DeFi hacks are pretty common; however, not many protocols are fortunate enough to survive a crypto heist. Even tougher than merely surviving is being able to bring the heist perpetrator(s) to justice while recovering almost 100% of the stolen funds.

So, when a protocol achieves this, while making users whole in the process, you have no choice but to look into what it is about, right?

TL:DR; On July 28, 2024, a hacker by the name of Shakeeb Ahmed had eggs and bacon for breakfast, and by noon decided he was motivated enough to pull off a heist that’ll result in him profiting $3.6 million dollars.

The target? Nirvana Finance, a DeFi protocol with quite interesting mechanics that can be lumped into one of the not-so-regular ponzi-like systems that seem to work, well, except for a vulnerability in their smart contract at the time.

Now, I don’t know how Nirvana did it; working with law enforcement (US Department of Justice, Homeland Security Investigations, and the Internal Revenue Service’s criminal investigation division) to bring “not so clever Shakeeb” to justice, but they did.

Shakeeb was arrested, convicted, and sentenced on April 12, 2024. Eventually, $3.4 million out of the stolen $3.6 million was reinstated.

The protocol proceeded to set up mechanisms to make its community whole, reimbursing those who held its ecosystem tokens. It parallelly ensured that 10% of protocol fees generated by the v2 version of the protocol would be distributed proportionally between affected users.

Happy ending.

With such a remarkable comeback — recovering nearly all stolen funds, bringing the perpetrator to justice, and making its users whole — Nirvana Finance has defied the odds in the DeFi space. But what exactly is Nirvana Finance, and why does it continue to draw attention even after the hack?

What is Nirvana Finance?

Nirvana Finance is a DeFi protocol built on Solana that takes a novel, almost philosophical approach to tokenomics, aiming to redefine how value and stability are sustained in the crypto space.

Nirvana aims to create a novel store-of-value token (dubbed ANA), which features a “floor price.” If you’ve been around crypto for a while, we know this is triggering some alarm bells, but stick with us for a moment. It’s a pretty cool design.

Most projects follow a predictable pattern when minting tokens: allocations are predetermined — some go to the team (often locked), some to community incentives, some to early investors, and some to market makers to manipulate price action. This strategy can either boost the token’s success or send it spiraling.

Beyond structured allocations, another common issue is that insiders and early recipients often get tokens for free — whether through team distributions or airdrops — while retail investors are expected to buy from the open market. This creates a significant value gap: insiders take on little to no risk, while retail buyers bear the full financial burden.

The bigger flaw? There’s no real way to prove the team actually believes in the token’s technology. After all, they’re playing the same game as investors. Any team following this model can’t claim to be “in it for the long haul” because, at the end of the day, their incentives don’t align with the community’s.

Nirvana takes a different approach, addressing these structural flaws by realigning incentives through their tokenomics.

The philosophy of the ANA tokenomics

Nirvana’s grand and simple idea is to start the tokenomics from zero. No allocations; anyone who owns the token had to have paid a price to acquire it.

Nirvana introduces a unique price bonding curve mechanism that eliminates the typical panic-driven sell-off during downturns. Instead of a race to the exit, the system establishes a continuously rising floor price, ensuring a predictable “worst-case drawdown,” no matter when they buy in.

To achieve this, Nirvana becomes the primary counterparty for its native token ANA. What this means is that, for anyone to initially purchase the ANA token, they have to buy it directly from the protocol, creating a unique situation where the protocol generates protocol-owned liquidity (denominated in USDC only) from users buying ANA.

As more USDC enters the system, liquidity is shifted in such a manner that the very bottom of the bonding curve is raised slowly over time. This isn’t witchcraft. The mechanism is borrowing liquidity from recent buys and rewarding long-term holders by bolstering the floor price.

This happens because the only way ANA comes into circulation is if it’s bought from the protocol. Therefore, each buy pushes up the supply of ANA tokens and the price moves up as well, and when a user sells their ANA token, they redeem USDC from the pool and their ANA tokens are burned.

However, this algorithm comes with its own nuances. Buying ANA directly from the protocol simply means there’s no supply available to seed liquidity on external or secondary pools unless it is done organically.

What this means is that the team will need to buy a portion of the supply with their own money to set aside for liquidity on secondary pools like Raydium, Meteora, etc.

This is why ANA pools look like this on token aggregators like DEX Screener.

However, over time, the external liquidity will thicken up as the team generates enough revenue to buy back its own tokens, or perhaps they will be able to integrate their protocol with aggregators like Jupiter. Interesting right?

But that’s not all. ANA’s supply is designed to be infinite (♾️). As long as there’s demand, there will always be tokens available for buyers. The key idea here is that the protocol itself remains the primary counterparty, attracting deep, stable liquidity as a reserve asset to back ANA’s supply.  

To safeguard future buyers, the system ensures that as supply grows, so does the price floor. This is achieved by reallocating a portion of sell-side liquidity to reinforce the floor price, creating a self-sustaining mechanism that strengthens over time.

Going with the above, certain facts are established:

• The supply is only limited by the amount of USDC available to buy future ANA
• The only way for the team to get exposure is to buy the tokens
• There are no market maker allocations
• There is a price floor that grows over time
• ANA’s downside volatility is insured by USDC re-allocated algorithmically

So, if the team was given no allocation, and won’t have allocations in the future unless they buy organically, how do they sustain the protocol, taking care of essentials like legal fees, maintenance, upgrades, sundry, and all? How does it all come together?

Nirvana’s revenue generation mechanics & governance

Nirvana incentivizes the team through revenue. This revenue is generated from activity on the protocol. As the protocol gets used, traded on, and integrated as infra for more primitives, the team will earn revenue, which will allow them to carry out normal operations to sustain the protocol.

However, this revenue is split between the team, governance holders (prANA), and METTA (which is basically restitution to affected individuals from Hakeeb’s exploit in the early days of the protocol).

The current formula for the revenue share is:

Team - 75%

prANA - 15%

METTA - 10%  

Over time, the team’s revenue share will gradually decrease. However, for now, they receive a disproportionately large portion, mainly because they aren’t backed by VCs and have no pre-allocated funds for operations.

One way Nirvana generates revenue is by using the protocol for collateral and borrowing. ANA’s price floor makes it attractive as a collateral token for risk-free lending.

This enables Nirvana to introduce ANA as a collateral token used to mint a synthetic stablecoin known as NIRV. The value of this synthetic stablecoin is hard-pegged to the ocean of stablecoin reserves backing ANA as its collateral token.

What this means is that users can deposit ANA and mint NIRV as a form of loan, thereby accessing 0% interest with zero liquidation risk, thanks to ANA’s price floor mechanism. The way it works is that users can’t borrow more than the floor value of the deposited ANA.

For example, if you deposit 5,000 ANA tokens with the floor price of ANA at $3, then the user can proceed to borrow 15k NIRV, because there is a $15k floor value in the ANA collateral (even if the market price is hovering near $5 per ANA).

Users can use the borrowed NIRV to purchase more ANA or as a form of leverage by selling the borrowed NIRV to recover the floor value of their ANA.

The fee collected from borrowing NIRV is paid in NIRV during the borrowing process, and the revenue generated is shared with prANA holders and METTA holders.

Governance

In terms of governance, voting rights are accorded to prANA holders.

To earn prANA, holders have to stake their ANA tokens, which also yields them a nice return of 85.72% APY (at press time).

The yield is doled out in the form of options tokens (those who studied up on Tapioca DAO will be well familiarized with this concept — think of them like stock options given to employees).

Stakers can redeem these option tokens by buying new ANA at the floor price. The important detail being that these tokens are not freely given out!

One prANA is equivalent to one vote. Users can also decide to allocate their voting power, which will cause their prANA to be locked until the vote is cleared.

Concluding thoughts

It is surely refreshing to see a team committed to navigating the challenges that once shook their foundations, coming up with more stable, straightforward solutions to keep the lights on.  

The potential use cases for Nirvana’s architecture are nothing short of impressive. Take the price floor mechanism, for instance, imagine applying it to rapid token launch platforms like Pump.Fun.

Here’s how that could play out: Users buy into a Pump.Fun presale, anticipating the token to bond at a specific price level. But if it doesn’t? Instead of a freefall to zero, a price floor would already be in place, ensuring participants don’t lose everything while maintaining an equal risk level irrespective of when they bought.

Also, NIRV, a risk-free stablecoin backed by a price floor mechanism and a continuously increasing ocean of USDC reserves, can be integrated into external DeFi architectures, broadening the utility of ANA as a collateral token.

There’s a need to keep an eye on this one, as it’s surely one of the few interesting things you can find on Solana at the moment. However, like always, before you check it out, do your own research.