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The creators of the stablecoin Terra platform announced Thursday the launch of the Mirror protocol, a way to mint crypto assets that mimic the share value of publicly traded companies like Apple or Tesla.
“We were motivated to create a way for retail investors around the world to more easily participate in the US stock market,” Do Kwon, CEO of Terraform Labs, the company behind Terra, said in a news release.
The new protocol will also bring a new liquidity mining opportunity to Terra’s Tendermint-based blockchain. Terra had previously announced a savings account with a yield agriculture rotation.
Known as mAssets, these tokens will track the price of US shares in the real stock market, using an Oracle system that can check prices every six minutes. Just like MakerDAO, if a stock’s price rises relative to its underlying collateral, this could trigger a cut event for a given crypto asset (unless the collateral depositor raises their stake). But even US stocks don’t tend to move as fast as cryptocurrencies.
Arrington XRP Capital has invested in Terra and all of its related projects. The company shared an early draft of an opportunity report on Terra with Mirror titled “The Standard For Synthetic Assets: Mirror, DeFi’s 1-To-N Opportunity”.
The report notes that in uncertain times there is a global demand for dollar-denominated assets such as those created by Mirror.
“It represents a unique alternative to centralized exchanges and e-brokerage platforms, with capital-efficient on-chain minting, settlement and trading operations 24/7,” the report states.
Hungry for imitations
Synthetix synthetic exchange has pioneered the creation of synthetic cryptocurrency assets. To mint a synthetic on Synthetix, however, a collateralization ratio of 750% in SNX tokens is required, as its token is prone to the same volatility as most cryptocurrencies.
To coin synthetic equity on Mirror, however, users only need to stake 150% of its value in one of Terra’s various stablecoins, thanks to the low volatility of these assets. (These resources can also be minted using other mAsets as a share, but they require a 200% share.)
Those lower collateralization rates make Mirror more capital efficient, although obviously if a creator expects the value of a capital to rise, they will want to over-collateralize.
Better capital efficiency goes hand in hand with another benefit that Mirror creates: decentralized options against US equities. A permission-free platform for US stock options should be attractive to the growing cryptocurrency retail market.
“The retail investor is at the heart of this growing demand for US equities and global equity derivatives. The stock market is no longer the exclusive domain of Wall Street clothes, whether in New York, London or Tokyo, ”says Arrington XRP in his report.
While there are no direct benefits to the Terra team from this new protocol, its design should spur additional demand for its stablecoins.
Growth Token
To govern the Mirror Protocol, Terra also announced a fair launch of a governance token called MIR.
MIR will be distributed at a constant rate over a four-year period to users who contribute liquidity to Automated Market Makers (AMMs) trading mAsets or trading MIR itself on Terra’s Terraswap or Ethereum’s Uniswap. Mirror has specific interfaces to provide liquidity to pools on Ethereum or the Earth chain. Only pools that match resources with TerraUSD will be eligible for MIR.
MIR will have a fixed supply of 360 million.
Of those 9.15 million will be distributed to UNI owners in an initial airdrop, with the same amount to owners of LUNA (the token that allows Terra stablecoins to keep their peg). There will also be an ongoing staking reward for LUNA holders, as well as a MIR Governance Development Fund to spend as they see fit.
Over the next four years, interested users can grow MIR by contributing to the liquidity pools for MIR and mAssets on Uniswap and Terraswap.
Since Mirror runs on the Terra blockchain, users will need to bridge Ethereum to earn rewards there. “We are initially using a centralized bridge of our own creation for the bridge (called Shuttle), but we should migrate to a more decentralized bridge called Wormhole early next year,” Kwon told CoinDesk in an email.
MIR holders will earn a commission when users withdraw mAssets to claim the underlying collateral; 1% of the guarantee will be redistributed to MIR.
Token holders with airdrop rights will need to visit the Mirror site to claim rewards. Institutional investors who wish to cultivate MIR can do so through FalconX.
“The Mirror Protocol provides a foundation for people around the world to have greater access to attractive financial assets,” said Joey Krug of Pantera Capital, who invested in Terra in September 2020 as a token investor in a press release.
