Corporate Actions on Mirror

Dear Mirror Community,

Currently Mirror only supports price tracking of an mAsset, but not its cashflows.

If the goal of the Mirror protocol is to match investors (going long an mAsset by holding it over a mid to long period of time) vs speculators/liquidity providers (going short an mAsset or short term trading) then there is a significant gap for most type of investors.

Let me explain… most investable assets have associated cashflows. In the case of Stocks or ETFs clearly we are talking about Dividends, in the case of fixed income asset classes (such as Bonds) then obviously it’s coupon payments.

Clearly in its current state Mirror is suitable for Assets that have no cash flow, such as growth stocks.
And I do understand that we live in an historical timeframe where dividend yields on most stocks are quite low (dancing around 1%). But that does matter quite a bit, especially if we want this platform to succeed in the long term, not just for speculative reasons.

So I was wondering if there is a plan to incorporate corporate actions (such as dividends) in mirrored assets.

How would we do that? The easiest way to do it is of course to find a price oracle that can pass also corporate action data for stocks or ETFs (just to start). This would include things like Dividend Announcement Date, Pay Date, etc.

Currently stocks trade in a way that when a dividend is announced the price changes to account for it until it is paid off. So part of that is already baked in the price of the mirrored assets (for that short amount of time between announcement and payoff). But the issue here is to actually receive the cashflow when the dividend is paid if you are holding a mirrored asset.

Clearly someone has to pay that. In my opinion who is going short an mAsset should pay that out. When the dividend is announced, it generally is stated also the amount of $ per share to be paid out and when. So if a user is going short an mAsset, they should be held responsible for that exact amount and it should be reflected in their collateral ratio (Everything else being equal, it should go down, since now the total collateral is used against the position marketvalue + the announced dividend amount). If the person wants to close their CDP, they still can, but they would need to put up the exact amount of shares in that position + the dividend amount in UST.
This is not too different than borrowing a stock from someone at a brokerage house. You are going to receive all the cashflow of the borrowed stock and if you sell it (essentially shorting the stock), then you would be responsible for paying the cash flow to the person who bought it from you.

Does this make sense? Do you guys agree and if so how would you design for this?

Mirrored assets arnt stocks . They are synthetic collateral backed assets that track the price of other assets . mAssets dont have to be stocks , you could for example track the price of commodies , consumer goods , or even crypto.

I dont see a fair way this could be implemented, expecting that minters payout dividends is absurd and would be a huge disincentive for minters. Mirrored assets arnt stocks , they dont need to pretend to be.

I think mirrored Assets are what you want them to be. There is no hard rule that it has to just Mirror the price. If you want to “mirror” really an asset then you have to mirror also the cashflow.

Unless the goal of Mirror is for users to just speculate, then if that is the intended goal, I guess mirroring just the price will work.

I seem to understand that the vision of Mirror was to mimic (mirror) real assets allowing investors around the world to get exposure to financial markers they would not otherwise. The example I heard was around Thailand being one of the most represented communities here. So if you dont include the cashflow of an asset, then you are really cutting out a huge and signifacant amount of asset classes (inclusing several stocks and ETFs). I for once have an investment portfolio with about half fixed income ETFs. I could never replicate that here. And it’s a shame since it would have so much potential.

In terma of minters paying dividends or cashflows. Why not? Isn’t minting effectively borrowing an asset? How is that any different from borrowing a real stock from a prime broker? You borrow it, you are responsible for its cash flows if you sell it while it’s borrowed.

Price appreciation and dividends are really the same concept. A positive return on your investment. Why not mirror also the cash flows and then truly have a synthetic mirrored assets platform?

When your minting your essentially taking a short position against an asset. How do dividends fit in to this , there will never be negative dividends this will always be a loss for minters. This would be stacked against minters and would result in less minting and less liquid markets.

How would this work? Would the "dividends " come out of a minters collateral? I dont see a fair or sustainable way to implement this .

This is exactly what mAssets are , instruments that provide mirrored synthetic price exposure. They dont give voting rights or profit sharing (dividends) of the mirrored asset.

Given this i’d bet the mAsset staking rewards are higher than any stock dividend payout.

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Have you ever taken a short stock position on any of your brokerage accounts?

If you have, that is exactly what happens. You are borrowing the stock from someone else (the broker that has custody of that asset facilitates that). You are also paying an interest rate for borrowing that stock (which you don’t on Mirror btw) and that interest rate generally fluctuates with supply / demand. Last, you sell that stock in the market.

Now while you are taking that short position you are BOTH going against the price and the dividend (if any) paid out until you keep that position. That means that if you borrowed the stock and went short when it was at $10, and the stock went up $1 as well as paid out $1 in dividends you are now $2 down in your position.

Walk me through how shorting a stock in real life is any different from shorting a synthetic one? Just trying to understand your reasoning of why it can’t be done.

I definitely do not think it is unfair. If you are going short you are essentially making a return dropping for that asset. Dividends are part of that return. Not all stocks pay them and they are not significant these days. But if we are heading in an environment with higher inflation and higher interest rates this can change and I just don’t see the point as a long term investor in using a mirrored platform if it can’t mirror the cash flows of an assets.

How would it work? I suggested a solution, but I’m happy to hear alternatives here…
There is actually a quite simple and elegant solution here, where you assume automatic reinvestment of the dividend in the same asset. So in the example above if you hold 1 share or a stock of $10 in Company A and Bob has gone short that stock by the same amount of shares, then if that stock pays out $1 in dividends it means that all the sudden you have 1.1 shares of that stock. While Bob who posted for example 200% collateral for that one share, now automatically mints .1 shares more and his collateral ratio drops by 20%, so he would have shorted 1.1 stocks with a collateral ratio of 180%. Very clean and elegant. Tbc: Bob would know way ahead of time about this and could cover his collateral before the payout to make sure it stays at 200%.

When your short an asset on mirror you are essentially minting new assets. Without minters you dont have mAssets.

Maybe someone else has some other ideas but i dont think this would work as proposed.

And when the minted assets drop in value your collateral ratio drops (all else being equal). It’s basically the same thing if there is a dividend. You are looking at stock price appreciation as the only return metric… while ignoring dividends.

It might not be a valid suggestion, i just fail to see how you disproved that however.

Ultimately I think if the vision is to mirror any asset, not just growth stocks, then cash flows have to be taken into account for that vision to realize itself.

-Davide

My view is this would erode the incentives to mint mAssets as its not in the best interest of minters.

You should also consider the macro economic implications of this in a relatively low liquidity market. If i know i have to pay out a 5% dividend as a minter you can be sure im gonna close my position before then , thus removing liquidity from the market and potentially inflating the price of the mAsset . Why would anyone keep their funds in the mint position if the dividend is more than 1%, everyone is gonna pull out of the position.

There’s also probably regulatory implications of this as this would create an “expectation of profit” which would then potentially mean mAssets are securities. No thank you.

Help me understand, why would anyone then short a stock to begin with if they have to pay the dividends to who is going long?

The short answer is that they believe the price depreciation is going to be superior to the dividend payout.

Also I don’t believe it is super clear to you how dividends work. There is a dividend declaration date, after which you are going to be paid a dividend if you hold the stock for that period of time. So if you get out before the payout date you don’t get anything. In the same way if you buy the stock after the declaration date you generally don’t get paid. Then the price of the stock will reflect the dividend amount the moment it’s declared.

In essence there is really nothing in your thesis that would dicintevize anyone from shorting a stock that pays dividends.

In terms of being a security, a Mirror asset is no different than any other derivative, so in many counties it already is a security. Adding dividends would really not change much. But I’m not a regulator, so I may be wrong here.

In reality if we assume an ideal world where markets are efficient and any investor can easily invest in both mirrored assets and the underlining securities, why would anyone go long the mirrored asset in the first place? The only reason would be if they can buy it at a discount of the underlining asset, in order to be compensated for the lack of dividend return. So in that ideal world oracle prices will always be higher than the mAsset price. There you would really have a situation where minting and shorting an mAsset has no incentive. Hence a liquidity issue. That said we are far away from that scenario for a variety of reasons.