mStable is a pegged-value protocol that allows users to deposit, swap, and earn yield on a variety of stablecoins. They offer a stablecoin called mUSD that is backed by a basket of well-known stables such as USDT, USDC, and Dai. This reduces the risk of holding any individual stablecoin: for example if Tether were to collapse, holders of USDT would lose everything but mUSD would lose just 28% of its collateral. Furthermore, any collateral shortcomings are back-stopped by the holders of mStable’s governance token MTA. mUSD is significantly less risky than holding any individual stablecoin while offering the convenience of holding just one asset. Through the protocol, users can always swap mUSD to any supported stablecoin at a 1:1 ratio, reducing any de-pegging risk and maintaining the stability of mUSD. If an institution wants to hold stablecoins but is concerned about de-pegging or regulatory risk, mStable offers a fantastic solution. The mStable platform allows mUSD holders to earn yield on their mUSD, ranging between 7–13% APY. This yield is generated from the fees paid to make swaps on the protocol as well as the yield earned on deposited stablecoins. All USDC, USDT, BUSD, etc that is converted into mUSD is deposited into various lending platforms such as Aave and Compound, and the rewards are automatically sent back to mUSD holders. mStable also offers a similar service for Bitcoin, allows users to easily swap between Bitcoin synthetics such as WBTC, renBTC, sBTC, as well as earn yield by swapping for mBTC and depositing on the platform. mStable provides a decentralized platform that offers reduced risk and increased stability, making it more enticing for institutions and large stablecoin holders to participate in DeFi and earn yield on their existing assets.

mAssets

mAssets (such as mUSD) are minted when other synthetic assets (such as USDT or Dai) are deposited into mStable. These mAssets are then created on a 1:1 basis for the deposited assets and given to the depositor. These mAssets can they be redeemed at any time (also on a 1:1 basis) for the underlying pool of assets. Upon redemption, the mAsset is destroyed to keep the overall ratio of mAssets to deposits at 1:1.

Yield

Assets that are deposited to mint mAssets are pooled and loaned out in order to generate yield. Currently, the mStable protocol utilizes Compound and Aave for this yield. USDC is deposited into Compound, and Dai, USDT, and sUSD is deposited into Aave. The smart contract sends deposits assets to these lending protocols, and automatically routes back any accrued interest to the underlying pool. Users can gain access to this yield by depositing their mAssets, and receiving imAssets (ex. imUSD). These token represent ownership in the pool, and can be exchanged for a greater amount of mUSD over time as interest collects in the pool. Furthermore, Compound and Aave are currently subsidizing deposits by providing COMP and AAVE tokens to depositors. These tokens are liquidated every week into mUSD and send back to the underlying pool as well.

Feeder Pools

Feeder pools are third party liquidity pools that provide MTA rewards to LPs. These feeder pools are separate contracts from the mAsset pools and provide on/off ramps to other stablecoins. LPs earn a fee on each swap and can deposit their LP tokens on mStable for additional rewards.

Users can deposit any supported stablecoin to mint mUSD and earn interest on it. The process is very simple and only takes two transactions (one to mint, and one to deposit). This is possibly one of the highest yielding safe platforms on all of Ethereum. There is no risk of impermanent loss, capital can be pulled out at any time, and rewards are paid in stablecoins. The yield on mStable can reach well above 20% if you also hold MTA tokens, and the protocols supports Polygon so fees are not an issue. As far as the safety of the actual smart-contract, there have been no exploits of the code and the contract received an audit from Consensys that found no critical issues. The project is also backed by Alameda Research and Three Arrows Capital which adds to its reputation and legitimacy. mStable Save is a “set-and-forget” savings account that is likely to continue providing great yield as the fees generated from swaps grow with the adoption of mUSD.

Using Swap, users can mint new mUSD tokens with stablecoins, as well as swap any two supported stablecoins between each other with very low fees and minimal slippage. For users holding mUSD, they can also choose to redeem them for another stablecoin through the protocol, which may or may not provide a better rate than the market. Depending on the allocation of funds held in the stablecoin pool, users will either receive a penalty or a bonus for swapping to/from certain stablecoins. This is to incentivize a balance amongst the tokens used to back mUSD so no one stablecoin makes up a significant portion of the collateral pool.

Once they mint mUSD, users can deposit stablecoins in the “Vault” to receive MTA rewards on top of their stablecoin rewards. On top of this, MTA itself can be staked to receive even more MTA rewards, which currently range between 20%-30% depending on the amount of MTA staked. As more MTA is staked, the rewards for each MTA staker will decline. Furthermore, users who elect to lock their MTA for longer periods of time will receive greater rewards per year. Staking is also required to vote on governance proposals, further incentivizing MTA to be taken out of circulation and held for the long term. This is a unique alignment of incentives, as most protocols do not require voters to lock their governance tokens before voting.

Bitcoin

All the same functionality that exists for stablecoins on mStable is also available with synthetic Bitcoin. The protocol supports the use ofWBTC, renBTC, sBTC, hBTC and tBTC to mint mBTC, as well as providing a yield on deposits. This yield is highly volatile, ranging from 0.4%-6% as market conditions and protocol use fluctuate.

Gold

mGold is currently in the works, and is mentioned in the mStable whitepaper and roadmap. This would offer crypto investors exposure to gold through an on-chain synthetic asset, although it is unclear how the peg would be maintained.

Ethereum

The obvious next step for mStable is to introduce mETH, allowing users to deposit ETH syntherics such as stETH, WETH, ankrETH, and others. This would improve cross-protocol liquidity and possibility introduce compatibility with the native ETH asset as well. mETH development has already started and is expected to be the next asset to launch on the mStable platform.

As mStable is a relatively small protocol with little historical data on growth rates, which makes it difficult to estimate a numerical value for the MTA token. Ultimately, the return on MTA for stakers will depend on the % of MTA staked, the issuance of mUSD, and the interest rate received on partnered lending protocols such as Aave and Compound. The additional yield received for MTA stakers is also paid in MTA tokens, making it difficult to estimate a precise staking APY in dollar terms. What is certain, however, is that as the issuance of mUSD grows and more stablecoins are locked into mStable pools, the value of MTA will increase. Uniquely, 100% of the revenue earned on mStable is controlled by MTA holders (unlike other protocols such as Uniswap that pay fee revenues to non-UNI holders such as liquidity providers). From a governance perspective, this means the MTA token gives holders the right to vote on what is done with the revenue earned on the protocol. If we ignore how revenues are distributed currently, and instead view all revenue earned as belonging to MTA token holders, we can compare the price/revenue ratio of MTA with other protocols. The revenue earned on mStable can be broken down into three sources: swap fees, interest earned, and platform rewards.

Swap Fees

There are two types of swap fees: stablecoin to stablecoin swaps (ex USDT to USDC) and stablecoin to mAsset swaps/redemptions (ex USDT to mUSD). These swaps incur a 0.02% and 0.03% fee respectively. These fees make up roughly 27% of total revenues.

Interest Earned from Stablecoins

These revenues are distributed exclusively to those who deposit mUSD into the Save feature on mStable, and are generated by lending out the stablecoins backing mUSD (such as USDC and USDT) on platforms such as Aave and Compound. Interest earned makes up roughly 30% of total revenues

Platform Rewards

These are the rewards paid out in tokens such as AAVE and COMP by protocols in order to incentivize deposits. Every week, the accumulated tokens are liquidated, converted into mUSD, and distributed to mStable Save users. This revenue source contributed roughly 44% of total revenue.

Summary

Overall the platform generated $632,000 of revenue in the last 30 days, which is roughly $7.5m on an annual basis.

While it may not be possible to directly value the MTA token, we can compare its valuation to other DeFi protocols. There are two main valuation metrics used in crypto: [Market Cap] / [Annual Revenue], and [Market Cap] / [Total Value Locked]. The first compares the price you pay for the token relative to the revenue that token has a claim on, and the second measures the price you pay for the token relative to the value of all assets locked in the protocol. The first metric is “a bird in the hand”, as it takes into account how much cash can be returned to token holders today. The second metric is “two birds in the bush”, as is measures the total pool of assets that fees can be charged on in the future. If these metrics are low, it means the token may be a good investment as it is undervalued compared to the rest of the market. For our comparison, we will look at Maker, Aave, Compound, and Trader Joe. These were selected as comparisons as they generate some of the highest fees in all of Defi and have readily available data.

Based on the average market cap to annual revenue ratio, MTA is worth roughly $7.68. All other savings protocols trade at a much higher multiple, suggesting either they are overvalued or MTA is undervalued. From a TVL perspective, MTA trades at the average valuation, suggesting it is fairly priced for its $171M in locked assets. However, considering the large majority of assets on mStable are stablecoins that do not fluctuate in value, its TVL metric is more stable and “pure” than other protocols. One could argue that other protocols have inflated TVL metrics since they have significant BTC/ETH deposits that go up with the market. I feel that because of this dynamic, MTA deserves a higher MCAP/TVL ratio than other savings protocols, suggesting its undervalued based on this metric as well. Overall, the MTA token appears to be very undervalued considering its TVL and revenue metrics.

To learn more about mStable, head to https://mstable.org.

More of my research can be found at twitter.com/0xZubin.