Last updated: Jun 25, 2022
Mirror Protocol is a DeFi application built on the Terra blockchain which allows creating and trading synthetic assets called “mirrored assets” (mAssets). These assets mirror the prices of real-world traded assets and give traders the access to price exposure without the need to purchase the underlying assets, just like synthetic assets do.
Mirror Protocol was developed by Terraform Labs (TFL) in December 2020 with the goal to create a derivative product on Terra.
The company’s flagship product - mirrored assets maintain a behavior mirroring that of the real-world asset it represents by being soft pegged to the oracle price, meaning that the protocol doesn’t directly rely on price oracles to determine the trading value of mAssets. The mechanics in place to maintain the digital assets’ value include a combination of the minting liquidation process, arbitrageurs, and governance practices.
Liquidation is set to be triggered once the price of an asset falls below the minimum collateral ratio, which sets an automatic chain of events starting with the protocol automatically selling collateral to buy the minted asset that is to be liquidated from the market until the collateral ratio reaches the minimum again. The buying pressure is meant to drive prices higher and help the price of the asset converge with the price of its real-life counterpart on NASDAQ.
The project also relies on arbitrageurs to help with the maintenance of the value of its mAssets in situations where the MCR of an asset is far greater than its oracle price. Any significant drift in value is supposed to be taken care of by the governance of Mirror Protocol, which can create incentives to mint and sell assets such as lowering the MCR of an asset to reign prices.
LIquidity providers on the platform are given LP tokens when they add liquidity to an mAsset-UST or MIR-UST Terraswap pools. Even though these tokens are issued independently of Mirror Protocol their importance to the Mirror’s market infrastructure is seen as central and as such is rewarded with MIR tokens by the project.
The Mirror Protocol app offers numerous mirrored assets (mAssets) for trading, borrowing and farming. MIR and mAssets pools also exist on Uniswap which runs on Ethereum. Users can send MIR, mAssets, and Terra stablecoin to the Ethereum and BSC networks using the bridge on the main dashboard of the application.
For a new mirrored asset (mAsset) to be whitelisted, two governance polls should be successfully passed: an asset whitelist proposal and pre-IPO suggestion. Between these two polls, a user should request the oracle address for the proposed asset from either Band Protocol or Chainlink.
Once the oracle is fully operational, the second poll is started. If the poll passes, the price feed is tested within a week and if running smoothly, the new mAsset is added to the active sets of assets.
New tokens for a listed mAsset can be minted by providing either TerraUSD (UST), LUNA, MIR, ANC, or mAsset as collateral. The minimum collateral ratio is 150%. Traders can also burn their mAssets in order to redeem their collateral.
On the Mirror Protocol app, each liquidity pool for mAsset or MIR tokens has 0.3% fixed LP commission fees Mirror Protocol charges.
The main function of the native platform’s token Mirror (MIR) is to serve as a reward on the platform and as a measure of the voting strength. The initial supply of 54.9 million tokens were divided at the start of the project between UNI holders (9.15M), LUNA stakers (9.15M), and community pool (36.6M).
The total supply of 370,575,000 MIR will be distributed over 4 years to Luna stakers (4.9%), mAsset (Terra and ETH) staking pools (45.1%), MIR-UST (Terra and ETH) staking pools (10.4%), and the community pool (34.6%). The original airdrop to UNI holders and LUNA stakers will account for 4.9% of the total supply.
Mirror Protocol MIR token can be purchased on centralized exchanges like Binance and Kucoin.
It is up to you where to buy the MIR token. It is worth taking into account that decentralized exchanges allow you to do this anonymously, you do not need to pass KYC procedures to use them, on the other hand, the cost of transactions may be higher than on centralized exchanges, while there is a risk of your funds being held by the exchange.
To understand if Mirror Protocol is a good investment and try to make a MIR price prediction, you need to do your own research on the project.
All the data for research is available on the project page on our website: check out the technical features of the project in this review, try to use the app, see if the information about the team is available and the team is open for communication, and using the project dashboard and the MIR price chart, assess the project usage rates as well as the token price movement and the number of its holders.
Mirror Protocol was founded by Daniel Shin and Do Kwon, who also co-founded Terraform Labs (TFL), the group behind Terra. The Terra team is also the creator of the Luna Token, Anchor Protocol, Nexus Protocol, and the blockchain payment solution CHAI.
In December 2021, an attacker launched a public poll on the protocol’s official website which falsely proposed a freeze on the community pool in case of a scam, while in fact, if passed, the change would have injected malicious code into the project’s smart contracts that would have sent the attacker 25 million MIR tokens, at the time of the attack worth around $64 million. Six more governance proposals were found that were also trying to drain the community pool in the same manner. All were unsuccessful thanks to the Mirror Protocol team's timely actions in alerting the community.
In May 2022, a seven-month-old ongoing exploit was discovered to have been patched by the Mirror team, with no details on the vulnerability and resulting attack shared with the community. The bug was found to have caused an estimated loss of around $90 million and assumptions regarding its existence were shared on the Mirror forum by a user named PF92. According to the user, the bugfix for the lock contract prevented users from calling the “unlock_position_funds” function with duplicate IDs that would lead to the “unlock_amount” function being many times more than it should be.
Two weeks after the forum post, there is still no response from the Mirror team, with some assuming the original core members of it may have abandoned the project following the Terra UST depeg and LUNA fall down. This led to Twitter user FatMan looking deeper into the bug and finding the culprits of the attacks. According to them, the Mirror protocol’s Lock smart contract (tasked with locking users collateral for 14 days when shorting) allows an unlock function to unlock collateral when called, via a list of position IDs, however, there was no duplicate check implemented by the developers - which is the essence of the “smuggled” Mirror Protocol update in the middle of May.
A crypto wallet was linked with possible exploits of the vulnerability, with rumours of it being owned by a Terra team member circulating online, due to immaculate timing of a couple of transactions executed from the wallet in question. These were the dump of all UST held in it right before Terra suspended the minting of LUNA, a few days later there was a UST buyback from the wallet which resulted in a four-times profit.
This particular wallet was found to have exploited the vulnerability as early as October 2021, when a single transaction unlocked one position over and over again, resulting in the attacker opening a position with $10,000 in collateral and sending $10,000 directly to the lock contract to “loop-unlock” others’ collateral from the contract. This transaction alone resulted in $10,000 turning into $4,300,000. However since this was done multiple times, the total amount of funds gained from that particular address equals to over $30 million. These revelations also didn’t trigger an official response from the Mirror team.
Just a week later, Mirror Protocol was exploited again. This time it was the result of Terra Classic’s validators using an old version of the Chainlink PriceOracle as stated on Twitter by its community ambassador - ChainLInkGod. Terra validators were reporting the price of LUNC same as the price of the newly launched LUNA token (at the time LUNC was trading for $0.000122, while LUNA’s price was $9.32). This error allowed an exploiter to drain four of Mirror Protocol’s synthetic assets pools.
At the time of writing, this exploit is ongoing and no fix has been issued, so far the loss from it is calculated to be worth around $2 million. This critical vulnerability was once again discovered by a community member on the protocol’s forum, and what comes to no surprise, has not been commented on by the Mirror Protocol team, as per this writing.
Mirror Protocol audits can be found in the protocol dashboard on this webpage.
Liquidity Providers can receive LP Tokens on the partnering platform Terraswap for adding liquidity to mAsset-UST or MIR-UST Terraswap pools.
Mirrored assets held by users are protected against smart contract vulnerabilities by the Mirror’s partner InsurAce.io.
Mirror has also partnered with the leading DeFi projects across various blockchains to widen the usage of mAssets. These partners include Uniswap, PlasmaFinance, EasyFi, UniLend Finance, Band Protocol, PanCake Swap, Beefy, Mask Network, Set Protocol, and many others.
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