NAOS Protocol At A Glance

5 min readJul 26, 2021


As we’re designing the NAOS Protocol, we often refer to the metrics below to help us visualize the bridge between CeFi and DeFi. It seems the arbitrage could be simply equalized by converting cash to stables, then lend in CeFi. But in practice it’s more complicated than making a few arbitrage trades. Being fully aware of the complexity of the matter, we narrow it down to a single deterministic factor — the underlying asset.

We’re seeing a growing number of CeFi investors entering DeFi by converting cash to stables, just to treat yearn and Aave as generous saving accounts. At the time of writing, the stable pools accounted for over 50% of the TVL in yearn.

As a real world asset (RWA) lending protocol, our strategy is NOT to attract DeFi traffic with astronomical yield. Rather, we provide existing DeFi users with predictable and competitive yield from RWA on their stables, and be the gateway for CeFi users entering DeFi — by introducing the asset class they know best — RWA.

The NAOS Protocol Design

The problem we’re solving boils down to one thing, how do we offer competitive yield on stable coins from RWA lending? This is what NAOS is proposing:

Disclaimer: Kevin designed this, NOT supported by the team, but the team is too slammed to edit

Alpha & Beta Pools

Alpha & Beta are the RWA lending pools, in which Alpha is the deployable capital pool and Beta is the insurance pool. At the time of writing, NAOS requires Beta pool to represent 10% of the entire Alpha & Beta pool, thereby allowing up to 10% of first loss guarantee in the case of default.

For example, if there is $10M in the Beta pool, the maximum deployable capital from Alpha pool is $90M. In the case of Alpha pool default, the Beta pool serves as an insurance to ensure Alpha lenders are made whole. In return, Beta lenders are compensated with higher yield. The weight of Beta pool will be adjusted based on the risk profile of the underlying assets and the funding requirements.

Participants in the Alpha & Beta pools can be individuals or lending partners such as MakerDao, Fidelity, corporate treasuries among others. The yield will come from:

  1. Interest income generated from RWA (in stable coins)
  2. Revenue share from Formation (in stable coins)
  3. NAOS tokens

Imagine the Vanguard Dividend Growth Fund, we’re creating a DeFi financial instrument for lenders to receive passive income in stable coins with the growth upside from NAOS tokens.

Our goal is to create a sustainable business model based on real economic benefits. As the DeFi yield on stables fluctuates, so will NAOS rewards. We’ll continue to optimize the yields from interest income and Formation revenue share, instead of over-diluting NAOS tokens as incentive.

The Alpha pool takes deposits in Stable Coins, and the Beta pool takes deposits in nUSD. Lenders must be NAOS token holders to be eligible to invest in either Alpha or Beta pool.


Formation serves two critical functions in the NAOS Protocol:

  1. Generate yield through various yield strategies
  2. Mint nUSD

NAOS shares a portion of the yield generated from Formation to subsidize Alpha & Beta pools. We’re envisioning a RWA-driven demand for nUSD, which translates into higher Formation TVL and an increased subsidy for Alpha & Beta pools — creating a positive feedback loop.

Ultimately, our goal is to reach an equilibrium such that the yields generated from DeFi and RWA interest alone are sufficient to provide comparable return as other DeFi strategies for stable coins.

In addition to the existing DeFi yield strategies, NAOS is actively looking into developing its own RWA based yield strategies on different asset types in different parts of the world. Our mission remains true to connecting CeFi with DeFi.


Galaxy is the lending protocol that interfaces with RWA. It tokenizes RWA into NFTs, and emulates the banking process by collateralizing the NFTs for liquidity. The key is to create a frictionless experience for the corporate borrowers such that they will be able to access DeFi the way they access CeFi. If the corporate borrowers borrow fiat, they will get funded with fiat, and repay in fiat. NAOS is designing the Galaxy Protocol with this essential feature in mind.

NAOS has established a mechanism such that the collateralized RWA is managed by an independent trust or SPV. In the case when default reaches the 10% threshold, the independent committee of the trust or SPV will proceed with the liquidation process without the influence of NAOS or borrowers.

Numerous strategic partners will be involved in the process, including oracle, validators, insurance, KYC, OTC and yield/exchange rate hedging, among others. We are thrilled to have some of the leading DeFi infrastructure titans joining us in this exciting journey, and will continue to engage other strategic partners to help accelerate DeFi adoption.


NAOS is working towards decentralizing the entire NAOS Protocol, allowing the community to partake in ALL decision making processes, from asset on-boarding, interest rate setting, incentive structures for lending pools to product designs.

We feel strongly that our community must be informed and provided with sufficient and structured information to be meaningfully involved. Therefore, our strategy is to build a database of transparent and informative track records on lending and repayment activities on all borrowers. The goal is to provide more intuitive and universally agreed metrics on the RWA and borrowers for our community to evaluate on.

Next Steps

While we’re focusing on the launch of Galaxy, the team is also simultaneously working on the following:

  1. Fix the Formation UI on mobile
  2. Redesign of Formation UI — v2
  3. Finalize the Galaxy UI — v1
  4. Integration of Formation and Galaxy
  5. Upgrade transmuter utilization efficiency
  6. Support additional stable coins on Formation
  7. Adding yield strategies to Formation
  8. Tech integration with other strategic partners
  9. Onboard additional lending partners

About NAOS Finance

NAOS Finance facilitates the borrowing of crypto assets by using RWA as collateral. The NAOS Protocol tokenizes RWA into NFT and connects borrowers with lenders globally.