Roadmap following V2

Dear Mirror Community,

Just wanted to say great job on v2. It tackled the problem of minting inefficiency really well - balancing out long / short demand, aUST collateral, etc - big win for the Mirror ecosystem.

Going forward, we will have to tackle another big problem - allowing mAsset liquidity to be self-sustainable. Currently mirror liquidity is sustained by incentives in MIR tokens, but we will need to get to a state where fees captured by LPs can attract sufficient liquidity to mAssets. To that end, we will need to solve the following problems. MAssets need to be more heavily traded, and liquidity providers need to capture better value on that volume using less capital. Furthermore, as DeFi and crypto comes under greater regulatory scrutiny, Mirror will need to make effort to make itself more censorship resistant:

  1. Increase capital efficiency of Mirror LP: Well established real world assets covered by Mirror has low price volatility compared to cryptocurrencies, which means that mAsset liquidity can be concentrated. Mirror will need to live on concentrated liquidity of Uni v3 and Terraswap v2 to improve capital efficiency for LPs and therefore yield on unit capital invested. We will need to explore using a combination of concentrated liq on both DEXs and a rebalancing algorithm on top to ensure liq availability.
  2. Increase mAsset tx vol: mAssets’ major advantage over underlying assets is that they can be freely programmed on. Apps will need to leverage the power of various upcoming protocols to offer the user ever more compelling value props:
    • Dividends through Mars: lend mAPPL via Mars and earn high yield
    • Leverage through Levana: trade perps on mAPPL
    • ETFs through Nebula
  3. Actively encourage more frontends to be built and hosted: Many more apps that leverage Mirror Protocol should be encouraged to be built out and hosted, preferably by anonymous devs to maximize censorship resistance. We propose creating a pylon.money farm of mirror hosts, each to receive cash flow streams from pylon in exchange for developing and hosting alt Mirror web apps. Happy to gather ideas on how best to align incentives on this.

V3 will be interesting.

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Hey Do,

With regards to point 1., two things:

  • Sandclock can work on the rebalancing algorithm, and implement a “rolling hill” algorithm for this purpose when TerraSwap V2 is out, or whatever algorithm you have in mind (could even implement both and have competing vaults!). This way most liquidity will be managed by our vault. Safer (insured) and simpler.

At present we already have a vault for Terra. Like I said previously, one vault to rule them all but we could make an exception specifically for Mirror Protocol. Currently, our backend rebalances the capital when necessary to maximize yield. The current highest performing algorithm was Mirror V1 and it ensures the highest, most stable APY that you could possibly get through TVL-awareness and other things that I will get into at a later point. Once V2 was released, we implemented some tweaks and it’s, again, the highest performing strategy. Not only does it generate extremely high, stable returns, it also serves a secondary purpose: to stabilize the premium of mirrored stocks at 1/0%, and it does so perfectly. It does the job so well that you could remove short farming and it wouldn’t make a difference. Sandclock will ensure that shorting will rarely be profitable for more than a literal day. And once V3 launches we too will be there to implement the most profitable strategies for liquidity provision while minimizing impermanent loss which, as you know, is amplified with this type of concentrated liquidity model.

  • Completely hypothetical, but have you thought of, in the future, transitioning Mirror Protocol to Sandclock’s Charity Mining type model but for LPs, whereby LPs are not given MIR rewards, but instead are temporarily allocated MIR tokens which are then automatically staked by the backend on their behalf, so they receive protocol fees for as long as they’re providing liquidity? It would create an interesting dynamic and reduce sell side pressure: when MIR is deemed “overpriced” it’s more advantageous to provide liquidity; when MIR is trading below fair price, it’s better to buy. Sandclock can use other tricks to ensure stability within our vaults so liquidity is not withdrawn if MIR is trading below fair price but I’ll wait for your feedback.

Lovely proposal though, looking forward to hearing from you.

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One way to dramatically improve capital efficiency would be to have the LP token itself be collateral for minting. So for example, a minter would mint stock, pair it with UST, and then have that LP position count as collateral. This is actually a very low risk position for the system, as the minter is only exposed to impermanent loss because they are delta neutral when opening the position.This is similar to alpha homora, but instead of debt its using the minting.

With regards to concentrated liquidity, can we look at Curve’s new AMM as an example? It concentrates liquidity around the oracle price, and automatically rebalances liquidity around that price. This does create higher fee ROI, but at the cost of more impermanent loss. Also this would also automatically take care of the issue where assets do not trade at peg as often as we would like. The only downside could be when the oracle price is stale LPs would suffer much more arbitrage loss. However, we could also choose to make it so that you can only trade during market hours if buying from this type of AMM.

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Re: Curve’s pricing function I disagree. The cons you listed, plus the fact it will likely result in significantly lower yield than our model. Our rolling hill strategy acts similarly but is more nimble and has more ways to generate yield, make up for that impermanent loss, and autocompound the resulting fees.
Furthermore, our algorithm can easily ensure the premium stays as close to 1.00/0% as possible.

How about introducing leverage to Mirror, by using Anchor borrows?

Right now, any user of Mirror can go to Anchor, stake some luna and borrow UST, and then use that UST for whatever, but why not make that available within the Mirror UI/UX?

Allow people to leverage on borrow or long/short farm, by integrating the Anchor workflow into Mirror, making this play more visible and hopefully increasing borrowing demand on the Anchor side.

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This is actually an incredibly underrated comment. It actually deserves a project of its own like Alpha, or Mirror Protocol integration. This is one of the things that will help keep Anchor afloat: integrations, integrations, integrations.

If it does get a project of its own, I recommend reaching out to the Alpha team and collaborating with them.

Another way Liquidity providers can be incentivized is by mAsset-aUST pair instead of regular mAsset-UST. Why leave any of the UST unutilized in the system?

Also, potentially the MIR rewards earned should have a vesting schedule to stop the continuous selling pressure on MIR from yield enhancers like spec.finance and delta neutral strategies.

One solution could be 25% of rewards vest immediately, and then on a 25% every two months schedule. So, the risk-free strategies have to be vested in the MIR system for at least 6 months.

Given the US regulatory trash talk. Another thing we would also like to explore is why is the system so focused on US based stocks only? Are there no other companies or indices in the rest of the world people would like exposure to?

What about alternative assets? Futures?

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Are there any technical limitations to have Currency pairs on Mirror?

It is a huge market and not necessarily accessible to everyone.

https://www.marketwatch.com/tools/currencies

Nope. There’s currently a vote up for Euros so vote yes if that’s something you’d like to see. I agree with your logit – it’s a market that would be very useful since it isn’t as easy to access (unlike stocks)

Currencies should be dealt within the Terra protocol and not as mirrored assets tbh, why have mEUR when we can use EUT? This question can be asked for any currency. There’s already a bunch of currencies available, if you want to long EUR/UST, just swap into EUT.

I believe there is also a thread somewhere about creating an efficient forex market on terra, so I as an European can use EUT even if the dApp only deals in UST, and have the protocol handle the swaps.

On 1) If we are going with concentrated liquidity like uni v3, one major upgrade on that would be ability to change price band without having to completely withdraw and deposit back. Behind the scenes, it could be doing the withdrawal and deposit, but just make it seamless for the user experience.

On 3) If we want more user engagement and developer engagement, the documentation needs to be significantly improved both for general users and developers.

If an average Robinhood trader were to look at the following documentation, it is clear as mud. Why do we need to talk about Collateralized Debt Positions etc. Is the app to be used only by investment professionals? Can some simple language be used to explain things? Most of the time we end up doing some transactions to just learn what it is.

Same is the case with code documentation, it is not good. Our team has spent hours and days learning to do basic stuff. William Chen has a few good videos on how to use python sdk. Then he says something about covering how to do a swap using the python sdk will be coverd in next video, but we are still waiting for that video two months after.

As a developer, we are not sure, should I focus on JS, python, graphql, or cosmwasm.

If you follow the telegram channel, 90% of the time the admins are just replying to the same questions over and over. MIR has a strong community, we can at the least, develop a wiki, if someone asks a question, the admins can put that in there and other users can help improve the answers over time.

Seriously, we need much better documentation please especially on the mirror code side.

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I’m happy to fund this kind of work via the Mirror community pool

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when can we expect increased capital efficiency? we don’t need 0 to infinity range for many stocks or gold. we could narrow ranges significantly. combined with decreased fees to the range of 0.05-0.1% we should have volume 10-20x just due to arbitrage activity. we just need to allocated 10-20% of those fees to purchase MIR that will make protocol very sustainable by itself while giving MIR tokens needed support

To close the short farm, the user needs extra capital to buy the asset first. This should not be required.

Let’s say I used $1000 to start a short farm and now want to close the position. If I don’t have extra capital lying around to first buy the mAsset, it is very hard to take profit on short position.

The close short farm event should take care of liquidating everything including buying the underlying mAsset.

Ease of closing a short farm can generate higher CDP fee as well and beneficial for Mirror holders.

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I think premiums have to get lower. This will allow people to day trade and thus increase the volume. Mirror token itself needs a utility, buyback, burn and airdrops. Something attractive to make people hold the mirror token.

Mir token is trading now at 2.7 and it fell so hard last 6 months. Because the aprs are much higher on the massets and the massets are more stable Where as mir is going downhill with much lower apr.

Higher mir price will push aprs and make the ecosystem more attractive.

Also, why dropping a single spar airdrop for mir stakers? It should be on weekly bases since spar will use massets and built on mirror. Most of the focus is on luna but luna is worthless without its protocols that utilize ust

Upvote on this. Creating mAsset-aUST trading pairs seems like a great idea.

On this point, how about introducing Total Return Indices as mAssets? This would allow Mirror to capture cash flow payments as well for specific asset classes. Take for example the S&P500. By mirroring SPY you are losing out on the Dividend Yield. But if you can track the S&P500 total return index, you will get that. And it will open Mirror up for users interested in other asset classes outside of just US Growth Equities.

Another important improvement in my opinion should be to adjust minimal collateral amounts for short positions based on the mAsset risk.

Not all mAssets have the same risk (i.e. volatility). If I’m holding a blue chip stock like IBM for example, it won’t fluctuate as hard as most cryptos. Having one amount used for all mAssets is probably not the right solution. A simple way to do this algorithmically is just to compute historical volatility of an mAsset or its underlining asset and keep adjusting the minimum requirement based on changes in that. So perhaps track the 1y rolling monthly (or daily) vol (which is just a simple variance of the mAsset return/price change over time). Clearly it won’t be perfect since cryptos vol is constantly evolving, but I suspect it would at least be more efficient than the current system.

Thoughts?

As it is today Governance votes on the collateral requirements per mAsset.

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