Introducing Membrane
Contents
- Summary
- Mechanism and Functionality
- MBRN Tokenomics
- The Future
Summary
Membrane is a collateral, leverage, and borrowing engine built on Cosmos with a focus on composability and inter-protocol compatibility.
By depositing collateral tokens into Membrane’s CDP mechanism, users can mint Collateral Tokens ($CDT). These tokens can then be redeposited back into the mechanism to retrieve the original collateral. In this sense, the mechanism is roughly analogous to a “Line of Credit”, wherein users can deposit their collateral to receive a line of credit against it. This enables a large amount of flexibility in otherwise rigid token positions, creating unique functionality for the $CDT tokens to be used.
Mechanism and Functionality
The Membrane mechanism is composed of 4 primary parts: Deposit, Mint, Repay, and Liquidate.
In the Deposit stage, the user can deposit their collateral into the protocol. Users will have the freedom to deposit assets separately or as a “bundle”. Bundling assets together uses their average interest rate and LTV in proportion, so users can mitigate volatile asset risk through this system.
In the Mint stage, the user can mint as many $CDT tokens as they are able to without reaching their maximum “Loan to Value” (LTV) ratio. Minting more tokens increases liquidation risk, as more value has been removed from the vault, putting further strain on the existing collateral.
During the Repay stage, users can repay the $CDT tokens they have withdrawn back into the protocol. This allows the user to reduce the risk of liquidation, and if the $CDT tokens are returned in full, the user can remove their collateral from Membrane. Otherwise users can withdraw collateral as long as it doesn’t push their position above the max borrowable LTV ratio.
If the “Loan to Value” ratio does exceed maximum safe ratio (meaning there isn’t enough collateral to safely guarantee the backed value of the $CDT assets), the user’s position will be liquidated.
Leveraged Yield Farming
Users can deposit LP tokens into Membrane to mint $CDT, and then in turn use those tokens to purchase more LP tokens, increasing the expected LP APR at the risk of liquidation. Users can also opt instead to purchase one side of the LP to hold, which can help hedge against impermanent loss on that asset.
Margin Trading
Users can deposit tokens into Membrane to mint $CDT, and then sell those tokens to buy more of their principal token. Doing this repeatedly creates a margin position of increasing leverage. Via this system, Membrane can support margin trading on any integrated DEX by default.
Generalized Hedging
By using minted $CDT tokens to acquire any counter-moving asset to the principle, users can hedge their allocations natively without having to reduce their holding size.
Lending
Users can in turn lend their $CDT tokens to a lending protocol such as Mars to earn a bonus interest rate, provided that the Mars lending rate exceeds the collateral borrow rate.
Perpetual Farming
Users can deposit their $CDT tokens as liquidity into a perpetual market’s vAMM, to benefit from trading fees, earning the user a high rate of interest. This can be done for any derivatives, allowing Membrane to effectively onboard all existing collateral types as proxy settlement on the perpetual market’s behalf, while also isolating the volatility risk of those asset to Membrane’s internal CDP system, increasing overall stability for the derivatives platform in question.
General Expenditure
Finally, users can use their $CDT tokens to purchase anything they wish without selling their underlying assets.
MBRN Tokenomics
MBRN is the governance token of Membrane. The Membrane contract system is designed to be as highly autonomous and as governance-minimized as possible, however there are still some decisions that must be voted on by the Membrane DAO.
Token Utility
The primary parameters set by communal governance are accepted collateral types, interest rate overrides, and LTV overrides. This allows the community to confer acknowledgement of additional risks corresponding to the collateral that are not visible on-chain, and therefore cannot be autonomously adjusted for.
Value Flows
Initially, interest accrued by the protocol will go towards a Safety Fund, which is held by the DAO to be used in case of a shortfall event. After the Safety Fund is bootstrapped, 100% of interest collected by the protocol is distributed to MBRN stakers, except in the rare occurrence of said shortfall event, during which interest collected by the protocol will be used to buy back and burn outstanding $CDT until the collateralization rates have returned to normal, causing collected interest to once again return to MBRN stakers.
Token Distribution
The total supply of MBRN will be 100 million MBRN, with 70% allocated to the community, and 30% allocated to the Builders Allocation. Token distribution and detail are subject to change, and more detailed information will be released closer to launch.
The Future
Membrane with the features outlined in this initial litepaper is targeting a September 2022 launch. As Membrane is decentralized, any user who wishes to contribute to the system in any capacity may do so by submitting a proposal to the DAO. With that in mind, there are plenty of opportunities for Membrane to scale.
Using Membrane looping as a margin tool, Membrane can integrate with DEXs across the Cosmos ecosystem to bring margin usability to said DEXs, expanding the Membrane TVL in return.
Membrane is also an extremely useful tool for DAOs in the space that hold warchests, as the credit system allows for further investment or hedging of underlying DAO-held assets without needing to perform an immediate sale of the underlying.
Finally, $CDT has plenty of room to expand as a robust and decentralized form of collateral. $CDT can help power derivatives markets by providing a single form of settlement with extremely deep liquidity, as it can encapsulate liquid value from many different sources while issuing itself as a standardized unit.
We are excited to bring the credit and collateral spaces a step forward with Membrane, and hope you are excited to join this new and burgeoning community.
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