Collateralisation, Stability, and Arbitrage

Liquidity in the system is either invested or awaiting investment. Assuming all Investment Pools perform well, the total invested capital and uninvested liquidity will match the $nRECORD in circulation. $nRECORD can be redeemed 1:1 in two ways:

1. Yield and Redeem: Users stake $nRECORD and receive yield and capital over time, burning tokens as they redeem.

2. Liquidity Providers: They can redeem $nRECORD at any time.

Regular users must sell $nRECORD on the market for immediate exit. If supply and demand are balanced, the price stays at $1. If demand drops and price falls below parity, liquidity providers can buy below $1 and redeem for a profit. If demand exceeds supply, they can introduce USDC to mint new $nRECORD, sell above parity, and earn the difference.

This mechanism maintains $nRECORD price near $1, with two key exceptions:

1. If the price falls below $1 and there's no liquidity, the provider can't redeem to restore parity, likely because system yields are lower than market rates.

2. If the price rises above $1 and the liquidity provider has no liquidity to arbitrage, though this is mostly theoretical and unlikely.

Arbitrage

Let's assume that the system is paying an annual yield of 20% to $nRECORD stakers. If more retail investors want to participate in this yield, they will need to buy $nRECORD tokens on the market and stake them. This buying pressure will cause an increase in the price of $nRECORD above 1 USD. At that point, the Authorised Liquidity Provider will be able to inject new liquidity into the system to mint new $nRECORD at a 1:1 ratio and immediately sell those $nRECORD on the market at the market price, earning an arbitrage profit.

Conversely, if the yield offered by the system is too low, prompting retail users to redeem their $nRECORD, the selling pressure will cause a decrease in the $nRECORD price. In this scenario, the Authorised Liquidity Providers will have the incentive to buy $nRECORD tokens on the market and redeem them for USDC at a 1:1 ratio, again earning an arbitrage profit.

This mechanism will ensure that the $nRECORD price remains around 1 USD. However, it is important to note that parity with USD is not guaranteed, nor is it a goal of the system. The price will be allowed to vary within a tolerance band that does not impede the system's functionality. For example, if a retail user buys $nRECORD at 1.05 USDC, they are effectively forgoing a portion of the yield from the staking contract. However, this could still be economically acceptable for the user if the staking yield is sufficiently high.

Market exposure

$nRECORD tokens are available on all regulated blockchain platforms, allowing both crypto and traditional investors to access the music asset class easily. This integration facilitates significant liquidity flow, especially when investors shift from traditional crypto assets to more stable, income-generating investments tied to real-world activities.