tokens and UST to Astroport, and stake the received CT-UST LP tokens to earn a portion of the new NEB tokens released into the supply per block. Staked LP tokens can be withdrawn anytime with no time delay and subsequently used to withdraw liquidity back from the pool. It is important to note that this operation is affected by "impermanent loss", and you can potentially receive liquidity of lower notional value than what you started with.

# Rewards

Once users have staked their CT-UST LP tokens, they will begin accruing rewards every block. The rewards for LP stakers come from new NEB tokens released into circulation by the protocol, which is in accordance with the NEB token distribution schedule (to be announced). The supply will be inflationary until it reaches the cap, after which no new NEB tokens will be introduced.

Each Cluster Token has a weight associated with it, which determines the amount of NEB tokens it receives out of the NEB tokens introduced per block. A user who stakes CT-UST LP tokens earns NEB tokens from each of the Cluster Token staking pools they contribute to.

How many NEB tokens each user who stakes CT-UST LP tokens receives is dependent on several factors, some of which can be modified by governance:

  • the reward weight of the particular cluster
  • user's share of CT-UST LP out of total for that staking pool
  • NEB token distribution schedule

In general, users can expect to continuously accumulate NEB token rewards proportional to the size of CT-UST LP deposited, for each cluster for which they provide CT-UST liquidity.

# Arbitrage

Another property that Nebula's default marketplace aims to preserve is price-parity between a unit Cluster Token and the underlying assets in the cluster's inventory, known as the NAV (net asset value). Since Nebula Clusters are continuously rebalanced by users performing CREATE / REDEEM operations every block, the cluster token's price is expected to converge toward the theoretical NAV, within a small band of error. As cluster tokens can be redeemed for the underlying assets, arbitrage pathways can exist.

In addition to the profit generated from arbitrage, Nebula Protocol will also provide a NEB token reward for users who perform the arbitrage operation. The two sections below outline each possible arbitrage case.

# Market Price > NAV Price

If the market price of the Cluster Token (CT) is greater than the price derived from its NAV, users are incentivized to bring its price down by increasing selling pressure of the Cluster Token on Astroport. A user with UST can

  1. purchase assets on Astroport in appropriate amounts
  2. issue a CREATE operation to mint new CT tokens
  3. sell those CT tokens on Astroport for UST, earning a profit (assuming the arbitrage is successful)

# Market Price < NAV Price

If the market price of the Cluster Token (CT) is less than the price derived from its NAV, users are incentivized to bring its price up by increasing buying pressure of the Cluster Token on Astroport. A user with UST can

  1. purchase Cluster Tokens on Astroport
  2. redeem the cluster tokens for the cluster's underlying assets
  3. sell those CT tokens on Astroport for UST, earning a profit (assuming the arbitrage is successful)

# Rewards

In addition to the natural profit that comes with the arbitrage, Nebula protocol further incentivizes users who perform arbitrage with NEB tokens. Any users that performs successful arbitrage actions through the incentives campaign at each defined interval will be distributed a portion of NEB rewards proportional to their contribution.

Updated on: 4/28/2022, 7:21:28 AM