MIMO & PAR Tokens Explained: Are they really innovative and how likely is mass adoption?
Sociologist and communication theorist Everett Rogers came up with the Diffusion of Innovation Theory in 1962. The thesis describes the spread of a new invention in a social system. Marketers use the Diffusion of Innovation Theory to anticipate the market’s reaction to a new service or product.
At the heart of the concept is the fact that mass adoption is not an overnight phenomenon. Rather, it is a product of time, communication channels, perceptions and the social systems at play. These factors determine the failure or success rate of a new product.
For this reason, marketers spend a lot of time and resources studying an innovation’s diffusion process. Decentralized finance (DeFi) is the financial sector’s newest innovation. It is disrupting the old economic system that has governed the world of finance for decades.
The old economy facilitates the exchange of fiat money as a medium of exchange, store of value and unit of account. It is a system riddled with intermediaries in the form of banks. They are the financial system’s main beneficiaries.
Intermediaries intervene on every channel, increasing the costs and slowing down the speeds of transactions. These middlemen also introduce a lot of network friction, locking out large numbers of users from the financial system.
As it stands, data by the World Bank shows that over 1.7 billion people remain unbanked, yet over 75% of them own phones that could link them to a financial services provider. Moreover, it is an acutely centralized system. Fiat currency holders have no control of the asset’s stability, value or governance,
DeFi platforms want to introduce the benefits of decentralization to the world of finance. They want to enhance financial inclusion for all through decentralized lending, borrowing and banking. DeFi systems do away with the intermediary and replace them with smart contracts.
A smart contract is a programmable code that creates trust between parties. It holds the terms of a code agreement and will fulfil them when all parties meet the predetermined conditions. Smart contracts are blockchain innovations.
They are therefore distributed across a decentralized peer to peer network that oversees their security and integrity. The power of smart contract functions has given a new reach to cryptocurrencies such as bitcoin in new environments to be used throughout smart contract systems, such as DeFi.
For this reason, crypto is no longer stuck in its payments role. Instead, digital currencies can accomplish much more through DeFi, the fastest growing sector in blockchain technology.
Impediments to DeFi’s diffusion of innovation
According to Everett Rogers, the very first people to embrace innovation are the innovators. The innovators make up only 2.5% of the entire population exposed to innovation. In DeFi, these are the risk-takers, the developers and blockchain philosophers in close contact with the science behind blockchain.
The innovators closely interact with the rest of the blockchain innovators. They have a high-risk tolerance and easily adopt technologies that have a high chance of failure. The work of the innovators will attract early adopters. Early adopters are about 13.5% of the population.
They are opinion leaders, have financial awareness and are very socially forward. The current growth in the decentralized finance sector is attributed to the market presence of early adopters. DeFi is developing infrastructure that will support novel protocols, marketplaces, and a large user base through their support.
After the early adopters comes the Early Majority, this segment makes up about 34% of the population. They have close contact with the early adopters and are highly influenced by them. While the early majority has a natural slow adoption process, there are reasons why this section of adopters is particularly slow in the DeFi scene.
The most significant barrier to adoption in DeFi is the extreme volatility in cryptocurrencies. The instability of digital currency values coupled with insufficient user experience, unstable market systems and low regulatory uncertainty has kept many potential DeFi users locked in an expensive, friction-filled and inefficient old economic system.
MIMO & PAR unique selling proposition
Mimo’s main project, The Parallel Protocol, aims to eliminate this barrier via its decentralized stablecoin PAR. The PAR stablecoin is the only decentralized algorithmically Euro pegged stablecoin in the market. The Parallel Protocol will shorten the gap that keeps the Early Majority out of DeFi by linking users to the trusted Euro currency.
PAR is a blessing to the risk averse, conservative but curious decentralized finance users looking for higher returns in a negative interest rate traditional finance world. They can leverage PAR and create higher passive income within yield farming, borrowing and lending DeFi ecosystem options.
The Parallel Protocol is part of the larger Mimo project by the Mimo team. However, the Mimo protocol has a wide range of applications that eliminate intermediaries from financial processes and transactions.
Mimo, for instance, has liquidity pools, where users can deposit their crypto assets, and mint PAR, the algorithmically stabilized EURO pegged stablecoin. The Mimo protocol is currently running on the decentralized Ethereum network.
Mimo Protocol users will eventually earn Mimo tokens as an incentive for providing liquidity via crypto deposits and staking. In addition, the Mimo token will also reward stakers that keep the protocol decentralized and secure.
The Mimo token is, therefore, the project’s utility and governance token. Over time, the Parallel Protocol through the issuance of Mimo will become fully decentralized and will run as per its community’s governance statutes.
“With PAR, we are creating an alternative to USD pegged stablecoins such as USDT, USDC or PAX. With a token algorithmically pegged to the EURO, there is a stronger liability due to the inherent macroeconomic politics of the European Union, which make it a great hedge against quantitative easing, inflation and loss of purchasing power that may happen to USD pegged tokens.” says Nick Calabro, Growth Manager at Mimo.
How Mimo will bring in the early majority to DeFi
The early majority finds stablecoins easier to embrace than cryptocurrencies. Stablecoins simulate the behaviour of fiat assets. As per Roger’s Diffusion of Innovations theory, societal levels of awareness and development significantly affect innovation adoption rates.
As an illustration, digital and mobile payments are at least 50 times more popular in Asia than in the US or UK. Asia’s merchants focus on frictionless mobile or digital payment processes rather than card payments. In Europe, merchants have a hard time delivering frictionless mobile experiences.
Why is this? In the west, consumers have a clear pattern of online shopping and payments adoption. They started in brick and mortar stores, moved on to PCs and laptops, and have now just embraced mobile shopping. They, therefore, have a robust plastic money payments system.
Mobile technology pulled ahead of all other technologies in Asia, taking over the online shopping experience from its inception. Users went straight from physical payments to smartphone payments without embracing the use of credit cards. Had merchants forced credit card payments down Asia’s market throat, they would not have the vibrant mobile payments success that they have today.
While decentralized finance can change the world of finance, imposing cryptocurrency volatility on the early majority halts adoption. Crypto was a part of the innovators and early adopters’ adoption pattern, but its volatility cripples the ongoing DeFi diffusion of innovation.
For this reason, decentralized finance application developers have turned to stablecoins. Stablecoins link the old economy with decentralized finance through their virtues of price stability and regulatory clarity. Moreover, they have a powerful allure to the early majority because they are not as prone to wild swings as digital currencies are.
Most cryptocurrencies have a small market cap compared to fiat currencies. For this reason, they are highly reactive to market conditions. On the other hand, stable assets such as the Euro or US dollar have a lot of liquidity and are less susceptible to market sentiment and movements.
The volatility of cryptocurrencies is perfect for speculation, but it will halt adoption amongst users who want to transact with them daily. Tesla, for instance, backpedalled on their bitcoin for vehicle payments decision citing bitcoin mining environmental concerns.
That said, there is also the danger that they could sell their $79,990. Model S for 2.12 BTC at the current rate of $37,345 per BTC and have that value cut by half the next day due to excessive volatility.
PAR as a bridge to DeFi mass adoption
These high levels of price instability also limit DeFi protocols loans, prediction markets and derivatives. Smart contracts may be more efficient as they increase their price stability. One key factor to note is the early and late majority segment of innovation adopter segments approach novel technologies with a level of scepticism.
They are not as financially curious as the early adopters are and do not speculate in the DeFi and crypto markets. Instead, they look to cryptocurrencies as a store of value or a direct substitute for fiat currencies. For this reason, stablecoins such as PAR are the panacea for DeFi mass adoption.
Stablecoins are so essential to DeFi that they have grown in strength despite the recent crypto market sell off. For example, the May 2021 crypto market implosion wiped out over a trillion worth of value from the cryptocurrency markets as users moved their tumbling assets to stablecoins.
The falling token prices hardly put a dent on the nascent DeFi sector growth, with decentralized exchanges recording more trading volume amidst the catastrophic price declines. Stablecoins such as Tether, USDC and DAI maintained their peg amidst the crash.
The stability of stablecoins was a big nod to DeFi, proving that stablecoins could maintain and adjust their circulating supply in reaction to changes in protocol stability and collateral requirements. Furthermore, the reliability of stable coins drew in more users to the DeFi ecosystem during the crash.
Why PAR is decentralized
“Stablecoins aspire to achieve the functions of traditional money without relying on confidence in an issuer — such as a central bank — to stand behind the money. Indeed, for some potential stablecoins, a comparative assessment suggests users may have no rights with respect to the underlying assets or the system overall.” — Federal Reserve Board Governor Lael Brainard.
There are different types of stablecoins in the market today. Some stable coins mirror the value of fiat coins. Their developers collateralize each of these tokens at a 1:1 ratio with hard currencies such as the Euro or the USD.
Some stablecoins use the value of commodities such as precious metals or other cryptocurrencies as a peg. PAR is an algorithmic type of stablecoin. First proposed by Robert Sams in 2014 in the whitepaper‘s Note on Cryptocurrency Stabilisation: Seigniorage Shares, algorithmic stablecoins monitor the price of their underlying assets, then adjust their value algorithmically, in a transparent, decentralized and open way.
The algorithmic stablecoins’ code is auditable and visible to the public. PAR is pegged to the Euro, so, each PAR is (almost?)equal to one Euro. The Parallel Protocol’s system tracks the value of the Euro increasing the supply of PAR when its value crosses the 1€ mark.
A higher than usual value of PAR means that the demand for the token is too high. Therefore, the Parallel Protocol encourages minting new PAR tokens to increase its supply and lower the price of PAR back to the 1€ peg.
If the demand finally catches up to the supply of PAR at the 1€ peg, and then exceeds it, the value of PAR will fall under the 1€ mark. Low price values imply that there is too much PAR in supply. Consequently, the Parallel Protocol encourages to lower PAR’s supply by redeeming until supply meets the demand at the 1€ price point.
Algorithmic stablecoins are not collateralized the same way as their counterparts are and therefore do not have reserve accounts in a bank. As an illustration, the stablecoin Tether is collateralized to the USD in a 1:1 ratio. For that reason, there should be a dollar in an account for each Tether token in circulation.
Traders may redeem their Tether for USD from the exchange at their convenience. Stablecoins, however, should have the blockchain benefits of transparency, decentralization, security, privacy and immutability of records.
A fiat backed stablecoin is not decentralized because its underlying assets are stored in a central vault and are governed by a central authority.
The fiat collateralized token holder has to trust the stablecoin’s operator since they cannot accurately inspect the code or the fiat assets holdings in the operator’s bank account.
PAR developers want to eliminate the uncertainty that accompanies the use of fiat collateralized stablecoins. Their intention is to eliminate the limitation that fiat backed crypto assets place on DeFi’s potential to create a free, fair and equitable financial system. As long as currencies run via proxies, they will always be in danger of manipulation, censorship and abuse.
The European Central Bank has also made it clear that it is seeking the right to control the launch of stablecoins in the eurozone. The regulatory body is seeking supervision and veto power rights. “Where an asset-reference arrangement is tantamount to a payment system or scheme, the assessment of the potential threat to the conduct of monetary policy, and to the smooth operation of payment systems, should fall within the exclusive competence of the ECB,” says ECB.
Why PAR is pegged to the Euro
In their search for the ultimate early majority onboarding crypto asset, the Mimo protocol has gone against the grain and built the world’s first fully decentralized stablecoin pegged to the Euro price.
Central banks recognize the fact that stablecoins ultimately control banking, payments and the supply of money. For this reason, the EU has come up with rigorous liquidity and capital requirements that will increase the cost of holding a Euro backed stablecoin.
However, algorithm-backed stablecoins do not need to abide by these strict laws because the inner mechanism that it is based on is radically different to that one of their traditionally pegged counterparts. PAR’s protocol and algorithm can effectively manage such eventualities. That said, this strict regulatory environment has put a damper on Euro collateralized stablecoins.
All DeFi users have to use USD pegged stablecoins, but USD payments in Europe are often met with an eye roll. The innovators and early adopters were quick to embrace the USD as the standard denominating currency for stablecoins. The innovators are risk-takers, young and have excellent financial lucidity.
On the other hand, the early adopters are highly aware of the development in DeFi and the ease of use in USD backed stablecoins. The early majority, however, want a frictionless DeFi experience. They pay their taxes in Euro, so they will question the need to pay USD to euro currency exchange rates when using DeFi protocols. Furthermore, they want to make purchases with the same currency that they do their grocery shopping with.
Forcing them to convert their currency to USD every time they are on a DeFi protocol will only alienate them and slow the DeFi diffusion of innovation momentum. To illustrate this point, stablecoins have become central to a user’s entry to the crypto and DeFi market and its exit.
The Federal Reserve of the United States of America has encouraged and executed quantitative easing monetary policies that damage the US dollar purchasing power and increase risks of uncontrolled inflation. An alternative strong stablecoin pegged to the Euro could work as a safe haven and hedge against this scenario and the different monetary policies that could weaken the dollar against their fiat counterparts.
To make money out of a DeFi protocol or BTC for short term use, you no longer need to sell your crypto assets. Instead, you can hold on to the value of your assets by simply locking them into the Mimo protocol’s vaults, minting PAR tokens, and then participate in the liquidity mining option offered by the protocol.
This process makes reporting income or the payment of taxes much easier for people who live in the Euro Zone. However, before the Mimo project developed PAR, users would lock the value of their assets in USD backed stablecoins. They would therefore need to endure a fiat conversation process that not only complicates DeFi for the early majority but adds more payment and process layers.
There is a growing appetite for crypto-asset investments in Europe. “There seems to be a regional divide, with declining appetite from the United States and sustained appetite from Europe and Canada,” says CoinShares analysts. All that stands in the way are easy to use protocols and a compliant, decentralized stablecoin that meets the eurozone investors halfway.
According to Mimo’s whitepaper, “Mimo has a unique opportunity to bridge the existing chasm between the DeFi world and trusted world of regulated financial institutions by offering a fully decentralized stablecoin platform with loans & savings (under development). This will allow us to both move fast and leverage the existing trends in DeFi and offer a highly competitive product to our user group”.