Trying to understand premium discount

Hi there,

I see that SPY is currently trading at a big discount. I understand that people are minting it and then selling it to take part in some strategies. However I am trying to understand why it would ever repeg? What are the incentives that keep it at peg? What happens if it’s below peg? and what happens if it’s above peg?

Thanks

When it’s below peg, the short farm rewards will be almost zero and long farm rewards will be significantly higher, incentivizing people to enter long farm (buy on open market and enter LP position). If it’s above peg, the farm APYs would be inverted, incentivizing people to short, thus dumping the price.

This is one of the current problems, that MSC is trying to solve, currently if the price of the asset is in LP pair, the price of mAsset is above oracle price, people borrow mAsset and sell it, they take their UST and either wait or loop it to lower price more.

The problem comes when the price is bellow since you can’t long with mirror protocol, so if the price goes bellow peg, you can’t do much except buy and hope it goes up.

But the biggest problem comes, this is method is still risky, if you short mAssets whose LP price is above oracle price, oracle price could go up and then you own more. The problem with this kind of pegging is that price is not solid like stable coin pegging.

this is a major issue, as it seems people are doing loop strategies following youtube vids and not fully understanding the consequences and then anyone else who is using that assets may get &%*$ed in result…

This is in my opinion good, this is helping us build resistance to those people. And making protocol stronger.

Can you elaborate on what you mean “when the price is bellow since you can’t long with mirror protocol”.

I see mVIXY is well below the oracle price, but you can still open long positions on it.

That is not longing, longing is when you borrow UST(or any other stablecoin) agains mAsset, and then buy that mAsset with that UST, leveraging is when you loop it, so you borrow UST with mAsset, buy mAsset with that UST, then borrow UST against that mAsset again, and then depending on what leverage you want to loop again.

The current problem with mirror protocol is that, mAssets should work a lot like stablecoins, the protocol takes oracle price and adjusts mAsset price, but problem is that if protocol works, like that of DAI, UST and so on, people can help with small premiums, for example with stablecoin, if it is at 0.98$ people will buy it, and short if the price is at 1.02$, but unlike dollar, mAssets oracle price changes, so if premium negative and people long it price of mAsset can fall and you didn’t you lose money, if the premium is positive, and people short it, oracle price can go up, and they lose money.

You can borrow/mint mAssets with UST as collateral, so you can short mAssets with leverage. You can’t have leveraged long positions on mAssets AFAIK.