[Voting] MIP-6 Bitcoin mAsset (mBTC) and new AMM-based design

Simple Summary

A new mAsset, mBTC, is created, which unites various Bitcoin-backed ERC20 tokens. Mints, redeems and swaps with bAssets are not 1:1, and instead determined by a new AMM-based design.

Abstract

We propose a new mAsset, mBTC. Similar to mUSD, mBTC will be a derivative of BTC-backed assets, most likely wBTC, renBTC and sBTC at launch. However, unlike mUSD, mints, redeems and swaps will not always be 1:1, depending on the relative weights of the bAssets (underlying assets). Instead, mBTC will feature the first ever implementation of our new AMM design, the Incentivized Constant Sum Market Maker, or ICSMM for short. In the new design, there are upper and lower soft and hard limits for bAsset weights, which are generally ordered in ascending order as [0%,hard_min,soft_min,soft_max,hard_max,100%]. When all bAsset weights are in the 1:1 region, that is, between soft_min and soft_max, users can mint, redeem and swap 1:1. If a user action pushes weights beyond this region, increasing disincentives are applied to prevent further movement. Similarly, if a user action brings weights back into the 1:1 region, an incentive is applied. These incentives are computed by penalty functions for each bAsset, which themselves are combined under a single invariant per the usual AMM formulation. Finally, weights can never move beyond the hard limits, imposing limits on how much bAsset reserves can be drained.

Rationale

The current Constant Sum Market Maker (CSMM) has a number of shortcomings:

  • Restricted liquidity: Not being able to swap with all bAssets limits the swap opportunities. This leads to less arbitrage opportunities and thus lower system yield.
  • Reduced composability: Not being able to mint or redeem with every bAsset hinders composability with other DeFi projects.

These problems were apparent even before the launch of mUSD v1. Because the system caps risk on individual assets, mUSD was launched with maximum with maximum weight limits of 55%.

We designed the ICSMM to deal with the shortcomings of CSMM. By introducing incentives, we not only solve all of the aforementioned problems, but also turn mAssets into fully functional AMMs. This will allow the system to:

  • Flexibly target specific bAsset weights to cap exposure to individual assets.
  • Make mAssets more composable.
  • Guarantee a minimum amount of liquidity.
  • Massively increase swap volume.

Links

7 Likes

Thanks for this proposal @osolmaz , and looks very good.

I would add that we should consider additional BTC assets for launch, since there is enough liquidity present for them, and I feel it would give positive exposure to both our and the issuer’s protocol, especially for a big launch event like this.

Namely, I’m thinking of tBTC and pBTC, both coming from very reputable development teams, and both having solid liquidity to get us started (and perhaps incentivized).

Also, mayhaps we are to consider future additions of BTC aggregators in the pool, to further diversify and balance overall exposure, and enable onboarding from different camps towards mStable, as an easy transfer method from one protocol (or blockchain) to the other.

I’m thinking of PieDAO here, and their (not yet completely finished) BTC++ pie, which itself is backed by several BTC tokens. Perhaps there are others, but this is the one that caught my eye.

This sort of creates a positive feedback loop for exposure, hedge, and interconnectivity and thus balances out our own mBTC asset to be as diverse and spread out across the Ethereum ecosystem as possible.

Also, it opens up a possibly positive feedback loop towards this assets in terms of itself being included in their own BTC allocation, hedging against each other and benefitting from a broad exposure inversely.

Either way, just some thoughts thrown into the mix here.

I sincerely am looking forward to mBTC and the possibilities and doors it will open for us to integrate into the vast DeFi space.

1 Like

@shubidoobi Thanks for the feedback! This MIP is by no means a final say in the mBTC basket composition.
The primary purpose was to get the AMM design out there for feedback and consolidate it. We were indeed discussing adding more bAssets internally, so you can expect more in a follow-up proposal closer to launch. We will consider tBTC and pBTC alongside wBTC, renBTC and sBTC :+1:.

2 Likes

Absolutely! This new AMM design plays so well into all the little shortcomings of our current basket system, and will be yet another big step towards a safer meta asset to hold, integrate, and work with.

One thing I was wondering is if you’re also considering an incentive when minting underrepresentated bAssets, or if these incentives only apply for swaps to balance the basket out?

I looked over the MIP, but it was very technical for a non-developer to find the answer to this right away :sweat_smile:

Great news as well about other assets being considered. Without going too far off-topic, but has there also been some thoughts around making the different mBaskets somehow interoperable with each other in the future, or is this not really on the horizon for now?

Yes, the same bonuses and penalties apply to minting and redeeming mBTC in addition to swaps. :slight_smile:

This is now up for voting as protocolDAO proposal (PDP) 11:

https://snapshot.page/#/mstable/proposal/QmP1iZ8n3DdZzNcpFVaDk1FUucQ5vZgg2nPR9xVpQ1TPQE