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CryptoEconomic Research

NAOS Finance: A Decentralized Loan Marketplace

NAOS Finance is a decentralized lending protocol allowing lenders and SME (small medium enterprises) borrowers to access funds and deploy capital in a permissionless and borderless way on the blockchain.
by James ChungJanuary 11, 2022
naos finance

Built on Ethereum, the NAOS Finance platform allows users to tokenize real-world assets as collateral in an automated way while providing an end-to-end lending process.

What’s wrong with the DeFi ecosystem today?

DeFi is heavily collateralized by crypto-assets. The fact that one needs to be over collateralized to borrow limits DeFi’s potential (eg. collaterals >500% of borrowed value). The total value locked on DeFi protocols is just a fraction of the size of traditional finance. However, tokenizing real world assets can effectively double or even triple the entire DeFi market. The challenge for this to occur is to originate and deploy these assets on-chain for DeFi.

NAOS Finance solution

NAOS finance is leading the effort to build a real world asset based infrastructure for the DeFi ecosystem by integrating both DeFi and Tradefi. The goal is to bring real world assets on chain at scale and eliminate inefficiencies of traditional finance by decentralizing the decision making process.

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How does it all work?

The NAOS protocol is made up of two sub-protocols:

Liquidity protocol (Formation): provides yield farming opportunities for its native stablecoin which represents claim on deposited collateral. Formation serves as the gateway to the lending protocol where investors deposit their stable coins to generate synthetic asset nUSD (borrow up to 50% of your deposited collateral). If pledging for a specific time period, investors may also farm its NAOS token as liquidity rewards by providing NAOS tokens and its respective pair to get LP tokens in Uniswap. Staking LP tokens would accrue NAOS token rewards with each block.

Lending protocol (Galaxy): serves as a bridge between real world assets and DeFi liquidity. The protocol allows borrowers to apply for loans and tokenize their assets as NFTs (collateral) while lenders provide lending capital for real world assets. Once a borrower loan request is approved by the committee, the real world asset is tokenized and locked in the protocol thus allowing them to be able to access liquidity from the pool. There are three ways a lender can earn yield. One is through the Alpha pool (Not yet available on platform) that is available to KYC’d investors and used as lending capital for real world assets. Second is through the Beta pool which is an insurance pool that serves as first loss guarantee to the Alpha pool (KYC is not required here). You may additionally stake your Beta tokens into a staking pool to earn additional yield. The third is through the Booster pool or a single token staking pool where by locking native NAOS token you can boost yield in the Alpha pool. There is additional friction in the claiming process for the booster pool as users have to wait for a 7 day cool down period before claiming rewards. If the investor wanted to claim immediately, they would need to forgo 50% of their rewards and have it distributed to remaining stakers in the Boost pool.

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Mechanism design and tokenomics

  • NAOS is the platform’s native token that aims to serve as a catalyst to make synergy between all of their protocols and create a network effect. The token may also serve as a governance token once the protocol is handed to the community in the future.
  • NAOS Finance has a maximum token supply of 300 million tokens.
NAOS Token Distribution
  • 30% Liquidity Incentive
  • 25% Ecosystem Growth
  • 23% Team and Advisors
  • 22% Private and Public

Majority of the tokens are subjected to 1.5 years of quarterly vesting schedule. Below are details of the schedule amongst different participants.

NAOS Vesting Schedule
  • Team: Vest over 2 years with quarterly release
  • Advisors: Vest over 2 years with quarterly release
  • Private Investors: Vest over 1.5 years with quarterly release
  • Ecosystems: 50% Vest Immediately, and remaining unlock after 1 year

Macro view

  • The market value reached $75 million last October and has steadily declined to $15 million as of this writing. Not surprisingly, the narrative of cryptocurrencies being a risk-on asset applies here as we’ve seen the overall market drop since its last high.
  • Through the NAOS platform, retail investors will be able to participate in the private capital markets without limitation of their net worth. Investors will have similar access to those only offered to financial institutions and accredited investors. This will help democratize access to instruments such as corporate term loans and the potential here is significant.
  • The platform is still early since going live April of last year. The goals are ambitious but not unrealistic. The team has established a large network of over 2,500 small and medium enterprises to access $250 million in real world assets. If the team is able to successfully move DeFi towards a world where loans can be given to creditworthy enterprises without exorbitant amount of collateral this can be wildly disruptive.
  • It will be important for the team to establish strategic partnerships to onboard quality assets in a centralized manner. All assets will be subjected to bank grade risk assessments and insured in the future. However, in the early days, the team will assist in evaluating the risk profiles.
  • Lastly, NAOS Finance is different from other protocols in their ability to originate loans in a fully compliant and legal manner. They are already licensed in regulated markets such as China, Indonesia, Philippines, Vietnam, India and Nigeria. They are also working with licensed partners in South America and Eastern Europe.
Further Reading

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