NXT Liquidity Pools

Written By Catalin Fetean

Last updated 11 months ago

1. Introduction

Traditional trade finance operates within capital inefficiencies and restricted liquidity pools controlled by intermediaries. NXT solves this by creating borderless, on-chain liquidity pools that power real-world asset (RWA) financing, allowing capital to move freely and efficiently.

Our approach isn't about just tokenizing invoices—it's about building an entire liquidity network for global trade. The NXT Liquidity Pools provide:

  • Automated trade financing through permissionless liquidity pools.

  • On-chain credit allocation to businesses needing working capital.

  • Institutional and decentralized liquidity participation for yield generation.

  • Instant cross-border settlements with reduced counterparty risk.

2. Liquidity Pool Architecture

NXT's liquidity model is designed to bridge institutional capital and DeFi liquidity, ensuring that businesses get instant access to funding, while liquidity providers get real yield from actual trade finance transactions.

2.1 Smart Contract Layers

NXT Liquidity Pools are structured as multi-layer smart contracts, handling:

  • Capital Deposits & Withdrawals → LPs deposit capital in stablecoins (e.g., USDC, USDT).

  • Trade Finance Matching → Automated matching of liquidity to invoices/orders.

  • Risk-Based Yield Allocation → Liquidity distribution based on borrower credit risk.

  • Repayment & Yield Distribution → Funded businesses repay loans, and LPs earn yield.

Liquidity Pool Smart Contract (Solidity Code)

This is a simplified version of how liquidity is managed:

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.19;

contract NXTLiquidityPool {
    struct LoanRequest {
        address borrower;
        uint256 amount;
        uint256 duration;
        bool approved;
    }

    mapping(uint256 => LoanRequest) public loans;
    mapping(address => uint256) public deposits;
    uint256 public totalLiquidity;
    uint256 private loanCounter;

    event LiquidityDeposited(address indexed provider, uint256 amount);
    event LoanRequested(uint256 loanId, address indexed borrower, uint256 amount);
    event LoanApproved(uint256 loanId);

    function depositLiquidity(uint256 amount) external {
        require(amount > 0, "Deposit amount must be greater than zero.");
        deposits[msg.sender] += amount;
        totalLiquidity += amount;
        emit LiquidityDeposited(msg.sender, amount);
    }

    function requestLoan(uint256 amount, uint256 duration) external {
        require(amount > 0 && duration > 0, "Invalid loan request.");
        loans[loanCounter] = LoanRequest(msg.sender, amount, duration, false);
        emit LoanRequested(loanCounter, msg.sender, amount);
        loanCounter++;
    }

    function approveLoan(uint256 loanId) external {
        require(loans[loanId].amount <= totalLiquidity, "Insufficient liquidity.");
        loans[loanId].approved = true;
        totalLiquidity -= loans[loanId].amount;
        emit LoanApproved(loanId);
    }
}

This contract:

  • Accepts liquidity deposits from providers.

  • Allows businesses to request funding for trade deals.

  • Approves loans based on liquidity availability.

3. Institutional Integration

Institutions and enterprises require more than just a DeFi pool—they need on-chain trade financing rails that plug into existing financial structures while benefiting from blockchain efficiency.

NXT enables:

  1. Institutional LPs → Banks, hedge funds, and trade finance firms deposit capital.

  2. On-Chain Credit Scoring → Business funding is allocated based on on-chain trade history.

  3. Automated Invoice Financing → Businesses tokenize invoices & get instant financing.

3.1 Credit Risk Model

Instead of using traditional FICO-style credit ratings, NXT introduces on-chain reputation scoring based on actual trade performance, using:

  • Past repayment history

  • Trade frequency & volume

  • Counterparty validation

  • On-chain dispute resolution records

This ensures that high-performing businesses get access to capital instantly, while high-risk actors are flagged before receiving funding.

4. Yield Distribution & Risk Management

Liquidity providers (LPs) earn real yield from global trade finance deals. The system ensures dynamic yield allocation based on:

  • Borrower risk profile (higher risk = higher APY)

  • Loan repayment performance

  • Market demand for liquidity

4.1 Yield Calculation

Yield is automatically distributed using a weighted APY model, where LPs earn proportionally to their capital contribution and loan risk allocation.

Example formula:

Example
function calculateYield(uint256 deposit, uint256 riskFactor) public pure returns (uint256) {
    uint256 baseAPY = 5; // Base 5% yield
    uint256 riskAdjustedAPY = baseAPY + (riskFactor * 2);
    return (deposit * riskAdjustedAPY) / 100;
}

  • Safer loans (low risk factor) → 5-7% APY.

  • Moderate risk loans → 8-12% APY.

  • High-risk, high-reward → 15%+ APY.

This creates a balanced risk-reward mechanism for LPs, attracting both conservative and high-yield investors.

5. Multi-Stage Liquidity Deployment

Unlike most DeFi liquidity pools, which passively sit in vaults, NXT actively deploys liquidity into trade finance deals, following a structured flow:

  1. Stage 1: Liquidity Deposit

    • Investors deposit stablecoins into the NXT Liquidity Pool.

    • Capital is allocated into a segmented lending system (low, mid, high-risk pools).

  2. Stage 2: Smart Contract Matching

    • Businesses submit funding requests via on-chain invoices.

    • The system matches liquidity to invoices based on risk-adjusted interest rates.

  3. Stage 3: Funding Execution

    • Once approved, funds are released directly to tokenized invoices.

    • Borrowers receive capital instantly, while repayment terms are enforced on-chain.

  4. Stage 4: Yield Distribution

    • Loan repayments are automatically distributed to liquidity providers.

    • A small protocol fee (0.3%) ensures continuous liquidity incentives.

6. Security & Compliance

NXT Liquidity Pools are built with enterprise-grade security and full regulatory compliance.

6.1 Smart Contract Security

  • Automated risk mitigation using smart contract-based risk control.

  • Multi-layer audits before deployment.

  • Automated repayment enforcement—no manual intervention needed.

6.2 Compliance Framework

Unlike traditional DeFi pools that operate in a regulatory gray zone, NXT integrates enterprise-grade compliance:

  • KYC/AML checks for institutional liquidity providers.

  • On-chain dispute resolution for trade disputes.

  • Regulatory reporting integrations for institutional adoption.