Certik PeckShield Consensys Diligence
Certik PeckShield Consensys Diligence
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Last updated: Nov 23, 2022
mStable provides autonomous and non-custodial infrastructure for pegged-value crypto assets. The main problems which the protocol tries to solve are the significant fragmentation of same-pegged crypto assets, the lack of yield in fiat currencies and pegged digital assets, as well as the lack of protection against permanent capital loss faced by pegged crypto assets holders.
The way mStable tries to solve these problems is by introducing meta-assets, which are fully backed through a diversified basket of existing tokenized same-base assets. Meta-assets can be minted or redeemed on-chain via the protocol’s smart contracts which are said to be non-custodial. Essentially, what this means is that no third party ever takes custody of users’ assets, because mStable is a ‘peer-to-pool’ protocol, whose pool exists in a non-custodial smart contract.
mStable assets are designed to generate a native interest rate for users who have deposited mUSD or mBTC into the “Save” smart contract. The Save smart contract achieves this by programmatically depositing the underlying assets to decentralized lending markets such as AAVE and Compound to generate yield. All token rewards from those platforms, as well as swap and redemption fees generated through mStable are passed on to the user depositing into the Save contract.
With the accrual of interest and fees, new mUSD or mBTC tokens are minted and sent to the relevant Save contract, which means that the mStable asset deviates very little from being fully backed by underlying assets.
Once users deposit their mUSD or mBTC tokens into the contract, they receive an interest bearing imUSD or imBTC tokens, which do not have a one-to-one relationship with the value of the underlying peg but are designed to appreciate in value over time. As is the usual practice, the tokens can be redeemed for their underlying asset at any time, which results in the user receiving their deposit and interest.
Everyone participating in the Save program of the platform is also given the option to participate in its governance by depositing their interest-bearing tokens into the Vault. There, “savers” can store their imUSD and imBTC to earn MTA rewards. The Vault is designed with the aim of incentivizing savers into becoming MTA Governors, by giving them the benefits which come with participating in the governance of the project.
mStable also utilizes so-called Feeder Pools which are separate from the pools of assets underlying mUSD or mBTC, and introduce a “new invariant optimized for 2-asset stablecoin AMMs”. The company claims it shows similar properties as Stableswap, but can be solved with fewer operations, which makes it more efficient.
Recently, mStable announced it will be upgrading its Savings Contract on Ethereum and Polygon to support the ERC-4626 standard. This implementation will allow the mStable team to build several different products, including Meta Vaults.
To use the mStable protocol, users need to interact with the mStable app, which allows them to save, swap, provide liquidity, and view activity across the platform. mStable wallet support expands over numerous wallets such as TrustWallet and Metamask as well as hardware wallets like Ledger and Trezor.
Assets can be deposited to earn yield through the Save feature provided by the platform which directly interacts with the Save smart contract. Currently, the contract supports mUSD and mBTC deposits only. What that means is that USDT, USDC, DAI, and sUSD, as well as renBTC, sBTC, and WBTC deposits are used to mint mUSD and mBTC. However, assets like GUSD, BUSD, alUSD, TBTC and HBTC are used to swap for mUSD and mBTC respectively, through the company’s Feeder Pools. Users can also deposit directly from ETH on Ethereum or MATIC on Polygon.
Clients of mStable can choose whether they prefer to receive imUSD or imBTC in their wallet or deposit directly to the Vault and earn MTA rewards, and save on gas fees compared to saving and depositing to the Vault in separate transactions. imUSD and imBTC can be held or transferred and used as collateral in DeFi projects.
Feeder Pools are liquidity pools composed of 50% mUSD or mBTC and 50% of another asset that shares the same peg. Users have access to this liquidity to facilitate trades to or from mUSD or mBTC with any supported feeder asset. These pools are utilized in the background when facilitating trades. All swaps into mUSD or mBTC through Feeder Pools do not incur a swap fee.
Users can also provide liquidity to Feeder Pools by depositing any platform-supported asset in exchange for LP tokens. Once again, users have the choice of whether to receive the LP tokens into their wallets or have them deposited directly into the mStable Vault, where they will earn them MTA rewards over time. All LP providers receive swap fees generated by the specific pool in proportion to their share in it. Since Feeder Pools only contain two similarly priced assets, the impermanent loss risk is at a low level. In the future, the platform plans to make these pools permissionless, allowing everyone to create a new pool and provide liquidity.
Users can mint new mUSD or mBTC tokens by depositing supported pegged-value assets as collateral into a smart contract. The prices for minting and redeeming are set by a predetermined formula that takes into consideration the “weight” of each underlying asset in the basket. Since these prices follow the law of demand, the lower the weight of an asset, the higher the amount of mUSD or mBTC users receive in return. As of now, there are no fees charged to mint mUSD or mBTC as long as the user is swapping one of the supported basket assets. When redeeming mStable assets, the fees mStable charges are set to 0.02% of the transaction, however, this amount is subject to MTA Governors’ vote and can be changed.
Users can swap between assets within the main pools underlying mUSD or mBTC as well, to facilitate this mStable uses Stableswap, a Curve Finance bonding curve formula built specifically for trading pegged crypto assets. The fee is equivalent to the swap fee set by MTA Governors.
MTA, or Meta, is the governance token of the mStable protocol, besides coordinating the governance of the project, it can be used to act as the “ultimate source of re-collateralization” for the protocol, however, this functionality has not yet been implemented. The total supply of the token is 100,000,000, and its initial application includes liquidity mining in order to bootstrap a decentralized community of governors. As already described, the token can also be used in earning staking rewards and boosted rewards across the protocol. The company plans to grow the use cases of the token and add value to it with the growth of the project.
Staked MTA tokens can be used to participate in the governance of the platform, get MTA rewards, and boosted rewards on deposits in mStable’s Save and Feeder Pool Vaults. Once a user deposits funds into the staking contract and starts voting on proposals, they become a mStbale Governor.
In August 2021, the company launched V2 of their staking mechanism. The new implementation made a number of changes to the way users can stake MTA to become MTA Governor. With the new mechanics, there is a choice of MTA or 80/20 MTA/WETH Balancer Pool Tokens (BPA). mStable also added a ‘Quests' feature, which allows users to earn permanent or seasonal voting power and rewards multipliers by completing certain tasks, whose aim is to incentivize voter engagement and alignment with the long-term success of the platform. Users are also no longer required to lock up MTA for a predetermined time period, instead, now they can earn rewards multipliers based on the length of time that their MTA has been staked. In case of an adverse event, Governors cannot remove stakes quickly because the project also added a cool-down period. In order to disincentivize short-term staking and voting which could be used to manipulate governance votes, there is now a decaying withdrawal feel, which is removed after 48 weeks.
Stakers can choose to participate in the governance of the project themselves or to allow a trusted delegate to participate on their behalf. The list of trusted delegates is composed of users which have submitted their candidature to a forum post on the mStable platform. Stakers can change the delegation at a later stage by visiting the vote page.
mStable is built by Stability Labs, a software development company “driven to make finance safe, secure and transparent”. The developers’ team is based in Berlin, and the rest of the mStable team is spread across Germany, Australia, New Zealand, Singapore, and Hong Kong. The company was co-founded by its CEO – James Simpson. James has been previously working for Apollo Capital as an investment analyst, and as a data analytics consultant in KPMG’s Business Intelligence Services, after a winter internship program in Shanghai, China. As mentioned in his interview with defiprime.com, Simpson created mStable in partnership with his colleague who was a CIO at Apollo Capital at the time. The goal was to unite lending, swapping, and stablecoins into one standard.
The initial funding of mStable was raised among “friends and family”, following which the company began the development of the protocol in 2019. In May 2020, they launched their first product – the mUSD stablecoin with a native interest rate, called Save. With it, the team released a “zero-slippage” swap product named Swap.
The next step was taken in July 2020, when the team launched the governance token of the platform, along with an incentivized yield farming product called Earn. Following the launch of the token, 2.66M of it were sold in an open public auction.
As recently announced by mStable, Harvest Finance has launched a Vault for mUSD Save on Polygon, another prominent recent partnership announced officially is with Abachi, which deployed $1M of its treasury funds into mStable Save on both Ethereum and Polygon networks, with future plans to deploy another $500. Abachi’s Treasury has also acquired $36,000 worth of MTA, yielding staking rewards to further grow the mUSD balance in its accounts.
mStable is targeting new EVM compatible ecosystems by listening to its community’s opinion on which ecosystems should be approached for discussion on possible implementation.
With the newly released “Quests” functionality which is intended to step on the emerging trend of gamification in DeFi, the team behind the project plans to “experiment” with NFTs alongside these quests in order to provide new ways for its users to show their participation in mStable.
Following the ERC-4626 implementation, the mStable team announced they are working on Next-generation Save Vaults called Meta Vaults featuring fully-composable vaults of different assets and strategies.
Aave will integrate Chainlink's Proof-of-Reserve, further increasing the platform’s security
Uniswap's governance proposal accepted