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ERC20 Swaps

ERC20 Swaps were designed in the Nestor Protocol to risk off permissionless stablecoins such as USDC or USDT.

Permissionless stablecoins are a great innovation from the crypto markets which were designed for permissionless crypto referencing to US Dollars, however handling stablecoins for traditional institutional partners is still a risky proposition.

Using the ERC20 Converter contracts, NestorFundDepositTokens can be converted to/from stablecoins using the Nestor Protocol to help Managers accept stablecoins whilst off-loading their associated risks, such as de-peg events, underlying community bank reliance and liquidity risks.

The PROTOCOL_TREASURY manages the on/off ramp of the ERC20 stablecoin, such as USDC/USDT within its fund structures of NESTOR SECURITISATION FUND.

The availability of a valid configured ERC20 token for conversion to/from NestorFundDepositToken along with the associated fees is transparent, any market participant may query the smart contract.

The principle of an ERC20 Swap is simple.

ERC20 Stablecoin Swap

  1. The PROTOCOL_ADMIN defines the valid token pairs which are convertible on a 1:1 basis.
  2. Fees can be optionally defined for the conversion to/from the ERC20 token.
  3. The holder (Investor) of ERC20 tokens invokes the convertFromERC20 function of the smart contract, the ERC20 tokens are sent to the PROTOCOL_TREASURY and a matching amount of NestorFundDepositToken is minted and sent to the holder (Investor).
  4. If the Investor wishes to convert their NestorFundDepositToken to a valid configured ERC20 token, such as USDC/USDT, then they can invoke the convertToERC20 function of the smart contract. In this case, the PROTOCOL_TREASURY will receive the NestorFundDepositToken and burn it, transferring the matching amount of ERC20 (less any fees) to the Investor.

Deployed contract reference — example live ERC20 swaps on Avalanche C-Chain (inherited deployment, originally under Frictionless namespace):