I wanted to bring up an alternative vision for mStable as a crosschain liquidity/swap solution.
This was an idea I played with in December/January this year, but never really brought it to the attention of the community as other priorities came up. I think the premise of this idea (multichain world, multiple Ethereum jurisdictions, increased fragmentation of same peg assets and their yield) has only been confirmed as time goes on.
I’m keen to get feedback on this - no doubt it is a large vision for mStable and one that enters a crowded crosschain space, but I think it’s worth consideration.
mStable was initially built to unite same peg assets. mAssets are backed by a diversity of the major pegged assets; Save is a optimised composite of lending protocols and stable yields; swap unlocks efficient liquidity between same peg assets, with feeder pools extending mStable to enable any pegged asset.
With a variety of credible layer 1s coming to market (Solana, BSC, Avalanche, Near, etc.) and several Ethereum scalability solutions (Polygon, Optimisim, Arbitrum and many more), the fragmentation problem has and will only increase. Further, a major pain point for these new crypto “jurisdictions” is lack of stablecoins and lack of economic infrastructure to generate yield on those assets.
What is needed is a robust and efficient way to connect same pegged asset liquidity and their yield.
There are many decentralised crosschain solutions out now or coming to market, including:
These crosschain custody the liquidity on their chain/MCP, exposing the liquidity to dangerous attack vectors.
This proposal suggests that instead of having the crosschain solution custody the assets and house each liquidity pool, instead create a lightweight state-chain that reads the balances of each mStable implementation. The state-chain would enable zero slippage cross-chain liquidity in mAssets, and then via redemption allow for low slippage swaps between bAssets.
In short, mAssets could be a very useful accounting mechanism in connecting different mStable implementations and therefore connecting liquidity and yield in different crypto jurisdictions.
The mStable protocol would be built on each jurisdiction (Eth layer 1, Polygon, later maybe other EVMs and even Solana etc) and each mStable AMM would have its own mAssets( ie ETH mUSD, Polygon mUSD) and feeder pools. mStable implementations would aim to unlock deep on-chain liquidity and high yields on their chain, by having:
- an automated market maker optimised for trading between pegged assets
- per asset save rate: imUSD, imBTC, as interest bearing standard
This would work by:
- state-chain mint/burning mAssets to bridge liquidity. For example, I want to trade BUSD on Binance Smart Chain for DAI on Ethereum Layer 1:
This would be the flow: deposit BUSD into BSC mStable, mint mUSD, metastable state-chain then burns the BSC mUSD and mints the same number of Eth mUSD on Ethereum; the Eth mUSD then redeems DAI from Eth mStable.
If you trade between mAssets it would be a 0 slippage transfer. If you trade between mAssets it would be a low slippage transfer.
- The state-chain would enable capital to flow freely meaning it doesn’t matter where the collateral assets are: i.e. 100% of mAssets could be on Arbitrum even if 100% of bAssets (colalteral in the AMM) exist on Ethereum Layer 1. The imAssets (interest bearning assets) would earn the same rate wherever they are. We think new “juridications” would like it as they could effectively leverage existing DeFi economies on incumbents without building it from the ground up.
- Save could one day be the liquidity pool for crosschain swaps. Users stake their mAsset into Save on each chain. This would create, for example, an ETH mUSD / Polygon mUSD pool. Interest would be paid to this pool, in a way similar to what happens today.
- mStable unifies and connects pegged value crypto assets, everywhere, not only on-chain, but to also cross-chain and between layer 1 and layer 2
- Current solutions have high slippage and attack vectors
- mStable bridge doesn’t necessarily require liquidity pools, is zero slippage and does not require direct custody of funds
- Major efficiency and security improvement to other cross-chain solutions
- mAssets, yield assets as well as collateral assets will be able move freely between chains
I wrote the above very quickly- I just wanted to express the top line idea and am happy to answer any questions.
Looking forward to your thoughts.