Mirror Protocol (MIR): Synthetic Asset Creation Platform

Mirror Assets (mAssets): Democratizing Real-World Assets

Mirror Protocol is a decentralized finance (DeFi) platform that enables users to issue synthetic assets, which are crypto tokens that track the price of real-world assets, such as stocks. Synthetic tokens provide investors with exposure to the price of the real-world assets that they represent, without requiring investors to actually own those assets. As a result, traders who would normally be excluded from trading certain underlying assets — either for geographic reasons or lack of capital — stand to benefit from their price movements. Likewise, synthetic assets can be quickly traded for other synthetic assets or stablecoins on automated market makers (AMMs) such as Uniswap or Terraswap.

Mirror Protocol is built on the Terra network, though its synthetic assets — referred to as Mirror Assets (mAssets) — are also available on Ethereum and Binance Smart Chain (BSC) via bridges. Mirror Protocol is governed by the holders of Mirror token (MIR), its native governance token.

Interacting with mAssets

Synthetic assets on Mirror Protocol are called mAssets. To mint (or create) a mAsset, you must first deposit collateral to the protocol (amounting to more than 150% of the current value of the real-world asset). The protocol accepts TerraUSD (UST), a stable coin issued via Terra, and mAssets as collateral. If the value of the real-world asset rises to exceed the value of the collateral you deposited, your collateral will be liquidated to ensure the system is solvent. If you wish to redeem your collateral, you must first burn the mAssets issued to you. You can also trade mAssets by interacting with liquidity pools on AMMs such as Uniswap and Terraswap. Though mAssets can be traded 24/7 (like most cryptocurrencies), they can only be minted during real-world market hours (in keeping with the stocks and bonds that serve as their underlying index value).

The mAsset Pricing Mechanism

Mirror Protocol receives price data on the assets its tokens represent via decentralized oracles that update every 30 seconds. Mirror Protocol’s mAssets are soft-pegged to the price of their real-world counterparts, and the peg is maintained via a combination of minting liquidations, arbitrage, and governance.

More specifically, a minting liquidation occurs when the price of the real asset rises, and the collateral deposited to create the mAsset no longer exceeds the minimum collateralization ratio (MCR) of 150%. When this happens, the protocol automatically sells the collateral to buy the mAsset until the collateral ratio reaches the minimum ratio again. This has the effect of driving the price of the mAsset higher, so that it eventually converges with the price of its real-world counterpart.

Likewise, arbitrageurs can help maintain the soft peg by spotting discrepancies in the pricing of mAssets and their real-world equivalents. If an arbitrageur observes that the price of X on the stock market is $1,000 USD, but the price of mX (X’s corresponding mAsset) is $900, the arbitrageur would purchase mX, predicting that its price would eventually converge with the price of the real asset, which would enable the arbitrageur to eventually sell mX for $1000 at a $100 profit.

Finally, governance can be used to create incentives to mint and sell mAssets, helping to fix broken price pegs. For example, MIR token holders could vote to raise or lower the minimum collateralization ratio, or to implement transaction fees.

Mirror Token Governance and Liquidity

The Mirror token has two functions:

(1) MIR acts as a governance token, enabling its holders to vote on changes to the protocol.

(2) MIR is distributed as a reward to users who provide mAsset liquidity to AMMs.

To participate in governance, you can stake your MIR to vote on issues such as enabling new mAssets to be minted, disabling the minting of mAssets, changing the minimum collateralization ratio, and modifying trading fees. Additionally, if you provide mAsset liquidity to an AMM, you can stake your liquidity provider (LP) tokens on Mirror Protocol to earn rewards denominated in MIR.