Proposal TL;DR
MYSO is a crypto-collateralized lending protocol that offers non-liquidatable loans i.e., Zero-Liquidation Loans. We propose setting up a pilot project with Mantle for the DAO to i) set up a lending market for $MNT collateral and ii) tap into a new investment class and earn yield by becoming a stablecoin lender against attractive DAO/protocol native tokens.
Each bespoke MYSO v2 vault would allow for numerous concurrent loan offers to be sent out by the DAO from one vault against multiple collateral currencies and be fully customizable with different desired rates, tenors, LTVs, etc to fit the DAO’s risk appetite.
Background
Mantle has a strong commitment to be the world’s leading investment DAO, driving growth and innovation in the world of web3. We firmly believe that by embracing trust-minimized financing solutions, such as those presented in this proposal, Mantle can advance on its core mission while embodying the principles of decentralization and innovation that are the hallmark of the web3 ethos. With this proposal, MYSO aims to support Mantle on its mission of becoming one of the most forward-thinking and innovative decentralized autonomous organizations in the world.
As seen throughout communications on the Mantle governance forum and across social media platforms, Mantle’s community has been keen on promoting treasury allocations into various initiatives to diversify treasury holdings, propping up the utility of the native $MNT token, and tapping into new investment opportunities. However, previous proposals oftentimes have failed to outline how this can be done in a meaningful and sustainable way; in particular many failed to also take into account the perspective of the Mantle treasury. This proposal is unique in that it describes mutually beneficial growth opportunities that generates tangible benefits for $MNT holders as well as provides value to the Mantle treasury.
As part of Mantle’s commitment to upholding a high standard in DAO growth and treasury management, MYSO would like to propose two product offerings for Mantle to make use of:
- Create a credit market for $MNT collateral, using MYSO’s v2 Zero-Liquidation Loan product.
- Become a lead lender for promising web3 projects, using MYSO’s v2 convertible bond product.
About MYSO Finance
MYSO Finance is a DeFi protocol that allows users to borrow without liquidation risk through so called Zero-Liquidation Loans, which are designed to make DeFi borrowing as easy as possible (i.e., users don’t need to worry about liquidations, health factor monitoring etc.) and at the same time provide an attractive new yield source for lenders. In essence, Zero-Liquidation Loans function as a risk transfer mechanism, in which the borrowers are relieved from liquidation risk while lenders – by design – bear shortfall risk to earn yield for this. From the lender’s risk-return profile, this can be thought of as a physically settled covered call strategy. Our v1 whitepaper, as well as an array of publications on our Medium, explain the concept in more detail and go over numerous use-cases for the Zero-Liquidation Loan product.
MYSO Finance first started as a one of the finalists during the ETHOnline hackathon in October 2021, meanwhile completed a security audit with ChainSecurity for the v1 (see Myso Finance - Core V1 - Chainsecurity) and launched on Ethereum Mainnet in January 2023.
**MYSO has also recently completed a security audit with Trail of Bits for our v2 (see https://github.com/trailofbits/publications/blob/master/reviews/2023-04-mysoloans-securityreview.pdf) and is currently undergoing an additional audit of our v2 codebase with Omniscia
Proposal
MYSO would like to propose a partnership with Mantle for the following two initiatives:
- By leveraging MYSO’s Zero-Liquidation Loan (ZLL) product, Mantle can grow to become a powerhouse in DeFi lending and kickstart its own credit market for $MNT collateral (as well as other collateral tokens of partner projects, or bluechip tokens etc.). Through this approach, Mantle can enable its team, backers, and community members to unlock the borrowing power of their Mantle token holdings, providing them with access to non-liquidatable loans while also generating a new source of yield for the Mantle treasury. This mutually beneficial opportunity enables Mantle to both grow its treasury as well as support its community and drive value back to $MNT holders, reinforcing its position as one of the most forward-thinking and innovative decentralized autonomous organizations in the world.
- Using MYSO’s convertible bond product, Mantle has the potential to become the world’s leading financing partner for all web3 projects seeking debt financing. This way Mantle can reinforce its position as one of the premier investment DAOs, offering unparalleled value and financing options to promising new web3 ventures while giving the Mantle treasury access to new deal flow with equity-like upside potential and attractive baseline yields.
Initiative 1 - Create a Credit Market for $MNT collateral
In order to allow for meaningful user interactions and testing, we propose to allocate part of the Mantle treasury into a to-be-deployed MYSO v2 vault that allows the Mantle treasury to lend stables against the native $MNT token and/or a blue-chip asset like ETH. This way the treasury can put idle stables to productive use by allowing numerous concurrent loan offers to be sent out from one vault against multiple collateral currencies and experiment with different loan structures w.r.t. rates, tenors, LTVs, etc. This allows for the DAO to efficiently test market demand for borrowing stables against its native Mantle token (and/or other collateral tokens) at fully customizable loan parameterizations.
To start, we propose the following loan structures, though they’re obviously up to Mantle to decide:
- Project timeframe: 3-6 months
- Investment amount: $500,000 - $1,000,000 USDC
- Lender vault collateral: $MNT and $ETH
- Tenor: 3-6 months
- LTVs: 40% for $MNT, 70% for $ETH
From the treasury’s perspective (i.e., as a stablecoin lender), Zero-Liquidation Loans provide the treasury access to an in-the-money covered call strategy or - equivalently - a synthetic short put on $MNT and/or other assets. Note that the treasury has full control over the loan terms they feel comfortable offering and the loans they effectively underwrite, meaning the treasury can adjust, expand and update the loan parameters at any time to optimally fit the DAO’s risk appetite.
What’s unique about Zero-Liquidation Loans is that they enable the Mantle treasury to generate yield on idle treasury stables, while, in the worst case - if a borrower defaults and decides not to recover their $MNT collateral - Mantle reacquires $MNT at a discount at the end of the loan tenor. This means that in the worst case Mantle synthetically repurchases $MNT at a discount, which is superior to doing a $MNT buyback outright. As such, this approach not only serves as a powerful signal of confidence in the value of $MNT but it also helps reinforce and redistribute value back to token holders in a value-aligned way.
From a borrower perspective, $MNT token holders are able to use their Mantle tokens (or a bluechip asset like ETH) as collateral and borrow USDC (or other stablecoin) without liquidation risk. From a higher-level overview, this adds a new layer of utility to the Mantle token as it allows users to put their $MNT to work by unlocking $MNT’s inherent borrowing power. This enables holders to use their Mantle tokens as collateral rather than having to sell it to cover short-term liquidity needs, which intrinsically supports long-term value appreciation by reducing selling pressure.
Initiative 2 - Become a lead lender for promising web3 projects
Mantle can position itself as the go-to-place for auspicious web3 projects and DAOs that are seeking debt financing. Using the MYSO convertible Zero-Liquidation Loan product, Mantle can lend stablecoins to promising web3 projects while - given the loan’s conversion feature - also gaining upside participation in their native token. On the other side, DAOs can utilize their idle native token reserves as collateral to borrow stables at highly customizable terms. For this, they can create a loan proposal on the MYSO v2 platform outlining desired loan terms (e.g., target loan amount, LTV, loan duration, repayment structure/conversion details etc.).
The proposal can then be shared with Mantle (as well as other lenders) and adjusted until sufficient interest is found. If enough lender subscriptions are received, the borrower can finalize the loan by providing the corresponding collateral. Thanks to the embedded conversion feature (similar to convertible bonds in TradFi), borrowers can reduce their overall stablecoin borrowing costs while giving lenders upside participation in their native token. As such, this is a unique way for Mantle to gain access to a fundamentally new investment class, and source investment deals with promising projects to have equity-like upside participation while also earning an attractive baseline yield. This distinctive, on-chain debt financing strategy has not been seen before in DeFi and would allow Mantle to make meaningful investments into promising projects in a trust-minimized way.
Overall, as a lead lender to other DAOs/protocols, Mantle can:
- Offer bespoke loan structures to DAOs searching for debt financing, that both fit the borrower as well as Mantle’s risk appetite
- Tap into a fundamentally new investment class and source promising deal flow for the investment arm of Mantle
- Have equity-like upside participation in attractive DAO/protocol tokens through the convertible bond structure, while having less downside risk as opposed to an outright token-swap
One interesting investment opportunity available for Mantle would be to become a lead lender for unshETH (https://unsheth.xyz/) against $USH collateral. unshETH is a novel DeFi primitive that promotes validator decentralization by fostering competition among ETH liquid staking protocols to bring the best ETH staking experience to millions of users. unshETH’s mission is simple — decentralization through incentivization. Through incentive engineering, unshETH aims to distribute capital across the LSD ecosystem in a manner that prioritizes validator decentralization. unshETH enables use cases such as validator decentralization mining, validator dominance options, interest rate swaps, yield speculation, and efficient risk pricing across major Ethereum LSDs.
As a starting point, we’d like to propose the following key terms, though these obviously may be adjusted based on Mantle’s and the borrower’s requirements:
- Investment amount: $250,000 to $500,000 in stables
- Borrower collateral: $USH
- Lending currency: Stables such as $USDC, $USDT, etc.
- Tenor: 1 year
- LTV: 50%
- Conversion price : +100% of initial spot price, meaning that Mantle has the right (but not the obligation) to convert its loan amount into $USH tokens at +100% of the initial spot. For example, if $USH is initially trading at $0.4 then the conversion price would be $0.8. If then $USH later trades at $1.0, lenders would have the right to receive $USH at a conversion price of $0.8, rather than $1.0
With this initiative, Mantle can serve as a lead lender and become the go-to-place for any web3 project, including unshETH, looking for convertible debt financing. This will allow Mantle to provide unique value to the most promising web3 projects while earning a yield and having upside participation on those same projects. Moreover, being the lead lender, Mantle could earn an arranger fee while also having other DAOs and/or communities join as lenders, essentially coming together as a decentralized loan syndicate.
We are grateful for having the opportunity to share this proposal and look forward to the next steps in the process!
