Building upon the low-hanging fruit addressed by PDP 22, the logical next step for mStable is to focus on attracting more liquidity.
Given mStable’s greater capital efficiency than Curve (and thus higher base yield–roughly 10x), logically it wouldn’t make sense for an LP to choose Curve over mStable. So why does Curve have over 160x more liquidity than mStable?
Much of this liquidity discrepancy can be attributed to Curve’s accessibility to yield aggregators, whereas mStable, by putting a lock on MTA rewards and requiring users to purchase and stake MTA in order to earn boosted rewards, is not accessible to yield aggregators.
Three proposed components would help resolve this discrepancy and attract more liquidity, while also enabling greater value accrual and utility for MTA:
- Develop a pooled boosting layer in which users can stake MTA and pool their boost for yield aggregators and other depositors to use. Those who stake and pool their MTA will earn a cut of the boost, earning cash flow on their MTA.
- Remove the time lock on MTA rewards for liquidity providers.
- Increase buy & make allocation to 30% of fees generated.
mStable’s current competitive advantages reside in the capital efficiency and reflexivity inherent to its design. As a result, the recent base yield (without gov token rewards) of Save hovers around 10%, whereas Curve’s 3Pool has consistently hovered under 1%.
Despite this massive edge, mStable’s time lock on MTA rewards and requirement to purchase & stake MTA to receive boosted rewards do not allow yield aggregators and other large depositors to take advantage of mStable’s higher base yield. Yield aggregators require instant liquidity (cannot have capital locked up) and cannot take any principal risk (i.e. buying MTA puts them at risk of underperforming USD stablecoins).
Becoming yield-aggregator compatible is the last missing piece for mStable. If we resolve this compatibility issue and level the playing field with Curve, we would become the preferred place to LP (lend out idle bAssets → higher base APY).
If mStable draws liquidity from yield aggs, it will improve its swap execution and drive swap volume, generating swap fees & Save APY and attracting even more liquidity (i.e. the reflexivity story everyone loves about mStable).
When thinking about the process to integrate yield aggregators, the #1 consideration/concern is to ensure sell pressure on MTA is mitigated and value accrues to MTA. If no value accrues, what is the point of drawing more liquidity?
Convex-style pooling layer enters the chat
The basic mechanics of this feature would be to allow users to stake, lock, and pool their MTA to allow yield aggregators and other depositors to deposit through their pooled boost. These depositors could earn the boost without having to go through the prohibitive process of buying and staking MTA with their own capital. The MTA poolers earn a cut of the boosted yield (currently staked CRV poolers on Convex take 10% rake). Everyone wins.
In addition to the pooled boost, mStable should also remove the lockup on rewards to resolve the instant liquidity problem and further level the playing field against Curve.
Lastly, as mStable will attract more liquidity, drive more swap volume, and generate more fees if it implements this solution, we should increase the buy & make allocation to 30% of overall fees. If we’re drastically improving the experience for LPs, we should be compensated accordingly and improve value accrual to MTA. 30% still offers a competitive advantage over Curve who takes a 50% cut of fees from LPs.
At a high level, why is this a good idea?
Convex’s pooled boost on top of Curve launched ~2 months ago and already has $3.9 billion TVL, which eventually flows to Curve, improving their liquidity. This rapid traction conveys the benefit this feature provides to LPs and the subsequent benefit provided to the underlying protocol.
Value Accrual: By earning a cut of the boost, MTA stakers now have a way to generate cash flow from their MTA, generating more token utility. mStable now can also provide a staking yield that isn’t fully based upon emissions to directly to stakers (thinking longer term here). Increasing buyback & make allocation to 30% still offers an advantage over our competition, but also accrues more value to MTA, benefiting holders and our treasury (~90% MTA).
Pooled staked MTA will be locked, leading to greater scarcity and more MTA supply removed from the market, reducing pressure on the token. You have seen CRV continue to hold its value in recent months using this implementation even in the face of an extremely aggressive emission schedule.
Incentives for staked MTA poolers:
Earn cash flow from a large pool of capital (yield agg capital, etc.) .
Retain upside in MTA without needing to commit capital to Save/Pools in order to take advantage of staking. Currently, users need stablecoins or btc in addition to MTA to take advantage of their boost. Not everyone has that much capital available or desires to hold those assets, reducing their incentive to buy and stake MTA. This solution provides a direct source of cash flow for buying and staking MTA → again, utility + value accrual.
Benefits/how this addresses challenges mStable currently faces
Improves liquidity/TVL. Yield aggregators would no longer have to take principal risk to access MTA boost and would retain instant liquidity on all yield owed to them, which is necessary since any of their users can withdraw at any time. Removing these prohibitive barriers allows us to better compete for liquidity with Curve, which has Convex pooling & no lockups. As mentioned at the outset we should actually outcompete Curve because our base APY is higher.
Better swap execution. Ceteris paribus, swap execution is determined by (1) swap fee (2) liquidity. We have already addressed (1), now we need to address the other (more important) part of the equation (2) liquidity. Better swap execution unlocks more potential for value accrual/greater fee revenue.
Added utility and value accrual to MTA without needing to use recollateralization as a means to generate utility, which as we discussed in Discord, causes the Protocol to have to dump its own token at the worst time (saw that recently with SNX).
Helps resolve treasury concentration in MTA/project funding needs. mStable could bootstrap the Convex-style MTA boost pool with some of our treasury’s MTA to get that feature off the ground and then gradually sell off the MTA we receive as cash flow. This implementation offers value back to the protocol and is preferred rather than selling our existing asset base of MTA for funding, which hurts our longevity. Greater swap volume & fees from improved liquidity + expanded buy & make allocation also help support MTA and the value of our treasury.
Aligns with the existing effort to redesign/revamp MTA staking later this year.
I welcome thoughts and technical/implementation considerations before potentially moving to a formal proposal.
TL,DR: mStable’s capital efficient, innovative design is superior to Curve. Curve has more market share currently because they have more liquidity as the the “go-to” for yield aggregators. Trust me, I work for a yield agg, and we couldn’t integrate mStable right now if we tried. Yet we LP on Curve. Let’s level the playing field, iterate on our current design, leverage our strengths, and go become the next DeFi blue chip.