DeFi. Stablecoins. Liquidity mining. These are possibly the three most dominant narratives surrounding crypto in the first half of 2020. mStable, a project undergoing its Initial DEX Offering tomorrow (10 am EST) encapsulates all three of these trends. We wrote about mStable before, but here is a refresher on the MTA token:
- MTA is mStable’s protection: if an underlying collateral asset fails, it is the contingency value that re-collateralizes the system, keeping mUSD and other mStable assets at peg;
- MTA coordinates decentralized governance. Meta stakers will ultimately vote on all system parameters; MTA will be in the hands of users who contribute to mStable assets’ utility and growth;
- MTA incentivizes the bootstrapping of mStable asset liquidity, utility, and a community of Governors. MTA’s possible utility as an incentive will ultimately be determined through community governance.
Source: mStable Medium
If the underlying collateral, say USDT, fails, the mStable DAO auctions off MTA to recapitalize the system, helping ensure that mUSD maintains its peg. As a governance token, holders can vote on system parameters and possibly add in more exogenous value capture mechanisms in the future. For the insurance process to work soundly, there must be a liquid MTA/mUSD market. As a result, mStable plans to incentivize liquidity provisioning of this market through the MTA distribution.
Source: mStable Medium
Ok, back to our scheduled programming. Why is mStable so interesting? Well, for one, it’s a stablecoin AMM pool that allows for 0 slippage trades between stablecoins with a stablecoin LP token. A stable LP token results in some very cool DeFi and CeFi layering. With that said, it remains to be seen how effective the constant sum AMM function turns out in the long run. Second, and more pressing, is mStable’s decision process regarding its IDO. Let’s dive in…
In a previous Daily, we wrote about initial DEX offering strategies that are more optimal than seeding a Uniswap pool. One of note is the liquidity bootstrapping Balancer pool, in which one can list assets on an 80/20 Balancer pool that re-weights to 20/80 over x amount of blocks. One issue with this offering is that the system is still prone to front-running and favors short-term holders. Race conditions still exist. Even with gradual re-weighting of the AMM pool after x blocks, bots can still fit large value transactions in the same block as the pool initiation transaction. On top of this, improving price discovery is dependent on increasing total capital when choosing to use an 80/20 vs 50/50 pool. If ETH capital (or any other pair) is the limiting factor, an 80/20 pool can still definitely help in this regard. With that said, mStable would have to give up more MTA for distribution.
mStable shrewdly recognized these issues and abruptly changed its listing strategy from Balancer to Mesa, a dutch auction platform utilizing the Gnosis protocol. Using a dutch auction approach, mStable 1) removes race conditions, 2) helps foster long-term holders access to purchase MTA at their preferred price, and 3) possibly raises more capital (auction price can execute above the original pool price, as well as the team not losing value to front-runners).
Here is a summary of what the mStable dutch auction entails:
- 66 million MTA available
- The auction will last for 24 hours or until the total MTA allocation has been claimed
- The auction will begin on 14:00 UTC July 18th (July 18th, 10:00 am EST)
- Bids should be placed before the auction starts, as the auction can end very quickly with sufficient demand.
- Proceeds will go to the mStable Aragon DAO.
As of writing, the MTA/mUSD order book looks as follows.
Source: Mesa & click “View Order Book”
With 2.66M MTA auctioned off, bids below the price point intersecting with 2.66M will most likely not be filled (I say most likely as orders can be pulled). Currently, the intersection price is around $0.3. This is higher than the original liquidity pool listing price on Balancer of $0.15.
While Mesa solves primary issuance price discovery, it does not solve secondary liquidity. Balancer, on the other hand, is great for the latter. Once executed, the mStable team will seed an MTA/mUSD 80/20 Balancer pool at the auction market price. Any un-auctioned and un-allocated MTA tokens up to a maximum of 500,000 MTA will seed the Balancer pool. There will also be a 125,000 MTA liquidity mining incentive for LPs distributed over the next two weeks starting July 19th. An additional 50,000 MTA will be distributed in the first week. Balancer is mStable’s solution for bootstrapping liquidity, while Mesa is mStable’s solution for optimal price discovery.
