NAVI Explained

Key Takeaways

The health of the NAVI Protocol relies on the "health" of the loans within the system, with several innovative measures in place to reduce systemic risk.

The native token of the NAVI Protocol, NAVX, serves as both a utility and governance token.

What Is NAVI?

NAVI, the first native one-stop liquidity protocol on Sui, empowers users to engage as liquidity providers or borrowers within the Sui ecosystem. Liquidity providers contribute assets to the market, making passive income through yields, while borrowers enjoy the flexibility of accessing loans for various assets. Meaning "Be kind to people" in the original Indian language, NAVI aims to become a pivotal DeFi player within the Sui ecosystem.

How Does NAVI Work?

As a DeFi player, NAVI facilitates direct lending and borrowing of crypto assets through a shared liquidity pool system. Users deposit their assets into these pools, which can be used as collateral to borrow other assets from the pool. The maximum amount one can borrow is determined by the LTV ratio, which is determined by the protocol.

To start receiving rewards on NAVI, users will need to supply liquidity to one of the incentivized pools USDT, USDC or SUI.As soon as your liquidity is in the pool, your account will start accumulating APY for participating in the protocol. Note that NAVI incentivizes users for both supplying liquidity and borrowing assets.

What is LTV?

LTV determines the amount of cryptocurrency one would need as collateral before one could get a loan.

For instance, let’s say you hold $100 worth of WETH as collateral and wish to borrow USDC, with an LTV of 75%. This means that you will be able to borrow 75 $USDC on your collateral.

This LTV will vary as the market evolves. If the price of WETH decreases, your LTV ratio will increase, and you will need to add more collateral to keep it within the norm.

What is the Health Factor?

NAVI uses a Health Factor for accounts to keep the stability of the protocol in check.

This health factor is a numeric representation of the safety of your deposited assets against the borrowed assets and their underlying value.

The higher the value of this number, the safer your positions remains from liquidation.

If the HF of a given account reaches 1 (or below), the position becomes at risk of liquidation. Liquidating unhealthy positions is essential to maintaining solvency for the protocol.

Price volatility might affect the HF negatively. For example, the market value of the collateral dropping significantly could reduce your HF.

To remedy this situation, the user needs to either: Repay their loans ; Add more collateral to raise the HF higher.

Tokenomics of NAVX

The native token of the NAVI Protocol, NAVX, serves as both a utility and governance token. Notably, the NAVX token can be used for:

Staking: Users can stake their native tokens to earn rewards such as trading fees from DEXs and interest income from the lending platform. The rewards are distributed in proportion to the amount of native tokens staked.

Governance: Token holders participate in protocol governance by voting on proposals, including setting interest rate, adding new assets to the protocol, and changing collateral ratios.

Fee Collection and Distribution: The NAVI Protocol collects fees from DEXs and the borrowing and lending platform. A portion of these fees is allocated to stakers, while the remainder is distributed to the platform's treasury and other purposes as defined by the platform's design.

Fee Discounts: Users staking native tokens can unlock different levels of fee discounts in DEX trades. The more tokens staked, the greater discounts received. This mechanism incentivizes staking and trading.

The Bottom Line

Developed based on the Move ecosystem, NAVI is the first native DeFi protocol on Sui, offering a seamless trading experience. Compared to other DeFi protocols, NAVI enhances its resistance to uncertain financial risks with the DeFi ecosystem through various innovative measures. Additionally, its native token serves as both a utility and governance token, effectively improving the protocol's governance and development.