Proposal: NAM Shielding Bond Formula (NSBF)

Ecosystem & Strategy
1

:shield: Proposal: NAM Shielding Bond Formula (NSBF)

Summary

This proposal introduces a mechanism that links the shielding of assets in the Namada protocol with a requirement to stake or shield a proportional amount of NAM tokens, based on the USD value of the assets being shielded. This system incentivizes long-term alignment with NAM and drives sustained demand for the token by making it a prerequisite for privacy usage.

Motivation

Namada allows users to shield a wide range of assets, including non-native tokens, to gain privacy benefits. However, the protocol currently permits this functionality without requiring any meaningful engagement with NAM.

Introducing a bond mechanism anchored in NAM creates a value-aligned privacy economy that:

  • Increases demand for NAM through staking and shielding
  • Encourages long-term participation in the network
  • Embeds NAM into the core utility of the protocol — privacy

Specification

Core Formula

Let:

  • V_shielded = USD value of assets to be shielded (via oracle at time of shielding)
  • P_NAM = USD price of 1 NAM (via oracle)
  • α = Protocol-defined coefficient (0.10 ≤ α ≤ 0.25)
  • R = NAM tokens required to bond (stake or shield)

Then:
R = α × (V_shielded / P_NAM)

The user must bond R NAM tokens to gain access to shielding.

Bonding Methods

Users may satisfy the requirement by:

  • Staking R NAM for a protocol-defined bonding period (e.g., 14 days), or
  • Shielding R NAM and keeping them in the shielded set for the same duration

Dynamic α Adjustment

The coefficient α may be adjusted:

  • By governance vote, or
  • Automatically, based on:
    • Current NAM staking ratio
    • Ratio of NAM to non-NAM assets in the shielded pool
    • Market volatility or protocol congestion

Optional tiered scaling:

Amount Shielded (USD) Suggested α
$0 – $1,000 0.10
$1,000 – $10,000 0.15
$10,000+ 0.20+

Example

  • User wants to shield $5,000 in USDC
  • NAM price is $2
  • α = 0.15

Then:
R = 0.15 × (5000 / 2) = 375 NAM

The user must stake or shield 375 NAM to proceed.

Shielding vs Internal Transfers

  • Bonding is required only at the time of shielding
  • Transfers and swaps within the shielded pool are exempt
  • This preserves UX and privacy integrity

Bonding Enforced via Lock or Access Restriction

Option A: Time-Locked Shielding (Soft Enforcement)

  • Bonded NAM is locked for a fixed period (e.g., 14 days).
  • Users can freely unshield their assets at any time, but cannot access shielded functions (transfers, swaps, withdrawals) if their NAM bond is prematurely broken.
  • The shielded tokens remain, but access is temporarily disabled until the bond is restored.

This maintains non-custodial control while enforcing bond via functionality gating.

Option B: Forced Unshielding or Freezing (Hard Enforcement)

If a user unstakes or unshields their bonded NAM before the bonding period ends:

  • Their shielded assets may be:
    • Frozen (no transfer or withdrawal possible until NAM bond is restored)
    • Or automatically unshielded (if supported by the protocol, though this may compromise privacy assumptions)

This is a stricter approach and risks privacy-utility tension. It should be used cautiously or reserved for specific high-risk scenarios.

Onboarding & Accessibility

To prevent friction for new users:

  • Exemption threshold: No bonding required if V_shielded < $100
  • Wallet integration: Auto-calculate and acquire NAM on behalf of users
  • Subsidy pool: Protocol-funded NAM credits for privacy onboarding

Economic Impact

  • Drives continuous demand for NAM
  • Reduces circulating supply via bonding lockups
  • Aligns token utility with the protocol’s core value proposition
  • Opens paths for additional features:
    • Optional burning of NAM instead of bonding
    • Yield on bonded NAM
    • Redistribution of bond revenue to validators or shielded mining pools

Conclusion

The NAM Shielding Bond Formula introduces a scalable, fair, and economically sound approach to ensuring that NAM becomes the backbone of Namada’s privacy utility. By embedding NAM bonding into shielding, the protocol creates a self-reinforcing ecosystem that balances decentralization, sustainability, and adoption.

2

Limiting MASP users is misguided. Rather than penalizing shielding, reward it (which Namada does). Access to Namada tech shouldn’t require holding NAM; just ensure users pay appropriate transaction fees.

3

Honestly now, is this all chatgpt?