$NECT Peg

This page outlines how $NECT achieves price parity with $1

Hard Peg Mechanisms

The hard peg of $NECT is enforced through redemptions. Users can redeem $NECT for collateral at face value minus a dynamic redemption fee. Given the multi-collateral nature of Beraborrow, the effective hard peg is tied to the Minimum Collateral Ratio (MCR) of the collateral type with the lowest MCR in the system.

For example, if the lowest MCR among collateral types is 110%, the system uses this as the basis for maintaining the hard peg ($1.10). Arbitrageurs help enforce the peg by redeeming $NECT when its market value drops below $1, thus restoring parity.

NOTE: MCR values for all collateral assets will be finalised close to mainnet.

Soft Peg Mechanisms

The soft peg mechanism of $NECT allows the price to deviate slightly above or below $1 in the open market while leveraging market incentives and the protocol's design to restore stability.

When $NECT Trades Below $1

If $NECT trades below $1, arbitrage opportunities and the redemption mechanism incentivize upward price pressure. For example:

• Scenario: The market price of $NECT drops to $0.98.

• Arbitrage Action: Arbitrageurs can purchase $NECT on the open market at $0.98 and redeem it directly with the protocol for collateral worth $1, minus a small redemption fee (0.5%).

• Result: This creates buying pressure for $NECT in the market, driving its price back toward $1 while ensuring the protocol remains solvent.

The redemption process prioritizes the liquidation of the most undercollateralized positions first, ensuring that the system remains secure while restoring the peg.

When $NECT Trades Above $1

If $NECT trades above $1, the protocol encourages increased supply to bring the price back down. For example:

• Scenario: The market price of $NECT rises to $1.02.

• Arbitrage Action: Borrowers are incentivized to take out loans by minting more $NECT, as the value of the debt is effectively lower due to the premium in the open market.

• Result: The increased supply of $NECT in circulation pushes the price back down toward $1, while borrowers benefit from the higher market value of the stablecoin.