mAssets are Terra blockchain tokens that act as mirrored versions of real assets, reflecting their market prices.
Unlike traditional tokens, which are a representation of a real asset, mAssets are purely synthetic and only reflect the prices and movements of the corresponding assets.
Every mAsset can be described with the following properties:
- Name & Symbol — name and ticker — describes the base asset that the mAsset tracks
- Minimum Collateral Ratio — the minimal supply coefficient — a released mAsset can’t have a supply coefficient lower than this, otherwise it may be liquidated
- Auction Discount Rate — auction — an mAsset set to be liquidated is put up on an auction, where you can purchase its asset with a discount
- Price — the current set price specified at Oracle Feeder. It’s mostly used to determine the CDP supply coefficent, it doesn’t directly affect the mAsset’s price on Terraswap. Prices are only current for 60 seconds. If new prices aren’t published after the data supply timer has expired, Mirror disables operations with the active until price supply is resumed. If the price flow stops when the real asset’s markets close (market time used to track stock prices, based on Nasdaq trading hours), it doesn’t affect its ability to the traded on a Terraswap pool
- Oracle Feeder — Oracle or Feeder is an assigned Terra account, which is responsible for delivering accurate information on prices for a specific mAsset and is the only role that has the right to update a registered price for a mirrored asset. Because of the decisive role in the operational stability of assets, the oracle is picked by the community and will be swiftly replaced should they stop delivering on their promises.
The lifecycle of an mAsset
To whitelist an mAsset it’s necessary to register it by voting on Mirror Protocol, which includes several operations, including:
- Creating an mAsset and assigning an oracle to it
- Creating a trading pair for mAsset-UST on Terraswap and its LP token
- Registering a new mAsset with all corresponding Mirror contracts
Whitelisting is determined by the community by voting and is automatically applied if the poll reaches the quorum. As soon as the mAsset is whitelisted, it can be minted with a supply and traded on Terraswap. Additionally, LP tokens for a corresponding pool will bring rewards in MIR for sending them to stake.
Delisting and Migration
In situations where a tracked asset is going through a corporate overhaul, such as stock split, merging, bankruptcy etc., it’s hard to reflect because of inconsistencies, the mAsset might not be recommended to involve with or completely halted with a migration procedure, initiated by an oracle:
- New contracts are created for the replacement mAsset, the Terraswap pair and LP tokens, and the current mAsset properties will be carried over to the new contracts
- The oracle sets a “final price” for the mAsset, equal to the latest functional price
- The minimal supply coefficient for the mAsset is set to 100%
At this stage:
- It’s impossible to mint new tokens for this mAsset
- Liquidation auctions are turned off for this mAsset
- Burning the mAsset tokens and returning the supply will be accomplished with the fixated “final price”
- LP tokens stop being given out for staking
Delisting won’t directly affect functionality on the mAsset-UST pool, and users can still complete deals, but the price would be highly unstable. Users are implored to burn the mAsset to return their supply if they have an open position. They can open positionsand provide liquidity for the new asset, and the old mAsset will be deleted and marked as “delisted”.
Collateralized Debt Position (CDP)
Supply coeffecient (C-ratio) is, simply put, the relation between the price of the blocked supply and the price of its currently minted tokens.
There exists a minimal deposit coefficient. It’s set by the community for every mAsset via poll creation and voting between MIR stakers. A safe deposit coefficient is the minimal + 50%.
- A mirrored asset for Tesla — mTSLA
- 1 mTSLA price = 670 UST
- Minimal deposit coefficient — 150%
The user purchases 1 mTSLA and specifies a deposit coefficient of 200%, that means they have to pay 200% of the mirrored asset’s price, 670 x 2 = 1340 UST
The price of mTSLA rises to 800 UST, which means the user’s deposit coefficient has lowered to 1340 / 800 x 100% = 167.5%. This level of supply is very close to the minimal value and the user should increase their supply in UST to increase the supply coefficient. Worst case scenario is that your position might be liquidated.
Depositing / withdrawing collateral to position
When the position goes below the minimal supply level, any user might be instantly liquidated. The CDP level lowers only when the price of the asset rises, and rises when the asset’s price lowers. This is why prices need to be constantly tracked and maintained.
You can supply with UST tokens or other mAssets’ tokens
Partial or full removal of supply is only available when the supply coefficient is higher than the minimal value.
For withdrawal the Mirror protocol takes a fee, which is traded for MIR through the MIR-UST pool and distributed amongst MIR stakers proportionally to their share.
Margin Call and Auction
Setting a lower supply coefficient allows minting of extra mAsset tokens with a lower supply, but it’s definitely riskier. When the supply coefficient lowers below the minimal value, a margin call occurs — a notification, warning about the potential liquidation of the position. At this stage, if the owner doesn’t take any action immediately and doesn’t add money to their deposit or burn the assets to remove their position, other users will get the opportunity to purchase their assets with a discount.
The auction process continues until the mAsset’s supply coefficient is stabilized to a level higher than the minimum or the amount of minted mAssets is completely burned, which will close the position. Since this allows for pretty much riskless income, it’s in the users’ interests to liquidate their entire marginal position as soon as it’s possible to maximize their income.
To avoid potental margin calls and liquidation, it’s recommended to keep the CDP on a safe level (minimum + 50%).
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