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.