Now it’s common to see 20+% premium with many mAssets which I think is absurd and terrifying.
I am not sure whether people realize how unfair and disadvantaged it is to do “short farming” and “borrow”,
Supposed mAsset trading at a premium of 20%. (e.g. Oracle price of 100 UST, pool price 120UST). Now
if someone “short farm” this mAsset, he gets 100 UST (oracle price) back, and when he wants to close the position, he needs to buy it at pool price 120 UST, immediate takes 20% loss. Considering one whole year’s farming yield is now less than 20%, I don’t think anybody will do “short farm” after knowing this.
Please correct me if I am wrong, I hope I am wrong, I feel hard to believe mirror protocol can work this way.
This is not correct. When you short farm you sell for the pool price. The collateralization requirement is based on the oracle price. It actually works to your benefit because you get 20% extra capital up front. The catch is depending on the collateralization ratio you may have to lock up to 50% extra capital (for MCR of 150%). All this is fine and dandy because you’re making money waiting for premium to adjust, but the problem is when the premium stays and god forbid the asset oracle price goes up. Then you’re shit out of luck and you have to buy at the high premium to close your short when you run out of collateral to post.
thanks for your correction.
I think you are right, I am wrong. Now I am less concerned.
Although I think the high premium is causing other problems, at least that is not as bad as my previous understanding
The explanation by @concerned is very clear, however it doesn’t entirely mean that your point is invalid @caoji1205 .
I also believe that the very high premiums we’re seeing currently are damaging to the protocol’s reputation and use case in the medium-term and fixing this ASAP is priority number 1.
There are a number of improvements being worked on, please feel free to join us in the Discord where we discuss these actively these days.
thanks for your reply. I get your point, and you are right it is not as unfair as I thought.
However, high premium makes those assets no longer a “stock-oracle-pegped asset” , but just another token which can be priced crazily .
Now some stock has 39% premium. If the premium go up to 60%, then I can buy it at price of 100 UST, put 155UST as collateral , then take back 160 and still have 155% collateral ratio. It is just free money of 5 UST to take away.
Anyway, given the current UST situation , it seems everything in terra ecosystem will be destroyed, so it doesn’t matter any more.
The high premiums are because of poor protocol architecture IMO. When liquidity dries out premiums explode its just mechanics. Now I think its to late, sadly I’ve read on these forums that people are trapped, can’t close their position.
Even if by miracle they restore the PEG don’t know who will trust them again
Can you provide the link to the Discord please