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.
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 [
100%]. When all bAsset weights are in the 1:1 region, that is, between
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.
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.