PAR vs. MIMO Types of Tokens in Decentralized Finance
A decade past Bitcoin’s launch, the decentralized application sector is in full bloom. The Bitcoin blockchain is the world’s first successful blockchain project. While the Bitcoin protocol and its cryptocurrency BTC remain as popular as ever, alternative blockchains such as Ethereum have expanded the digital asset catalog.
To illustrate this point, over 3,000 blockchain applications are running atop the Ethereum blockchain. In addition, there is a dApp for just about any use case, and the sector continues to diversify through the formidable decentralized finance market.
These brilliant decentralized applications have massive network collaboration and value exchange benefits, a factor often revealed by the value of their tokens. Over time, development in the programmable blockchains dApp ecosystem such as Ethereum has expanded the applications of digital assets.
Consequently, in the blockchain glossary of terms, you will find terms such as governance, utility, security, and stable and non-fungible tokens right alongside good old cryptocurrency. So, what is the difference between these terms?
What is a digital asset?
Most decentralized applications users use the terms digital assets, tokens, and cryptocurrencies interchangeably. These terms, however, have explicit meanings. A digital asset is an electronic data file that can support the transfer of value.
Digital asset ownership can be individual or institutional, fungible or non-fungible. These entities use digital assets to store intangible content or perform transactions. Cryptocurrencies such as ETH and BTC are some of the most popular digital assets in the world.
That said, blockchain-based digital assets are not ordinary electronic data files. Instead, they are decentralized digital assets whose data is stored via distributed ledger technology rather than centralized databases.
Bitcoin and ether, for instance, are decentralized digital assets whose records are held securely by the Bitcoin and Ethereum blockchains, respectively. Blockchain technology distributes digital assets data across a vast network of nodes, introducing decentralized ownership and governance of digital assets.
Moreso, blockchain technology’s public and private key cryptography supports producing other forms of secure decentralized crypto tokens. Cryptography infuses digital assets with advanced encryption processes.
The benefits of public and private key cryptography include eradicating double-spending and counterfeiting of digital asset data. Encryption also enhances user data privacy.
What is a cryptocurrency?
Cryptocurrencies are a digital asset subclass that has the features of money. Cryptocurrencies are fungible, durable, portable, recognizable but not as stable as fiat currencies. They also fulfill the functions of money.
They function as a store of value, unit of exchange, and medium of exchange. Cryptocurrencies were the first successful blockchain-based digital assets. Their existence and functionality are bound to the blockchains that issue them.
Consequently, cryptocurrencies also go by the title, ‘native currencies’. Cryptocurrencies support a blockchain network’s transfer of value and payment of transaction fees. They also uphold the blockchain network’s incentivization process that keeps it secure.
On top of that, since they are a form of money, their holders can use them to pay for goods and services. They can also swap them for fiat currency for real-world use. Cryptocurrencies such as ether support the creation of crypto tokens.
What are tokens?
Crypto tokens are cryptographically secured digital assets. Unlike cryptocurrencies, which are a blockchain network’s main reward and value exchange asset, tokens run on decentralized applications built atop a blockchain network.
To illustrate this point, Ether is the Ethereum blockchain’s cryptocurrency. MIMO and PAR are also Ethereum ERC-20 tokens. They support diverse functions on the Mimo Protocol.
The Mimo Protocol is a decentralized finance project that runs atop the Ethereum network. MIMO and PAR users can participate in a variety of DeFi functions. In addition, the Mimo Protocol gives cryptocurrency holders access to passive income generation features such as yield farming, staking, and liquidity mining via its vaults.
All that long-term cryptocurrency users need to do is lock up their ETH or wBTC in Mimo’s vaults and mint the stablecoin PAR. PAR is an algorithmic stablecoin whose value tracks that of the Euro. It is a non-volatile crypto token that also functions as money.
You can use PAR to perform real-world transactions, whereas the MIMO token serves as the protocol’s governance and utility token supporting its rewards, transactions, decentralization, and security protocols.
The origin of cryptocurrencies
In spring 1989, computer scientist W. Scott Stornetta got wind of a scandal that, two decades later, would lead to the launch of the world’s first successful blockchain project and cryptocurrency.
Scott was, at the time, working on his Ph.D. at Stanford. Scott and his advisor had an office at the Xerox-affiliated PARC. PARC’s innovative research and development efforts led to the invention of laser printing.
At PARC, the scientist learns of the alteration of an MIT immunologist’s research results. The results of the famous study were fabricated, putting to disrepute the publications that had based their research on it.
Scott set out to invent a solution that would prevent digital data manipulation. He would later meet cryptographer Stuart Haber while working at Bellcore Labs. The duo’s research on data immutability forged the building blocks of blockchain technology.
They first set out to prove that the record tampering challenge existed because data storage relied on centralized databases and authorities. Trust-generating centralized authorities were a ‘single point of failure.’
Therefore, a system that rendered data immutable had to be free of central authorities. Their solution was to turn the public into data storage overseers. A corrupt entity would have to conspire with many overseers to alter data. Hence the invention of distributed ledger technology.
The duo also leveraged time as proof of the authenticity of data. For example, people would use timestamps to gauge the authenticity of records or proof of registration. They published their findings in 1990. The white paper “How to Timestamp a Digital Document” details Time-Stamping Service (TSS) and the linking of files via cryptography or hash functions.
Many other computer scientists and cryptographers made a wide range of contributions to this research. One of them is Satoshi Nakamoto. Satoshi would use timestamping and the proof of work consensus algorithm to create Bitcoin, a decentralized payments network.
He, however, would advocate for the use of cryptocurrencies as economic incentives that would reward nodes that preserved and validated distributed ledgers. Hence the birth of the ultra-popular cryptocurrencies as we know them today.
Cryptocurrencies and the token economy
Satoshi’s bitcoin would incentivize the individuals willing to act as data storage and authenticity overseers. Consequently, cryptocurrencies were at first a reward protocol that would reinforce a network’s desirable behavior alongside the transmission of value.
The emergence of alternative blockchains and the decentralized application sector gave cryptocurrencies more utility. They became tools that supported the creation of internet native economies.
First, cryptocurrencies would support the initial coin offering process raising funds for project funding. Consequently, developers and their teams could table their project’s vision and use case to a large community of supporters, speculators, and venture capitalists and access development funding.
These token sales would bring in more overseers (data storage nodes), decentralizing and strengthening network security. Cryptocurrencies, therefore, have become blockchain protocols that enhance blockchain projects’ utility and liquidity.
They function as shares to the network use case and create a feedback loop on its success.
Types of tokens in decentralized finance
That said, decentralized applications often draw distinctions between crypto tokens as per their uses. Below are the different types of crypto tokens used in decentralized finance.
Utility tokens are digital assets that first support project funding. They support communal contribution to project funding via processes such as ICOs or IEOs. Utility tokens also help raise interest in a project’s use case and provide preferential treatment to buyers that hold them in their wallets.
The value of utility tokens will rise as their demand increases amongst users. Additionally, the value of utility tokens and their network scales over time as per the level of adoption. MIMO is the Mimo Protocol’s utility token.
PAR stablecoin holders can lend out their non-volatile assets on Balancer and receive Balancer Provider Tokens (BPT). PAR users that hold BPT can stake it on the Mimo Protocol network and earn MIMO tokens. MIMO token value will rise as PAR, and the Mimo Protocol use achieves mass adoption.
Governance tokens grant their holder’s network decision-making rights. A governance token holder can influence a network’s decision by proposing new features or alterations to the existing protocols. The MIMO token is the Mimo Protocol’s governance and utility token.
BPT holders that stake their liquidity provider tokens on Mimo Protocol will earn MIMO. They can then vote on the protocol’s resolutions and development features. On top of that, they will earn governance rewards for their network support and security functions.
Stablecoins are a class of crypto assets that peg their value to stable assets. For example, some stablecoins reflect the value of fiat currencies, precious metals such as gold or silver, or commodities such as oil.
PAR is a stablecoin that tracks the value of the Euro. Unlike other fiat collateralized stablecoins such as USDT, PAR is an algorithmic stablecoin. PAR is also backed by cryptocurrencies such as ETH that holds its holder’s deposit on the Mimo protocol’s vaults.
PAR is, therefore, a decentralized stablecoin. Its governance is under the Mimo Protocol community that holds MIMO tokens.
Security tokens like stablecoins derive their value from external assets. These assets could have security requirements such as compliance with federal regulations or central authorities’ governance.
Gary Gensler, the chair of the US Securities and Exchange Commission, says that some stablecoins should be classified as security tokens. The regulator believes that stablecoins such as USDT that are fiat collateralized should comply with the traditional finance’s securities laws.
MIMO and PAR in protocol sustainability
Vitalik Buterin says that decentralized governance (DeGov) is vital to the future success of the DeFi sector. Moreover, DeGov is necessary because DeFi projects have a business model plus protocol upgrade and maintenance needs.
These projects, however, need to meet these needs without sacrificing their decentralization. Decentralized autonomous organizations (DAOs) can support developer funding and support fair project launch systems that prevent centralization.
The DAO uses governance tokens to enact fair funding decisions that halt funding from hardcoded receiving addresses. The DAO can also coordinate the DeFi application’s upgrade and maintenance needs until its maturity via token voting.
Vitalik supports decentralized applications on-chain governance as used by Mimo Protocol. This is because dApps leverages smart contracts in their application layer that controls user assets. Vitalik, however, notes that DeFi application governance via coin voting has certain disadvantages such as;
- Whales taking over decision making
- Coin holders put their interest ahead of the larger community’s needs
- Overexposure to coin holder’s conflicts-of-interests
To avoid ‘coin centrism,’ the Mimo Protocol has adopted unbundling governance and economic power. This is because the Mimo Protocol serves a larger community than its utility and governance token holders.
It, for instance, serves the PAR stablecoin users. PAR users’ main interest is the long-term HODLing of cryptocurrencies in Mimo’s vaults, access to non-volatile and decentralized stablecoins, and passive income generation.
The Mimo Protocol’s tokens align borrower and lender responsibility and power by separating the community’s economic interest in revenue generation and governance rights. To illustrate this point, PAR holders’ main benefits are yield in Mimo’s vaults, and access to a Euro pegged stablecoin asset.
On the other hand, MIMO token users have protocol governance interests and rewards at heart. Therefore, to balance lender and borrower responsibility and power and achieve sustainability, Mimo Protocol lenders or PAR holders provide liquidity mainly for economic interest.
PAR borrowers, on the other hand, stake their BPT and access governance power. As a result, Mimo Protocol successfully unbundles governance power and economic interest, creating a healthy and DeFi sustainable ecosystem.