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So what happens if we have a bear market? |
As the price of the underlying supplied collateral in the Necc protocol goes down,
- Ideally we have had a performant bull market before the bear market so the protocol is over collateralised with fees from usage.
- Users will take profits into stablecoins which are staked to farm Necc** **on the market downtrend.
- Inverse longs are liquidated so collateral is seized into their collateral pools with fees to stabilise NDOL price.
- The price of NDOL drops slightly as it is an index weighted stablecoin so its underlying volatile basket weighted collateral has had a price drop too but the stablecoin collateral and isolated collateral redemption ratios act as a buy walls.
- Arbitrageurs can take advantage of the cheap NDOL on secondary markets and stake it for NECC and reduce system debt for profit.
- The volatile collateral redemption rate will drop, early redeemers get less collateral back and system debt will be reduced.
- A price drop in BTC does not affect ETH collateral redemption aiding to the index weighted stable price of NDOL.
- Overall Long liquidations + fees > short profits and repegging