Detailed plan to grow ecosystem TVL

Summary

  • The role of a DAO is to maximize value for native token holders
  • Long-term value accrual to native token holders is driven by growth in ecosystem TVL
  • Finding ways to get institutional capital into the mStable ecosystem is the fastest way to grow ecosystem TVL
  • A strategic revenue-share partnership will get institutional yield investors into the mStable ecosystem
  • A strategic revenue-share partnership provides numerous benefits to mStable
    • Raise mStable awareness via promotable partnership
    • Gain a brand ambassador with aligned incentives
    • Onboard potential whale customer(s)
    • Currency of choice added to treasury
    • No dilution to MTA

Motivation and scope

Creating value for native token holders should be the goal for every DAO.

Rationalizing emissions is a great step towards maximizing the value of MTA. Ultimately though, the long-term success of the DAO will hinge on its ability to grow. I think @nesk is right when he proposes recalibrating MTA incentives towards v2 users, and while properly aligning incentives to attract customers is important, tokenomics are not the only go-to-market tool mStable has at its disposal.

This proposal outlines a detailed strategy to grow ecosystem TVL: a temporary revenue-share agreement with institutional capital.

Why growing TVL is important

Given mStable’s business model, higher TVL results in higher revenue.

The other reasons TVL growth is critical are the benefits of scale. There are huge advantages to mStable reaching critical scale: network effects (especially important given mStable’s business model), brand recognition, talent attraction, partnership attraction, and profitability. Reaching critical scale is difficult, but the benefits far outweigh the costs.

Focusing on institutional customers to accelerate TVL

The fastest way to grow TVL is to onboard institutional capital to mStable. A few large customers can materially increase TVL. Institutions are also usually much stickier than retail capital.

A tried and true go-to-market strategy in the institutional space is to have potential customers become investors.

Capital provider as a potential customer

Raising capital from potential customers introduces familiarity. Plus, the investor improves the outlook of the investment by becoming a customer. You see this play out when DeFi lending protocols raise money from lenders and/or borrowers, when startups raise money from strategics, etc.

Compounding effect of institutional capital: positive signal to the market

The same way having blue-chip DeFi investors like Almeda, ParaFi, and Defiance is important to mStable’s success as a company, onboarding institutional yield investors to mStable’s ecosystem would provide promotable content and positive signaling to the DeFi market.

Partnering with institutional yield investors represents a clear opportunity to drive ecosystem TVL growth.

The problem is that institutional investors are difficult to access: identifying the right institutions, getting access to them, and convincing them to trust mStable is a difficult and lengthy process.

Partnership opportunity: Cinch

We are putting forward our platform, Cinch, as the intermediary to connect mStable to the right institutional capital.

The revenue-share “ve” model seems to have achieved product-market fit in DeFi. However, in order to participate, investors must be willing to accept (i) the volatility associated with the token and (i) the lock-up period.

Protocols and DAOs can onboard institutional yield investors via temporary revenue-share. For example, a DAO can create revenue-share tokens that receive [10]% of monthly revenue up to a maximum of $[50,000], after which the revenue-share ends.

We are in contact with dozens of institutional funds that are looking to deploy capital into yield-bearing opportunities like a revenue-share with mStable. Some of the investors we are in contact with currently include LedgerPrime, CMCC, Plutus21, Stablecorp, and StrixLeviathan, to name a few.

We propose introducing the mStable team to the investors in Cinch’s network who are interested in a revenue-share transaction.

Partnering with institutional yield-seeking investors through Cinch addresses the three problem areas in getting through to institutional capital:

  • Identifying 🗸
  • Accessing 🗸
  • Establishing trust 🗸

Benefits & risks

Benefits to mStable

  1. Raising capital from an institutional investor sends a strong signal that a new institutional partner believes in the protocol
  • This can be actively promoted by mStable
  1. The institutional partner becomes a brand ambassador with aligned incentives
  • Increased mStable revenue leads to faster repayment and higher IRR for investor
    • Investor partner is incentivized to promote mStable
    • Investor partner is incentivized to become an mStable customer
  1. Increased likelihood that the institutional partner becomes a long-term customer
  • mStable’s product offering is extremely well aligned with the needs of institutional yield investors
  1. Treasury diversification + no dilution
  • Nothing from the treasury is sold to onboard new partner(s)
    • No MTA tokens
    • No treasury funds
  • Treasury will receive sale proceeds in currency of choice
  1. Requires little to no active involvement from mStable team
  • Potential partner Cinch will manage every step of the process

Benefits to institutional partner

  1. Sustainable yield bearing opportunity
  2. Opportunity to evaluate a growing yield ecosystem as an insider
  3. Incentive to promote mStable ecosystem to drive faster repayment via revenue-share
  4. Easier to trust DeFi project when introduced via intermediary (Cinch)

Benefits to Cinch

  1. Further demonstrate the usefulness of revenue-share tokens
  2. 3% fee [conditional on there being a transaction]

Risks

  • Unable to find an investor that is willing to partner with mStable
  • Capital is raised from investors at a lower price than anticipated
  • Revenue generated by mStable during revenue-share period is lower than anticipated, thus extending the time it takes for repayment to be complete
  • The investor partner does not become a customer or brand ambassador

Next steps

Cinch is currently in talks with institutional managers looking to deploy capital into DeFi.

We submit to the community that an initial revenue-share transaction can be done with small amounts as a first step to build trust among all parties involved (~10-20 ETH).

Subject to the community’s feedback we will draft and submit a formal Proposal.

Please provide any feedback or comments below!

Tagging active forum participants :slight_smile:

@mZeroNine @Jeshli @dimsome @soulsby @Jeshli @TClochard

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TIL: I’m not an active forum participant. :thinking:

Anyhow, as soon as I see “institutional” I read “permissioned KYC pools.” Since mStable isn’t a KYC’d protocol and already has its developer’s hands full with V2, how do you see the protocol performing the necessary steps to be acceptable to institutional investors? Or is this requirement somehow not applicable to us?

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@trustindistrust you’re right, I forgot to tag you above. My apologies ser!

  1. Some of the funds I listed can definitely use mStable. I think what you’re describing depends on the structure of the entity and the jurisdiction in which they operate. For example, at least two of the entities I listed above are actively deploying capital across DeFi (delta neutral option strategies, yield farming, Compound/Aave, etc.) so my off-the-cuff thought is that this wouldn’t be an issue. Note: we would be happy to connect the mStable team to them.

  2. It’s not clear to me that institutions depositing stablecoins for mStable and interacting with the Save contract would trigger any sort of requirement whereby the institution would need KYC information on the entity/people the funds are eventually deployed to after they are sent to Aave/Compound. Is it your understanding that this would be the case?

I’d love to chat about this further if you’re interested! Posting here works for me, otherwise please feel free to send me a DM on TG @MaxLS8146

A very interesting proposal, thanks a lot!

The best person to get in touch with with probably be @TClochard in regards to cooperation and diving deeper, but I’ll give my 2cts here as well fwiw:

I think that this sounds interesting, and perhaps something that can be utilized once our first Metavault launches, but it seems like a lot of overhead for our current Save product, especially since we most likely won’t be developing it much further, and most energy will go into ERC4626 from here on out.

I’d be keen to see how much revenue and TVL our first Metavault generates without any additional incentives or help, and then take it from there. It’ll also ensure that the product is interesting enough to everyone without increasing locked value “artificially” with additional incentives.

Did you already onboard with other protocols? Would be great to see what Cinch was able to do for others and then see a side-by-side comparison of the before and after :sunglasses:

2 Likes

I second @mZeroNine’s opinion of first gathering some baseline metrics after rolling out our Metavaults. It’s needed to make a truly informed decision on the best path forward.

I’d likewise like to read up on any case studies you have. Who else have you partnered with, and can you provide data that illustrates your previous successes?

I appreciate your post here :slight_smile:

Thanks @Fungus and @mZeroNine for thoughtfully reading and providing feedback!

No case studies we can make public quite yet, but hoping to very soon :crossed_fingers:

Among other things, we are working with a DeFi protocol that wants to kick-start their TVL/growth flywheel for a new product by having institutional capital use the product in exchange for a temporary fee discount / revenue-share. It sounds like this could make sense for some of the Metavaults if you think there is go-to-market leverage in increasing TVL (subject to first understanding unincentivized performance as you’re suggesting).

It would be great to chat with @TClochard about how something like this could work and what the timing is on your Metavaults etc.!

Will make sure to produce case studies for you guys as soon as we can :slightly_smiling_face:

Hey @habs4lyfe,

Thanks a lot for detailing this exciting opportunity. We’re always very keen to find new ways to increase our TVL, especially with long-term oriented investors
I second @mZeroNine on the emphasis we’re putting on our incoming product launch but happy to see how it could also work with our current set of products.

Some questions on my end:

  • What’s the partner role in this flow? How does it provide liquidity?
  • What mStable is exactly selling for this “sales-proceeds”, a constant portion of its revenue? What’s the execution of a scheme looks like?
  • What’s the %discount expected by Cinch’s pool of institutional? Is there some kind of moving range depending on the
  • How long Cinch’s sourced liquidity is usually expected to stay in our vaults? What’s the investment horizon here?
  • Is the 3% fee taken by Cinch indexed on the amount the partner deposited/ purchased?
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@TClochard

Thanks for reading and considering the proposal Theo.

There are a couple of different ways a custom revenue-share can benefit mStable, and it really comes down to what your team’s priorities are at the moment. Allow me to lay out 2 examples:

  1. Investor receives x% of a product’s revenue, in exchange for depositing TVL into that product
    -mStable gets promotable partnership with institutional DeFi customer
    -mStable gets large TVL increase and kick-start TVL fly-wheel
    -Investors gets unique opportunity to generate additional yield (i.e. “alpha”)
    -Agreement can be structured with terms like minimum deposit periods, etc.

  2. Raise non-dilutive capital from a DeFi investor who could become a customer of mStable
    -mStable agrees to forward x% of revenue to investors until a maximum of $X (a form of uncollateralized borrowing from a potential customer)
    -Proceeds are received by mStable treasury. mStable treasury receives currency of choice. Typically priced at a 10-15% discount (so investor will pay $0.90 for every expected future $1.00)
    -Investment is promotable and is a positive signal to the market
    -Investor is hopefully converted to a customer

Note that we are currently working with a DeFi protocol looking to accomplish both goals in a single transaction (onboard TVL liquidity and raise non-dilutive capital).

In both instances the Cinch fee is indexed to the size of the deposit/capital raise.

None of the above requires more than 10 minutes of mStable developer resources. 95% can be done through Cinch’s app.

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