Jan 30
A DeFi Strategy. Part 1.
2022 was a particularly intense year for the DeFi space. At Mimo Labs, this last year was a preamble to the strategy we have designated and introduced to the Mimo governance.
Note: Mimo Labs is a contributor to the Mimo protocol. This article introduces an internal Mimo Labs strategy for the Mimo protocol and its interests. The topics discussed in this article do not represent a unilateral strategy for the protocol. Each discussion will be subject to a vote of the Mimo governance. We strongly encourage other members to critique, comment, and rework the below-mentioned strategy.
A Structured DAO
Everything started in April 2022 with the introduction of the governance framework, bringing a clear framework to the discussions between the DAO members. This was followed by the first election of the Multisig DAO, aiming to significantly increase the decentralization of the protocol as well as its security.
From these solid foundations, we then turned our focus to increasing and improving PAR liquidity efficiency by proposing to the DAO to migrate to new, more efficient liquidity pools (Curve, Uniswap v3, Balancer), reducing slippage and increasing capital efficiency.
Always intending to improve capital efficiency, we have implemented an internal risk framework for each token available as collateral on Mimo (available in the protocol documentation). This framework allows the adjustment of the minimum collateral ratio, liquidation bonus, liquidation ratio, and debt limit taking into account multiple parameters such as volume, capitalization, etc. Following this model, we proposed to the DAO a series of proposals, published and voted on between June and August, to adjust the different parameters of the tokens authorized as collateral on the protocol and to mitigate the risks as much as possible.
Until August 2022, the protocol was quite conservative on approved tokens as collateral (WETH, WBTC, USDC, WMATIC, WFTM). A 4th axis of our strategy has been to focus on adding new tokens as collateral. In an effort to increase the decentralization of PAR backing, we proposed to the DAO to add RAI as collateral as well as LUSD on Ethereum, two of the most decentralized stablecoin currently available on the market, fully collateralized by ETH, as well as many other proposals to add tokens as collateral, both on Ethereum and Polygon (AAVE, SUSHI, LINK, FRAX, DAI, CRV, and BAL)
Note that one of the benefits of DeFi is composability, allowing more and more capital efficiency (but also additional risk). Until November, only non-productive tokens were accepted as collateral, reducing the efficiency that DeFi offers. That’s why we have been working on introducing productive tokens as collateral on the protocol, proposing to the DAO to add as collateral the stMATIC and the MaticX, two liquid-staking derivatives tokens. But what does this mean in concrete terms for users? stMATIC and MaticX are tokens representing staked MATIC and therefore receive the rewards of this staking (± 6.3% APR). You earn the staking rewards while borrowing PAR; PAR borrowing rate is currently set at 3% APR, so let’s say you borrow 50% of the amount deposited as collateral. This means that you pay 1.5% interest per year on your collateral, but in return, you get 6.3% APR on the same collateral token. Therefore representing a net gain of ± 4.8% per year. Getting paid for borrowing PAR is what we introduced to protocol users last November.
But why so many new collateral tokens? There are several objectives behind these many additions. The first is to diversify the backing tokens of PAR, thus strengthening its resistance to censorship against the use of USDC and WBTC as collateral. The second is the opportunity to attract new users to the protocol, thanks to the new possibilities offered by Mimo. Among these possibilities, we can mention the leverage on both the price (short/long) and the yield. We do not take into account the basic use case of the protocol, the possibility to unlock the token’s liquidity while remaining exposed to its price variations.
Strategic integrations
So far, we have covered our internal protocol strategy. However, in 2022, we have also focused on opening up and collaborating with other protocols. We can mention Midas Capital, DIA oracle, Arrakis, Liquity, and Jarvis Network among these collaborations.
It started in August when we proposed to the DAO to use Midas Capital, a protocol allowing the creation of isolated pools of lending with parameters fully adjustable by the Mimo DAO. This gave origin to a synergy between the two protocols, allowing, in particular, the use of PAR as collateral and optimizing its yields.
During this process, a second partner came into play: DIA oracle, a protocol offering the creation of decentralized oracles which introduced the first price feed of the PAR and MIMO tokens, allowing the creation of the Midas pool.
We have also intensified our collaboration with Jarvis Network, especially via a co-incentive program throughout 2022 on the 4eur and 2eur pools on Curve Polygon.
But then, what is our strategy for 2023?
Let’s start with a topic that DAO members have been looking forward to for many months, the new MIMO tokenomics. Initially scheduled to be discussed with DAO members during August and September and then voted on and implemented in October, we decided to postpone the new tokenomics to further our economic model research. This is especially important to focus on a better way to align the interests of the short-term users and the long-term protocol while putting the user at the center of the new tokenomics. From a structural perspective, we will introduce multiple independent changes at different stages, which will together constitute the new tokenomics.
In line with 2022, we continue to work on proposals to add new collateral-producing tokens, always in this perpetual search for efficiency and diversification of tokens backing PAR, including bLUSD, cbETH, stETH, rETH, sfrxETH, Opyn’s Crab USDC strategy, KUMA’s IBTs on Ethereum but also Gains Network’s gDAI on Polygon as well as LP tokens, on all chains.
Moreover, regarding the chains, the question of interoperability is now a central question in the ecosystem. It is currently impossible to bridge the PAR between blockchains where the protocol is deployed. However, it is possible to move indirectly from one chain to another via the utilization of Li.Fi or deSwap. However, this solution is inefficient, largely due to the use of liquidity pools (including slippage). That’s why we are working on a solution to seamlessly bridge the PAR while combining security and capital efficiency. More information will be shared with you later this year.
Increasing decentralization
Initiated last year and supported by Mimo Labs initiatives, decentralization is at the core of our strategy. However, the protocol is still subject to Snapshot votes that the Multisig DAO signers must then execute. Nevertheless, this still implies a trust relationship between the vMIMO holders and the multisig signers. In this decentralization and trustless relationship objective, we are currently evaluating different solutions to increase the trustless relationship, including Zodiac, a solution built by Gnosis Guild.
A stablecoin with accrued utility
It can be interesting to have a stablecoin in your wallet, but what real benefit is there in holding it if it has no use case other than to keep it. Mimo is currently issuing a EURO stablecoin, the PAR. It currently has a few uses, including providing liquidity (Curve, Uniswap) and being used as collateral (Midas Capital). Now imagine being able to generate fixed yield with your PAR (APWine) and those with a limit order to buy ETH at $1000 (Mangrove), bring it in liquidity or borrow it against NFTs (Kairos), sell it or buy it directly against cash in one click (Ondefy), access the token from any chain (Li.Fi / deSwap / bridging module) and of course significantly increase its liquidity in a sustainable way. We are currently working in collaboration with most of the teams behind each project to enable all these uses to take shape.
Inside governance wars
The DeFi, ever more deeply entrenched in the governance wars introduced by Curve in 2020, requires to take a position in different protocols to be able to influence decisions according to their own interests. With this objective in mind, Mimo Labs is announcing today that we have acquired 70,000 AURA tokens (locked as vlAURA), 393,000 APW tokens as well as 361,000 SDT tokens. These tokens will be used to influence decisions such as gauges weights serving the interests of PAR & MIMO holders. In collaboration with the Jarvis Network team and the Aura meditators, but also with the support of veBAL, vlAURA, sdBAL, and veTETU holders we have recently obtained a gauge on a PAR/jEUR pool on Balancer Polygon, allowing us to receive rewards in BAL tokens depending on the votes for the pool. The vlAURA owned by Mimo Labs will be used to vote for this pool during the gauges, allowing to increase the liquidity of the PAR on Polygon significantly, and this in a sustainable way without any cost in inflation of MIMO tokens.
In this idea of sustainable liquidity for the protocol, we are also working on proposals introducing the concept of Protocol Owned Liquidity (POL). The idea is quite simple, the protocol would hold part of its liquidity, allowing it to reduce its expenses for liquidity while benefiting yield from swap fees and potential rewards (cf. PAR/jEUR pool on Balancer Polygon). The concept of Protocol Owned Liquidity will also increase the funds held by the protocol treasury.
But how can the protocol obtain this liquidity? Currently, 40% of the protocol revenues are used to buyback MIMO on the market and lock it for 4 years, as a way for the protocol to build future treasury. However, we have found more sustainable ways to build treasury for the protocol. Protocol-Owned Liquidity (POL) will enable greater liquidity without sacrificing the growth of the protocol’s treasury, so we will introduce a proposal to stop the current buyback program in favor of developing POL.
As a continuation of the growth of the funds held by the protocol treasury, we also announce that we have made a donation of 20,908 AURA tokens, 9,254 PAR, 21,484 APW, 132,046 PSP, and 20,000,000 MIMO; representing at the time of writing a total amount of $450,000 (Multisig Balance). The primary purpose of this donation is to fund the DAO treasury. Mimo Labs also renounces any right of control over the use of these funds.
Well, how to conclude?
We can safely assume that 2023 will be the year of expansion for the Mimo Protocol. New tokenomics in the pipeline realigning user and protocol interests coupled with reduced inflation, new productive tokens as collateral increasing capital efficiency for users, as well as a PAR getting ever more integrations bringing increased liquidity and utility. All of this combined with an ever-increasing decentralization and the premise of professionalization of the DAO.
A DeFi Strategy. Part 2. Coming.
Jean Brasse
