After increasing the MCR of mKO and mSPY from 110% to 130%, it is now a good time to align a few other low volatility assets with these two. I suggest starting with mQQQ.
Similar to SPY, QQQ is an index tracking ETF. Where SPY tracks the S&P500, QQQ tracks Nasdaq 100; the 100 largest non-financial companies listed on the Nasdaq. QQQ is a narrower index than SPY, but they have comparable volatility on days with extreme movements. For MCR I would therefore put them in the same risk category.
I propose lowering the MCR on mQQQ from 150% to 130%. Doing so will make shorting more capital efficient, and will likely increase the overall liquidity on Mirror over time.
I am interested in hearing what the community thinks about this. Based on the feedback, I may be willing to put up the 1000 MIR for a poll.
In my opinion it would be better to wait until we see how the change or rewards distribution works. If you change 2 parameters of the system at the same time, you never know what change had greater/smaller effect.
Clearly, the minting of the mAssets is not capital efficient and the reward is not sufficient. Let’s start to decrease minimum collateral ratio to the following type of mAssets to 130% one by one:
(1) large cap cryptos: mBTC, mETH (24x7 trading, no after-hour risk, no merge/acquisition risk)
(2) large cap stocks: mAAPL, mMSFT, mGOOGL, mAMZN, mTSLA, mFB, mJNJ, mNVDA, mBABA, mNFLX, …(in the order of market cap)
(3) non-volatile commodity funds: mUSO, mIAU, mSLV
Protocol is completely broken at this point… sigh, such a shame the short rewards poll didn’t pass. I’m not sure what we else we can do. Each passing week it takes for a poll is another 5% increase in premium. Now we’re sitting at 30%+ on many assets and honestly it’s a huge risk to the protocol IMO if we melt up in a bull market the protocol will blow up trying to buy up these assets are huge premiums with little liquidity. Ticking time bomb imo…
There is a natural ceiling on how far the discounts and premiums can widen.
As an example, let’s say the discount on mVIXY is -16% and the premium on mMSFT is 30%. This allows arbitrage whereby someone can buy mVIXY, borrow mMSFT at MCR of 1.5 and sell mMSFT for an instant profit. This ‘money printing’ creates selling pressure on mMSFT and buying pressure on mVIXY, capping the discount/premium.
As another example, let’s say all the discounts close to 0%, and the premium on mMSFT rises to 50%. This allows arbitrage whereby someone can take UST, borrow mMSFT at MCR of 1.5 and sell mMSFT for an instant profit. Again this ‘money printing’ creates selling pressure on mMSFT capping the premium at 50%.
Higher premiums translate to greater leverage for users, making the protocol more profitable and supporting continued liquidity. We have witnessed liquidity increasing strongly recently thanks to protocols like Aperture and Spectrum.
The only issue is visible tracking error to Oracle prices. However most users care more about making money and leverage to high aUST yields than tracking error.
I can’t see why anything will blow up, especially the Mirror protocol itself which doesn’t take any balance sheet risk. I would appreciate anyone’s thoughts if you have a different view?
mVIXY is much more attractive to go short than to go long, and therefore sees more selling pressure than buying pressure.
Long-farming mVIXY is unattractive because the asset has high volatility (leading to impermanent loss) and very negative carry (the asset depreciates rapidly over the long-term). Short-farming mVIXY is very attractive because of this negative carry.
This is the opposite to mAsset stocks like QQQ, AAPL, MSFT etc. These stocks have positive carry and low volatility and are attractive to long farm. Users on Spectrum protocol etc therefore prefer to long farm these assets and have pushed up the price.
This has resulted in Mirror Protocol converging to its present stable state where stock mAssets maintain high premiums and mVIXY maintains a large discount, capped by arbitrage.
MCR should be independent of the premium. People who suggest manipulating the premiums via MCR simply don’t understand how the protocol works on a meaningful level and are willing to risk protocol insolvency and failure. Once bad debt enters the system, it is almost impossible to remove. The only possible remedy is for Mirror stakers to take that debt on via poll, and that isn’t really going great.
That being said. mBTC and mETH (and mDOT) are all the most risk adverse assets listed on Mirror and should have the lowest MCRs. (Lower than any stock due to oracle issues.)
GOOG/TSLA should not be in that tranche.
Again, another example of poorly crafted gov polls getting jettisoned out with little discussion or thought.
But he is 100% right about mVIXY naturally having contango. His point is more right than wrong.
“Again, another example of poorly crafted gov polls getting jettisoned out with little discussion or thought.”
We have been through this before. It is a DAO. therefore this can happen. You are not the supreme leader. I wish yall’s protocol passed. I support a 2nd round try. But dont heckle people for taking it upon themselves to take action. Or hey you could just vote “NO”.
Can you please explain these comments further 0xCoolGuy?
Why do you think there is any risk of protocol insolvency and failure? There is no mechanism for Mirror to go insolvent. Mirror is not taking on any balance sheet risk.
Why do you think bad debts could be impossible to remove? The combined processes of liquidation, arbitrage and time are effective for eliminating any bad debts.
The only risk of failure of the Mirror Protocol I can see is that that all the asset prices fall to zero i.e. buyers and liquidity completely dry up. This is the opposite of the current situation, where in fact there are many buyers pushing premiums up. This is a good problem to have for Mirror and will be capped by arbitrage.