Large Cap mTokens

In order to increase adoption, liquidity, and legitimacy I believe that we should discuss the inclusion of the leading large cap coins - specifically BTC, XRP, and LTC - as mTokens.

Enabling the holders of these coins to safely invest and earn a steady 6.25% return on their coins while waiting for a potential bull run would provide a massive increase in liquidity and adoption of the DMM ecosystem. With a combined market cap of $242 billion dollars, this is what we should be targeting in order to maximize the investment in this space.

As I have stated in another thread, until we can target average retail investors (through return.network, potentially), our target audience is our fellow crypto community. Generally more informed and savvy (at least in our own minds) and willing to take on risk, the broader crypto community is not hoping for a steady 6.25% return - they’re dreaming of a repeat of 2017. By opening our doors to the largest of these pools and offering a safe and steady income stream while people wait for the “big one” we have the potential of bringing on a much larger pool of capital.

Although there are plenty of pros to this idea, there are a number of cons and uncertainties. Some specifics that come to mind are the risk associated with volatility, the risk of rapid loss of liquidity based upon major price changes and selling behavior, and challenges with technical implementation due to the fact that BTC, XRP, and LTC are not ERC20 tokens.

As a hedge against massive losses we can do a couple things (probably a lot of things, but I’m only listing two here):

1 - We can maintain a predefined ratio of stable coins to volatile coins, which could help cushion the impact of major price swings.

2 - We can discuss the idea of time-locking the investments of folks when they enter the DMM ecosystem. For example, we could require a minimum amount of time in the network before being eligible to withdraw the base tokens. For example, if someone were to convert 10 BTC into mBTC there could be a minimum investment period of 30 days or 60 days (or whatever) until they can pull those BTC back out. They’d be able to pull out their accrued interest at any time, but we could at least provide something of a stop against a massive exodus of capital. Alternatively, it could be a several hold on withdrawals - when a person looks to pull out capital or accrued interest, it has a hold period of 3 days or 5 days or whatever. Again, this provides a small cushion against rapid withdrawals. Of course, this could turn some people off to investing, but that’s just one potential risk. Its all about give and take and finding the right balance.

Of course, all of this could be moot due to technical difficulty in implementing non-ERC20 tokens.

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I am in favour of opening a mBTC for the time being. That is because their are several options to use an erc20 wrapped btc token such a renBTC. I don’t think it makes a lot of sense to place a lock on when the user can redeem the mBTC until we see one is truely needed. As i mentioned in my response to your other post their is a cost to purchase put options to hedge BTC volatility places an expense on the DAO which makes it unfeasible to take a lot of the money outside crypto and use those funds to purchase more real world assets. I think its a great tool to on-board new users but for now the debt ceiling will have to be limited. Again as I mentioned previously, DMM’s future is a high interest bearing stablecoin

@Corey From a technical standpoint, what would the level of effort be to create mTokens for the leading large cap coins (BTC, XRP, and LTC)?

For the time being it would probably have to be ERC-20 tokens. However, there are “wrapped” implementations for certain coins (like wrapped Bitcoin) which might be something worth doing if the DMM Ecosystem can handle the potential volatility of those assets.

For your consideration:

Q: What obstacles need to be worked on in order for the DMM to introduce new mAssets (non stablecoins) to the protocol?
A: There would need to be sufficient liquidity for an options venue for us to list something like, for example, mLINK. We’re exploring what’s feasible for this and have some ideas on the backburner for now.
Otherwise, we can also do what we’re doing for ETH rn which is keep the debt ceiling on the lower side so we don’t need to worry as much about the hedging. Probably some combination of both.

DMM hedges against ETH volatility by purchasing options

How will we hedge against this volatility?
The answer is derivatives, namely options contracts. Options are a financial product that gives buyers the right, but not the obligation, to buy or sell an underlying asset, at an agreed-upon price and date. The DMM Foundation will be purchasing call option contracts on ETH/USD. This effectively means we are opening up a long position to cancel out the short position we are taking from selling ETH for real world assets.*

One way I think it could be possible: make volatile mTokens have interest rates lower than 6.25%. This would still be appealing for people with crypto held on centralized exchanges which have/will integrate mTokens, as those people are currently earning no interest on their crypto (regardless as to whether or not they’re actively trading).