!PRICE STABILITY - reducing high premium through reward rebalancing!

We are all seeing that premiums are getting out of control in recent weeks, steadily widening the spread between oracle and LP price. Based on the current MIR reward distribution mechanics, we can anticipate that the spread is going to get even wider if no appropriate changes are made in the MIR reward distribution system.

Understanding the MIR Protocol’s system:

The price pegging system is based on the correlation between premiums and the long/short APR you’d get for LP and sLP positions. If the premiums are getting higher, the APR for shorting the mAsset should rise accordingly, encouraging the user to open short position, hence bringing down the LP price to the oracle price.
The APR number is based on the varying factors of MIR reward distribution mechanics, the LP liquidity value (TVL in UST) and the shorted token amount vs. LP price. The MIR reward distribution mechanics is a mathematical formula, written in the documents, which basically relies on the weighting of the mAsset relative to other mAssets (higher weight → higher MIR distribution for the mAsset relative to other mAssets), and also varies if within that allocation, the MIR distribution for LP relative to sLP changes, which is subject to the premium.

Based on the current settings of the formula, the LP-sLP reward distribution is skewed towards LP in 60:40 - max. 40% allocation if premium is larger than 6.25%, if it’s below it and towards 0% premium, than the allocation would even rise to 100% for LP. It means that even at 15%+ premium, you’d get higher rewards allocation for longing the mAsset relative to shorting it. Obviously, we need to change the LP vs. sLP reward calculation if we’re to encourage shorting the LP price back down to the oracle price. Else the protocol will fall apart.
Other than that, the liquidity provided to an mAsset (and also the amount of shorts and the LP price) also alters the long/short APR calculation - higher liquidity value causes lower long APR, higher number of shorts causes lower short APR. Increasing the weight index for mAssets with high liquidity would rebalance this progress, but given the liquidity distribution of all mAssets throughout the protocol, there’s no need just yet.

Changing LP/sLP reward distribution formula
We can change the reward calculation for LP to Rk=(1-2,5rs) … and for sLP to Rk=(2,5rs) … Simply by multiplying the rs (short ratio) by 2,5 (based on the table at /Staking Tokens (LP & sLP) - mirror), the reward distribution rapidly changes in our favor, at 2% premium distributing symmetrically, at 6.25% premium it’s skewing towards 100% allocation for sLP relative to Lp. This is an easy, yet effective method for the recalibration. The best option would be though, if the formula would distribute symmetrically from 0% premium as a mean, and exponentially increasing/decreasing the long/short APR based on the absolute distance from the mean in either positive, or negative price premium. In case of expanding the short ratio table to negative premiums as well, Rk=(1-|2,5rs|)… for LP and Rk=|2,5rs|… for sLP gives a good guideline.

Given the significant change in long/short APR based on the above, it would be enough to bring back the price peg. In case one would fasten the process, the best option IMO would be to lower the collateral ratio by 10% among the most depegged mAssets. In this way a little credit impulse would help starting the move in the good direction.

…Hope not miscalculated something, long night.


I urge every user to read the proposal - and if can, piece it out with useful information or even contradict it in order to get a solution. The premiums are going to drift further from the oracle price if it’s not maintained.

It even seems like that the pace is accelerated through the last week, if we’d like to restore the prices, we have to act quickly to have a chance.

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I think the other reason behind the problem is delta neutral strategies. There are even some protocols automate these strategies and offering +35% apr over Mirror protocol. The fact that more people are using delta neutral strategies ensures that the price remains stable. I think as these strategies become more common, prices become more stable and isolated from oracle price.
Note: this is my personal opinion, I think out loud, what I say is not based on research.

Please put in up for vote in governance. You have my vote. So many solutions suggested yet no once puts it up for vote. Granted I get that there is a chance of losing money. I will help subsidize a vote for this. Heck we just gave MSC six figues of MIR. They should be trying to solve this via a governance vote ASAP


delta neutral strategies don’t ensure that, they are made to profit no matter if price goes up or down, so they don’t care if premium is 100%.

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Hi, thank you for taking the time to write this acidistheanswer (but the answer to what?) I will vote for any proposal that attempts to address this issue

Any insite into this?

there was a vote to establish a Mirror Steering Comity, It passed

I’ll create a poll in a few days, just want to be sure it’s not for nothing.

(I don’t have any MIR, all of my cash is locked… maybe someone in the mood to start the proposal? :slight_smile: )

The proposal is probably in the right direction, however it is not certain that it will solve the issue.
As most of the people are using delta neutral strategies, the most of the liquidity opens sLP and LP positions in the same time and they are not looking much for rewards on the both sides. If I understand it well, delta neutral does not have influence on short ratio as it opens the same position on both sides. And we will see more and more liquidity in delta neutral postions as new automate tools are enabled. :frowning:
Yes, higher rewards on sLP would be encouraging to short, but shorting only party enters the risk of a fast uptrend on the asset which may cause liquidation and heavy loss. So is 20-30% APR (minus 1.5% fee) enough to enter the short position and so the risk that the asset will move 20% or more up in one month?
In my opinion maintaining peg close 1:1 needs some arbitrage mechanism.
The arbitrage mechanism could be set up using options or CFD contracts which could exercise mAssets. However it is quite a bit complicated solution and it would require new protocol probably.


you could arbitrage with the underlying assets.

BTC had a premium of 23% today. buy it spot and mint mAssets to short. As long as they get the peg under control eventually, you are safe.

Options or futures are fine, too

Here’s something that might interest you guys as a forward solution. Mirror DEX Solution

In regards to adjusting short farm rewards, I think it can work, but, as others have pointed out, Delta Neutral strategies would be a huge risk to the effectiveness of your proposed change. In the short term, we need solutions like this for sure, but long term they’re not sustainable given DN.

i mean… Willing to help. But if you truely believe in your proposal and for the betterment of the eco you dont inspire confidence by saying you cant contribute to your own idea. Im just a 5-head small brain

This might help with the insanely high premiums, even mAAPL needs re-adjustment to reward shorts to bring the price to oracle.