Remove mETH / ETH from DMM?

mETH is not viable for the long-term, as the prices fluctuate, not being stable, there’s already many variables in generating the money off-chain, having problems on-chain such as price fluctuations would only disturb the general growth of DMM, if ETH busts to $100 after it was taken off-chain at $300 would mean a big + for the DMM ecosystem as a lot of money would be there, but at the same time if it blows up to $600 it would translate to a huge loss.

I think already from the stablecoins there’s enough fluctions, and ETH is the ultimate wildcard that can’t be controlled & used to the advantage of the DMM ecosystem, as the price is always impredictable, and call ( and maybe even put ) options to stabilize the from-chain to off-chain process translates to more costs.

Stablecoins are around 1$ net, but when talking about the dollar value, it’s actually very important when it’s 1.03$, because it would mean an extra 3% premium paid to bring the asset back on-chain.

DAI is constantly floating around 1.00$ & 1.05$, taking DAI off-chain to generate assets at a moment of 1$ and then having to return it on-chain at 1.05$ would mean a 5% increase in costs, this would reflect the bottom line and it doesn’t make sense to take the risk on the long term.

While it may make sense to actually extract the DAI off-chain when the value is higher by 1.00$ as it would increase the value of the money, it then needs to be taken on-chain only when the value is $1.00 or maybe even less, when it’s brought back up when DAI

USDT dropped at 0.91$ and peaked at 1.32 during certain points. DAI dropped at 0.92 and peaked at $1.06 during certain points.

Seems to make sense to extract the coins to generate yeild during peaks and re-introduced into the ecosystem when there’s busts, as the % fluctions themselves would mean extra revenue for the DMM, which translates to more token burns at the moment, and on the long-term more growth.

I think the key for best profits for the DMM is getting rid of the ETH wildcard, and focussing on moving the money from chain -> off-chain when there’s booms coin >= 1.03 ( or whatever param ) and having it prioritized to be bringed back ( not sure how long it takes, can also be partial ) when there's a bust < 0.97, This is a 3% net gain at the end of the day.

Taking the previous USDT high, only by taking the asset off-chain starts at a 32% gain ( not sure how this 1.32$ for 1 USDT price could’ve been achieved, but it was there at one point ).

Maybe I’m not seeing the full picture, what do you think ?

I strongly believe we should keep mETH as this is one of the most popular pairs, and has the highest average liquidity for the project.

This is a good observation though. However the team protects against price fluctuation by purchasing future options to mitigate the risk of price changes for the long term. While this does require an extra layer of intervention and monitoring, I believe it is worth it as the attractiveness of the mETH pair is quite substantial. I would like to see other cryptocurrency pairs added in the future.

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The ETH wasn’t even taken “off-chain”, only USDC was, right now that ETH is sitting idle and not really generating anything.

There should be a schedule when assets are on-chain & off-chain, because the liquidity pools that currently yield DMG serve as a way to let others exchange their mAssets to Asset at a slight -> large premium depending on the pool size early.

mETH is currently the most popular mToken. Also, DMM hedges against volatility with options contracts as @Russ mentioned

https://medium.com/dmm-dao/defi-money-market-dmm-introduces-meth-earn-a-stable-6-25-apr-on-eth-deposits-25ca8347f875
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.

The value fluctuations you brought don’t automatically cause a loss to the DMME.

  • Interest for mTokens is calculated relative to the the underlying asset, not its dollar value at any given time.
  • The loss would only be incurred if the reserve ratio became so depleted that they needed to resupply the contracts (and actually went ahead with doing it while there was a price spike for stablecoins).
  • Dollar-value fluctuations (price spikes) for stablecoins which you mention usually last less than a day
  • There’s an emerging secondary market (Uniswap) for mTokens, where users will be able to swap their tokens without relying on the contract to hold underlying assets at all times. It doesn’t have a huge amount of liquidity right now, but if mToken adoption increases and active supply nears total supply, those secondary markets may become more popular. This reduces the burden off of the reserve ratio, since users would be able to redeem their mTokens elsewhere (potentially at a slight premium) if many of them wanted to redeem at once.