Thoughts on how mStable should move forward in 2022

This is going to be a brain dump so apologize in advance for lack of organization.

First some disclaimers - I don’t really own any MTA anymore, yet I do have friends that still do and also have spent a significant amount of time on mStable, like many of those involved, and want to see the project succeed.

Hopefully that provides me with a rather objective perspective but see into that how you will. I believe I have ideas that could be productive for mStable to adopt but you of course may see that differently.

Let’s take a look at where DeFi sits today. Many recent success stories are grounded in “ve-” tokenomics and Convex. FXS pumped 200% in less than 2 weeks after cvxFXS was announced. YFI is up over 100% over the last couple weeks since its veYFI tokenomics redesign. And these appreciations are for good reason. Since the launch of Convex in May 2021, CRV has outperformed ETH by over 60%.

I intro with that for a number of reasons.

(1) I continue to see mStable focus on the nominal quantity of MTA emissions and caught in the ideology that “less MTA emissions = MTA go up,” rather than focusing on the incentive design around those emissions. CRV, the token that outperformed ETH ultrasoundmoney by 60% since mid May is hyperinflationary. Again, incentive design, not nominal emission.

(2) Since last spring, I hammered away at the need for a Convex-style pooled boost on top of mStable to create the incentive design that would drive utility and value to MTA. While the mStable team has recently pushed out staking v2 with a gauges component (congratulations on this achievement), resources over the spring and summer were utilized on a Polygon deployment that did not have a mechanism to drive value back to MTA, rather than building staking v2 sooner & a pooled boost mechanism on top. (understand that there may have been other resource limitations here, but regardless, the resource allo was -EV). Thus, the MTA token (and thus the mStable treasury) did not and still has not benefitted from this Convex/pooled boost tailwind.

(3) I luckily had been active in the Convex discord in the summer and heard about Votium/bribing/CVX controlling the veCRV on Convex. I proposed some ways in the mStable discord that mStable could accumulate CVX to use to bootstrap its product suite with the veCRV votes. This ideation occurred on July 21st when the CVX price was $2. Current price is $48 and mStable now spends MTA emissions bi-weeky to Votium bribes (a bi-weekly expense) - rather than owning CVX (an asset with utility) to vote with its own veCRV. Again, an opportunity to be early to a trend that was unfortunately not captured.

(4) The supply of mUSD, before recent Votium bribes began, fluctuated between ~30-40 million mUSD for greater than 1 year. While the rest of DeFi (even on eth network only) did multiples of TVL growth, the mUSD supply was flat. As a result, I think mStable needs to ask itself a very hard hitting question. Is mUSD worth incentivizing? While the mUSD supply has recently grown significantly as a result of the bribe expenses (which still generate about $5 worth of CRV incentives for every $1 spent on bribing - i.e. the bribe cost is only positioned to continue to rise, costing more MTA every 2 weeks), it’s quite clear, when contrasting against the previous ~14 months of no growth, that this mUSD growth is simply a result of mStable paying MTA for CRV incentives to go to mUSD users.

This growth is not because users find utility in mUSD, rather because mStable found a way to leverage its MTA emissions by ~5x through bribes, which are an unsustainable recurring expense. Without these incentives to pull mUSD away from Save, the performance of imUSD approaches that of stables deposited in Aave/Compound with greater risk surface of holding 4 stables, rather than less (which is why you need to pay people incentives to hold mUSD). Similar to the Polygon deployment, the Votium bribes for mUSD seem like mStable is spending MTA on generating activity for the sake of generating activity without consideration for the cost-benefit equation of doing so.

Emissions have a purpose of bootstrapping a product. Helping you reach a critical mass of users that then appreciate your product for the utility it inherently provides sans incentives. Emissions are not simply a “more = bad” & “less = good” dichotomy. Development stage is everything. Product utility is everything. Incentive design is everything.

I encourage mStable to consider whether (a) the current product suite has inherent utility sans emissions (b) whether mStable should priorititze alternative mAssets that may offer greater inherent utility and combine that product launch with a more aggressive emission schedule that has a better incentive design (pooled boost) on top.

(5) I have suggested over and over since last summer that what I see as the best use case for a meta asset is meta staked ETH, mstkETH, which later could be expanded laterally to other PoS chains (i.e. meta staked DOT, mstkDOT) as defi continues to go multi-chain and liquid staking solutions grow. mstkETH, by smoothing out variability in validator yield due to MEV, creating a composite staked eth yield, provides an mAsset with inherent utility. People wanting staked eth with more predictable yield will want to own what will be the risk free rate/cornerstone collateral piece of DeFi. Read my previous ramblings here.

With the merge coming in 2022 (hopefully, kek), eth 2.0 and MEV will take center stage. mStable can be early to this narrative and capitalize on a massive growth opportunity for an mAsset that has inherent utility that eventually won’t need incentives for people to want to hold it. While mStable missed the Convex opportunity, this is the next big one on the docket. I’d direct every resource mStable has at capturing it. This is make or break for mStable. Ignore at its own peril.

P.S. Deprecate the feeder pools and buy CVX with some of the MTA emissions that would’ve gone to those pools and make Curve mStable’s defacto feeder pools and make them pay the CRV emissions every 2 weeks, rather than mStable. Continue to allow swaps between the mAsset basket assets to utilize that idle liquidity.

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mSave is a shared savings account where the imUSD can be used in place of standard currency. The money in your wallet (or LP) can constantly appreciate, that maximizes capital efficiency. I know @james.simpson loves capital efficiency. Although I agree with you points, my conclusions differ from yours.

Yes. This does seem to be the sentiment and is counter to what was successful in 2021.

Bribes actually generate a similar amount of revenue per MTA emitted as mSave. I am more concerned with the notion that mSave holders are subsidized with MTA despite having high savings rates. This places an implicit valuation on MTA of 10% Save Revenue / MTA Emitted to mSAVE which would price MTA at 20 cents. Furthermore, it is a missed opportunity to provide MTA emissions to those not taking any risk, which leads to the next point.

One use case is for passive earning in LP positions. This is an opportunity (1) because oUSD cannot do it (2) earning 90% of whats possible on a Stable in AAVE when not in an LP is pretty good compared to the 0% when sitting in an LP. But it is important to have deep liquidity for this. Thus, MTA emissions should be allocated to an imUSD:ETH pair. This has the additional benefit of (3) as ETH increases in value that it will generate demand for imUSD to buy ETH from the LP.

There also seems to be a product market fit for apps connecting Defi to Tradfi. mStable can help there. imUSD could justify a lower yield if it improves usablility. imUSD could be used by payment apps effectively allowing users to automatically generate yield with the same currency that they use in a payment app. oUSD is seemingly targeting this approach. Even better, the idea has infinite room to grow. Any earning strategy that mStable deems safe could be used to earn income while users are effectively using interest accumulating claim tickets on the underlying value as currency. mStable should effectively become a decentralized bank.

Yes. The Feederpools seem to be deadweight in terms of revenue per MTA emitted. But, deprecation of these is counter to the vision of mStable. Instead, I suggest that the pool earn its share of mSave. (1) This would have minimal impact on Save rates (2) it would enable subsidies of MTA to be reduced and (3) it would move towards my proposed vision of earning base yield while in an LP.

Of the four stables, USDT seems to be the only one with relevant risks. Frax seems to be as asset backed as USDT but (1) fully on chain and (2) additionally backed by FXS. Swapping USDT out of the basket for Frax would both improve security and provide an additional source of revenue should the mAssets be added to the Frax emission gauge. Aligning with Frax and Toke and boosting imUSD liquidity and trade volume is my preferred strategy.

The largest weakness that I see in my own argument is that I am effectively driving down the yield on mSave and essentially deprecating the use case of mUSD. However, the best use cases for imUSD are where yields are currently zero. This provides an opportunity to greatly increase overall revenue and thus protocol revenue.

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Interesting thoughts and perspectives here.

I agree (broadly) that mStable must make an effort to evolve with a DeFi landscape that has changed enormously since 2020. I think that’s already happening, based on comments I heard during the Emissions Controller launch party in Discord. The full plan hasn’t been divulged yet I don’t think. Perhaps on the next community call the dev core and relevant subDAOs will have a concrete roadmap to discuss then?

I would be interested to hear reasoning about why there isn’t a CVX buy as one of the dials in the EC. In the same way that protocol owned liquidity is good, I think owning non-MTA assets in the treasury would similarly be good. Allowing it to be throttled by on-chain governance seems like the ‘decentralized’ thing to do. And of course, the obvious utility in owning CVX.

Reading this, I feel like you’ve mischaracterized or under-described mUSD. The purpose of mUSD is to trade a larger absolute risk surface for a maximum effect such a risk event can have on you. Without the cap in place on the AMM, you’re right that there wouldn’t be utility in holding mUSD. But this cap exists and protects holders of mUSD. That’s the point.

In 2020, I feel as though this utility was a meaningful distinction. In 2022, I feel as though things have moved towards risks for these stables being ‘priced in’ already all over the ecosystem. As such, we end up agreeing that mUSD as it stands has lessened utility, but for rather different reasons.

Anyway, I think that there can continue to be a place for a metastable coin. What follows is perhaps the bad version of the idea? New stables come out, and they could be voted in, and rotated out when they have a history and meet certain criteria. Max weights could also be a vote lever. Since most of these stables have aggressive growth incentives early on, the DAO stands to benefit from integrations. Same thing could be done on other chains.

Concerning mstkETH, I’m pretty apathetic. I’m not certain, but if it turns out anything like DOT staking, composite yield won’t really be necessary. Different staking pools will approach the same level of returns for any particular staked ETH coin, barring events that would be centralizing in nature. You will probably see short and localized variations in yield. That said, I’m not convinced that such variations would be captured profitably by a mstkETH.

Further, while you could make a parallel between risk of depegging and risk of a slashing event, I think the nature of the two is different enough that it isn’t necessary to hedge that risk in the same way. Seems like a more traditional insurance offering would better target transient events like a slash. For all I know the various pools already address slashes in various ways.

So again, interesting post, good points. I don’t find myself in agreement about outcomes, but it’s a complex issue with a lot of moving parts and a lot of valid directions. I don’t really have any answers.

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Uh…oops. I deleted my post like a doofus.

I can un-delete! :joy:

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I’m not as good as writing long texts so I do bullet points instead:

  • I agree that we missed the CVX early train. We should be prepared for the next one. Have a plan for these kind of early projects can be handy, the same way you do fire drills.
  • imETH is a must, BTC is not even native to ethereum yet we do have it.
  • MTA emissions rate are fine I think. My personal believe is that governance is main utility, the rest is casino. :upside_down_face:
  • MTA is way undervaluated at the moment.
  • The most important bits of “im*” are ease of use, great yields, basked based. That’s why I’m already working on integrating imUSD in one of my projects to generate yields for our users.
  • We should align with dex aggregators to add our liquidity to their results.
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Tetranode spoke against buy-backs on “Up Only” yesterday. He stated that buy-backs benefit early investors. On the otherhand, PCV benefits long term holders. I have been stating this since I joined the group, but Tetra has more clout than I do so I am reiterating it now. Change buy-backs to storing and investing mUSD/mBTC or convert to ETH and transform into stakedETH.

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