mKO spiraling down to Hell

mKo, is the only asset that has a minimum collateral of 110 % and it is currently trading with a premium of -7.5% !!!.
This means that, despite the fundamentals of the underling asset that is considered a very good divident stock, Mirror users are borrowing mKO with aUST and selling it in order to have new UST to loop into Anchor and increase the annual yield offered by the lending protocol.

This remember me the MIM-Wonderland Saga that recently put at risk the UST peg.

As per Today, despite the negative premium that should bring buying pressure (the asset is sold at a 7.5% discount), the spiral to hell in not stopping, probably because a yield of 20% per year is a very strong incentive to selling.

In my opinion this is hurting both Anchor, that is giving out yield without any borrowing, and Mirror that has an asset that is not tradable anymore because it’s not following the price of the real underlying asset.

This should make us think about how the Mirror protocol is really used ( a sort of DEGEN BOX STRATEGY) and what are the implications of lowering the minimum collateral Ratio.

I’m personally buyng a lot of mKO and farming it because now its’ very cheap to buy and offers a very good yield on Spectrum, but I’m still wondering what is the solution that can stop this spiral.

Raising the minimum collateral Ratio again ?

Should we put a borrowing fee in addition to the 1.5 % tax ? think about that, if you borrow or short farm an asset you have also your money back and you can put them into Anchor waiting to close the short position ( all the other brokers don’t give you the money back when you open a short position they are freezed in the position) so maybe we shoud put a daily fee to keep the shorts open to stop this loop. ( just guessing)

I would like to hear your opinions/possible solutions to this problem.

thanks

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Probably 110% is too low for mKO (I voted against change to mSPY for this reason, but it doesn’t matter because it’s about to pass). Part of the research the Steering Committee wants to do is to create a more rigorous advisory framework for what MCR should be required for mAssets.

There was minimal discussion of what the MCR for mKO should be; to my understanding it was passed with most people not even realizing that the MCR was abnormally low. Raising the MCR is likely a good solution to resolve the pricing discount.

I don’t think adding additional borrowing fees are a good idea unless we can apply them conditionally (e.g. if an asset trades at a discount there is a borrowing fee).

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Another possible solution would be perhaps when you short a stock to receive mUST instead of UST in order to use them as collateral ONLY in Mirror, at least until an exchange open a LP UST / mUST :cold_sweat:

why not lower everything to 110%? problem solved

Your thought process is not entirely right with mSPY. Anyone doing this with mSPY would be dumb. Given that SPY returns an average aroun 10% a year. Your going to be losing half of your payout lol

Anyone doing this with mSPY would be dumb. Given that SPY returns an average aroun 10% a year. Your going to be losing half of your payout lol

That’s theoretically accurate if you think of it only in terms of mSPY performance. What’s actually happening is more like a degenbox, where users are injecting aUST (which earns 19.5%), borrowing and selling mKO, and using it to by more aUST.

For every $1000 initial:
$1000 of aUST, borrow mKO at 125% gives $800 mKO, sell for aUST, repeat
$800 of aUST, borrow mKO at 125% gives $640 mKO, sell for aUST, repeat
$640 of aUST, borrow mKO at 125% gives $512, sell for aUST

I could keep going, but already I have $2400 of aUST, which yields an expected $456 per year, offset by $1952 in mKO, expected to appreciate in line with market at 10% will cost $195…

So unless mKO has an unexpectedly good year, I’m netting $261, or 26.1%, which outperforms aUST by itself, and I could have kept going for many more iterations to leverage up even further.

Or i could buy $2000 of KO in my brokerage account, earn the market return, plus 2.76% dividend, and capture a blended return of… $456 on aUST, $55 in KO dividends, and market neutral returns on the stock itself, for a total return of $511 on my $3000 total investment - that’s 17% which is only slightly lower than aUST by itself, but much lower risk since 2/3 of my capital is in tradfi and not exposed to protocol risk.

This is enabled by the low MCR of mKO, and would be even less risky with mSPY (an index) versus using mKO (a single stock)

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i fully Understand whats happening with mKO. you mentioned you did not support mSPY for the same reason. I was merely pointing out that was flawed thinking

not incorporating the average returns of a stock and its effect on your this new format of degenbox is ludicrous. Less risky absolutely, but for far less return… First of all mKO is not even the smartest Degenbox mAsset to begin with even with 110%

A further reduction in minting rates on all assets should be considered

A further reduction in minting rates on all assets should be considered

I agree with this 100%. I was just pointing out that 110% without any research backing the number is dangerous.

I think you misunderstood my thought process with mSPY. I never said it was a good trade (or even a good idea) I said that’s what people are doing with mKO because of the low MCR, and that they will do the same thing with mSPY, which will likely also drive it off peg into discount territory.

If we care at all about how close we are to oracle price, we should consider raising MCR for mKO (and mSPY when it falls into discount territory like mKO) and lowering it for everything trading about 5% premiums. There may be better long-term solutions to the premiums problem, though.

Expected return is not really the issue when setting the MCR.

It is more a question of (1) what is the maximum that an mAsset move between valid oracle prices (which may be days apart when the market is closed for the weekend) and (2) how quickly can you liquidate positions that fall bellow the MCR.

For example, if news of an acquisition of a company leaks say on a Saturday, the last oracle price from Friday may be very much too low compared to the first print on Monday’s open. If you have an MCR of 110% and the stock opens 15% higher on Monday morning, you may have some busted CDP’s where the collateral is worth less than the mAsset that was minted. That’s obviously a problem.

The other part of that is that if a mAsset is moving up quickly (say 20% move over a few minutes) even when the market is open and CDPs are hitting the MCR, you need to get those positions liquidated before the mAsset price exceeds the value of the collateral otherwise nobody will want to liquidate those.

Both issues are topics that people are working on addressing.

EuphoricBadger just wrote up some research on price movements which suggest mKO at 110% is probably a little too low but most of the others at 150% are probably too high.

The liquidation mechanism is a top priority for Mirror Steering Committee to get something like Anchor’s liquidation queue built for each mAsset.

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I actually bought a bunch of mKO thinking I understood the opportunity to arbitrage it when the premium was -4% (which I obviously didn’t). Now I’m at a loss of a few thousand if I try to sell it even though the oracle price has gone up since it keeps getting shorted and the Premium is at -8%!!! I don’t understand how we can bring it back to peg by arb’ing (at least how it’s currently working)…any help is appreciated as I’d really like to get out and not try arbitraging again as it doesn’t seem to work well the way I intended…

Thank you!

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This is perhaps a separate conversation, but dynamic borrow fees based on discount % would be a really great addition to mirror protocol. This would be an important foundation for an mUSD asset to succeed.

Right now are seeing it play out with KO denominated debt. But for an mUSD coin it would be more dramatic and having an interest rate policy would be a powerful offset.

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Anyone have any advice for what do to as I’d like to get out of holding mKO, but it seems the Premium is still -7% even though the price has risen…they might not even know what they’re doing… would really love any advice and also ideas for long term solution…

Dear Liveplay,

KEEP CALM AND FARM.

I explain:
Assuming you bought your “Bunch” of mKO last week ( around 11th-14th) you bought at an oracle price of about 61 USD. ( -4% for the negative premium )
Last week mKO performed way better than the rest of the market because with FEAR around investor tend to go risk off and buy defencive stocks like KO. Because of that mKO gained 2.4% since the 11-14th, but the negative premium increased to -7%.
So now you are in loss of only -0,5 %.
What I did ( NOT FINANCIAL ADVISE) I took my mKO, paired with an equal ammount of UST, and put them into the Spectrum protocol. My position is now gaining ONLY 40% per year! :joy:
It means that in one month I will have gained around 3% on the entire position or , if you want to see from another point of view, I’ve gained 6% on my mKO.
This is more than enough to cover the losses of the negative premium IMO.

Last thing, recently a proposal is passed to lower the mimimum collateral ratio of mSPY to 110% and in a week also mSLV and mIAU will follow. This in my opinion will give better option to the people who like shorting stocks ( I’m not sure you fully understand why they do that, you can ask) so I suppose that the negative premium of mKO will normalize a bit.

So as I said KEEP CALM AND FARM.

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Thanks I appreciate the response very much! I bought more KO than I should have thinking it was easy to arb (my ignorance). I didn’t buy as low as you thought and am still down a few k if I sold now. I will try the farming with a small amount, but I would be losing the UST staking for 20% if I move it to Spectrum. And then if KO makes any big moves i’ll have IL…will test it out. Just want to get out of KO as soon as possible. Gonna stick to silver and gold in the future :slight_smile:

It seems strange that mKO’s premium has taken such a hit vs others…

Thanks again!

KO is unlikely to make big move, so most likely IL would be negligible comparing to the yield from long farming.

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yeah i just hope the premium goes back closer to 0 at some point. still around -9% unlike most other assets. really want to get out of this ignorant buy/trade :slight_smile: looks like spectrum rewards went down too, so while the farming helps, it won’t last forever…

So my open positions get liquidated with no warning, no webpage banner of collateral ratio change, nothing at all? Sitting at 125% collateral ratio and wake up today to liquidation. This is insane and will never use Mirror again. If the collateral ratios can be changed on extremely short notice with no period to adjust positions, this will be a dumpster fire sooner rather than later.

It was discussed on the forum for quite a while. The governance poll was available to see for everyone for 8 days before it was executed. It was mentioned in discord, on telegram, on social media, even Crypto Tweeter accounts that advertised looping strategies mentioned it.

So a UI banner is too hard to implement for those that don’t constantly scan social media? Poor excuse for poor implementation. Verification on Discord is broken so I cannot access that. I do not have twitter or telegram, so how do you expect people to comfortably use this protocol if a simple UI banner or even a plain/simple announcement on the webpage cannot be implemented?

The question in my mind is, would you consider it inappropriate if a member of the Mirror Steering Committee profited off of your liquidation? I don’t know the answer, I’m just asking. [Proposal] Disavow 0xCoolGuy from the MSC for Inappropriate Conduct - #3 by unclebeau17

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If there would be a banner, people would complain that they did not get a notice one month earlier. And if they did, they would complain that they did not get it half a year earlier.

On the other hand - doing ONE click to “Governance” once a week and checking what’s going on (usually nothing, sometimes maybe 3 polls) is too hard to protect your “safe and high-yield investments of money you cannot afford to loose, because these are all of your life savings”?

“Poor excuse for poor…” computer skills.

You don’t need to “have” twitter, you can browse it without an account, so?