mStable protocol’s 3 month roadmap

Core protocol improvements proposed: mStable’s Novel AMM, mBTC, MTA tokenomics & c.80% gas reductions

James Simpson
Nov 9 · 6 min read
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I am excited to share the mStable Improvement Proposals (MIPs) that the core team will soon put to MTA Governors for implementation.

These proposals will dramatically increase the utility of mStable and Meta, eliminating key growth bottlenecks that we’ve identified, ultimately producing a more responsive and composable protocol. The aim is to become a billion dollar DeFi protocol: implementing these proposals are critical milestones on that journey.

Assuming MTA Governors pass these proposals, they will be implemented within the next 3 months.

  1. A novel automated market maker (AMM) designed by our head of R&D at mStable, Onur Solmaz. The upgrade will enable an Incentivized Constant Sum Market Maker that enables guaranteed liquidity across all whitelisted stablecoins, both when swapping underlying stablecoins and when redeeming mUSD. Modelling shows large increases in system arbitrage and swap volume, and therefore protocol revenue. The upgrade is gas efficient and makes mStable more composable with other DeFi protocols. We are really excited to share more detailed information on this significant upgrade in the weeks to come!
  2. mBTC will create a liquidity pool of Ethereum representations of Bitcoin, and in doing so produce a suite of products that leverage these assets such as efficient BTC swaps that feed the mBTC save rate. Tokenised Bitcoin is one of the fastest growing verticals in DeFi and mStable is well-positioned to take advantage of this migration by producing a meta-BTC that has guaranteed liquidity in all major tokenised Bitcoins, diversifies risk, and works to produce an outsized BTC yield through supplementing lending income with BTC swap fees.
  3. The core team will improve MTA’s emission and tokenomics by automating MTA’s emission process. The proposal creates better incentives for long-term liquidity provision by introducing a weight-based system similar to mStable v1 Staking, and disincentives flash yield farmers.
  4. The gas related MIP-3 is likely to provide a c. 70–90% gas savings across various app functions such as minting, swapping and redeeming. MIP-4 will reduce SAVE deposit gas costs by c. 50%.

1. 🔄 Upgrading to a novel Automated Market Maker (AMM)

mStable assets (mAssets), such as mUSD and later mBTC, feature a constant sum market maker, where users can mint and redeem the underlying basket assets (bAssets) on a 1:1 basis. The 1:1 swap feature has many benefits, such as zero slippage. However, some problems have been identified. For example, the most expensive bAsset is always drained out of the basket, and the cheapest one always fills it up. To remedy this (as well as to cap system risk), we enforce weight limits, which prevent users from increasing the weight of any bAsset above its maximum proportional representation.

I’m pleased to announce that our long-term solution to this problem has come out of the research phase, and will be proposed as an MIP soon — say hello to “incentive curves”.

Introducing incentive curves will effectively turn mUSD and mBTC SWAP into fully-functional AMMs with guaranteed liquidity, increased composability and ultimately higher swap volumes.

“Incentive curves” keep basket weights within a desirable range. Depending on how their actions affect bAsset weights, users might pay a penalty or be rewarded a bonus, as defined by these incentive curves.

Notable features of penalty curves:

  • Gas efficient: It doesn’t cost much gas to compute the penalty or the bonus.
  • Flexible and fully customisable: Any desired range of weights can be targeted with incentive curves without additional overhead.

Implemented by late December 2020, assuming MTA Governors approve the MIP.

2. 🅱️ mBTC

mStable can support numerous mStable assets (mAssets). Each mAsset is pegged to a unique asset, such as fiat currency (USD) or a cryptocurrency like Bitcoin (BTC). mAssets are backed by a basket of existing, whitelisted, tokenised assets of that same peg, and held by the user (i.e. they are non-custodial). mAssets are minted/redeemed permissionlessly and on-chain via the mStable smart contracts.

Tremendous volumes of Bitcoin are being moved and put to work on the Ethereum blockchain — topping US$2.0bn in October. mStable is excited to announce that the next mAsset the core team will propose is mBTC.

A non-exhaustive list of possible collateral assets (bAssets) for mBTC:

mBTC will create a liquidity pool of Ethereum representations of Bitcoin and in doing so produce a suite of products that leverage these assets.

We propose to launch mBTC with: mBTC SWAP, mBTC SAVE and mBTC EARN.

MTA governs mStable. Adding mBTC to mStable will, in the core team’s opinion:

  • Increase mStable’s Total Addressable Market by at least USD$2 billion, and as much as US$300 billion (current market capitalisation of Bitcoin)
  • Reinforce the robustness of MTA as a governance token. Unlike other governance tokens in DeFi, MTA will have several assets from which it derives governance value. This is particularly important should the re-collateralisation proposal be passed in Phase Two of the protocol.
  • Result in the creation of two robust, base-layer collateral assets for DeFi. A primary goal for mStable is to create the meta-stablecoins that are used as DeFi’s base-layer collateral assets. These assets aim to diversify risk, produce higher yields and be more useful than their constituent parts.

We expect this to be implemented by January 2021, if accepted by MTA Governors.

3. 📈 EARN pool & MTA tokenomics restructuring

The core team is working on several proposals aimed at improving Earn, MTA’s emission and its tokenomics.

Specifically, these proposals will seek to:

  • automate the public reward emission process giving full control to vMTA governors.
  • enable all mStable users to earn MTA.
  • create stronger links with earning power and value produced for the protocol, i.e. boosting earnings on a time and size weighted basis for users who provide liquidity or stake and participate in governance.
  • bolster MTA’s utility by enabling MTA usage within mStable e.g. pay for swap fees to create a more dynamic MTA strategy, using, for example, a buy back and make strategy with a Smart Treasury Balancer Pool.

As this proposal would greatly benefit from increased usage revenue & requires significant R&D, it is slated to occur after the new AMM and mBTC have been launched. Therefore this EARN proposal will be finalised by December 2020/January 2021.

4.⛽ Lower gas costs for small deposits, redemptions and swaps

A great user experience is one of mStable’s key priorities. For this reason, the core team has been working hard to significantly reduce gas costs.

Since mStable launched in early June, gas costs have increased drastically. This increase combined with interaction with lending markets Compound and Aave makes MINT, SWAP and REDEEM relatively expensive.

MIP-3 is likely to provide a c. 70–90% gas savings across various app functions such as minting, swapping and redeeming.

The gas cost incurred during lending market interaction is avoidable and not necessary to do for every transaction. It is likely less gas will produce higher yield due to having more liquid bAssets available to cheaply swap/redeem. This proposed cache is analogous to a computers memory cache — “an auxiliary memory from which high-speed retrieval is possible.” In our case, memory = liquidity pool && high speed = low gas.

The core team proposes to upgrade the Masset.sol contract, allowing it to track and retain a percentage of all collateral in its "cache". Only if necessary will the Masset then deposit or withdraw from the lending markets. When a deposit or withdrawal happens, the cache will reset to the ideal target weight, determined by a governance parameter. Subsequently, the BasketManager.sol will be upgraded to use the cache data during normal interest collection.

Currently the yield produced from lending markets Compound/Aave is collected upon each deposit into SAVE. This is an expensive operation and is performed more frequently than is necessary.

This proposal provides a more passive method of collecting the yield, reducing SAVE deposit gas costs by >= 50%.

This upgrade is something that could be bundled nicely to MIP-3.

These MIPs will be implemented in November 2020 as they were approved by MTA Governors here and here.

Stay tuned for more updates

We’re excited about pushing the protocol forward with these upgrades in the coming months!

All of these updates are only for the next two to three months — we’ll be publishing a longer-term roadmap on our plans for 2021 in the near future which will include, but is not limited to:

  • Re-collateralisation: If a bAsset loses its peg, mStable could purge that asset and recover lost value by using MTA. This proposal would aim to make mUSD more secure than the sum of its parts.
  • Fully on-chain governance: MTA Governors will be able to vote and execute on all system parameters.

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mStable unites stablecoins, lending, and swapping into one standard.

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