Mithril Cash ($MIC) is taking decentralised finance (DeFi) to the next level. In order to bridge the blockchain and traditional financial world, decentralized finance (DeFi) has brought a new innovation: stablecoins. Stablecoins are merely cryptocurrency tokens that are designed differently. They are not volatile in value and are usually pegged to fiat currencies or a basket of stable assets. Mithril Cash is taking stablecoins to the next level.
Doing away with the collateralization requirements usually encountered in most stablecoins, Mithril Cash devised a stablecoin that is purely-governed by math and economics. While it maintains a particular value, it is not the same as other stablecoins that require the backing of fiat or crypto assets.
Background
Mithril Cash is a community-based project aimed at introducing a new alternative to the stablecoin options available to users today. According to the team behind the Mithril, they chose the Basis Cash model because it has shown better performance than other stablecoins in terms of resilience and adoption.
The economic model of Mithril Cash is simple. It works in as much the same way that central banks determine the target value of fiat money. By releasing and purchasing bonds, Mithril Cash guides the overall supply of the token to keep its value to its pre-defined target.
What is Mithril Cash?
Mithril Cash ($MIC) is an algorithmic stablecoin that came from a fork of the Basis Cash protocol. Its target value is pegged at MakerDAO’s multi-collateral USDT token, or roughly 1 USD. And to achieve and maintain this value, it has smart contracts designed to control its supply, as well as buy and sell bonds.
Algorithmic stablecoins like Mithril Cash, and its parent Basis Cash, follow an economic model that differs from that of other forms of stablecoins.
Take MakerDAO for example. DAI, its own stablecoin, is backed by Ether ($ETH) and other partnered cryptocurrency assets locked in collateralized debt positions ($CDP) to maintain its dollar peg. Or Circle’s USDC which, in order to maintain its value at 1 USD, has a counterpart of real, fiat USD stored in an escrow account.
How does Mithril Cash work?
Mithril Cash functions differently. It is supported by a purely algorithmic mechanism that determines the demand for the stablecoin and adjusts it accordingly to keep its value at 1 USDT. In order to make it a reliable stablecoin, smart contracts that fulfill the algorithm behind MIC are set to maintain its price between 0.99 USD to 1.01 USD.
How to mine Mithril Cash?
Mithril Cash can be mined! The mining period is 5 days. You can mine MIC using the following cryptocurrencies: Mithril (MITH), CREAM, DAI, USDT, ESD, USDC, SUSD, FRAX, BUSD, yEarn Finance (YFI), Compound Finance (COMP), AAVE, Curve Finance (CRV), SUSHI and Chainlink (LINK).
Note that the objective of Mithril Cash is to push the price to $1. So how does it do this and what happens?
What happens when Mithril Cash is above $1?
When Mithril Cash trades above $1 it goes into a expansionary phase. MIC token supply will increase to guide the price back towards $1. During this expansionary phase, users can redeem MIBs for MIC at a ratio of 1:1. If MIC trades at $1.01 during seigniorage time, more MIC will be minted and distributed to MIS token holders who staked their MIS in the Boardroom.
What happens when Mithril Cash is below $1?
When Mithril Cash trades below $1, it goes into a contractionary phase. Like its parent Basis Cash, the system backing Mithril Cash will begin issuing MITH Bonds. These bonds hold a value of one MIC each and are redeemable for one MIC as well once it goes beyond 1 USDT.
To illustrate this more simply, if the MIC drops to less than 1 USDT, users can purchase more MICs and redeem corresponding MITH bonds. This process burns a corresponding MIC with the aim of reducing its total supply in circulation. This cycle should go on until MIC goes back up to the value of its peg.
On the other hand, if MIC goes above 1 USDT, then more MIC is minted and those who hold MITH bonds can redeem them first too. The rest of the newly-minted MIC go to the holders of MITH shares.
MITH Share ($MIS)
MITH Share ($MIS) refers to the token held by those who stake their assets to the protocol. Thanks to their stake, they are also entitled to receive new MIC supply in circulation. This distribution happens whenever the demand for the stablecoin grows and prompts the minting of more MIC.
To stake, they have to lock their tokens to the Boardroom contract. They can claim their share of MIC in proportion to the amount that they have staked as well, as long as the MITH Cash Treasury is full.
You can also mine Mithril Shares using MIC-USDT-LP and MIS-USDT-LP.
MITH Bond ($MIB)
MITH Bond ($MIB) is created and redeemed to influence the circulating supply of MIC in the protocol. MIC holders can buy them at any given time. But in order to attain a profitable margin in doing so, they are incentivized to purchase them at times that 1 MIC is lower than its target value.
Whenever necessary, MITH bondholders can freely exchange their holdings for MIC tokens stored in the MITH cash treasury. Through this process, bondholders receive 1 MIC every 1 MIB that they redeem. However, this can only be done when the Treasury shows a positive MIC balance. And like other bonds, MIB does not expire.
Cash Pools
Mithril operates two cash pools secured by smart contracts. These two pools govern the total value of one MIC and the overall direction of the protocol.
MITH Cash Treasury
MITH Cash Treasury governs the whole process of bondholders making withdrawals. Users who redeem their bonds through the Treasury are entitled to a similar amount of MIC, but only on certain conditions.
First, the oracle’s feed of an MIC’s price reflects that it is above 1 USDT. Another is that the Treasury must have a positive balance of MIC. Like a circuit breaker for the stock market, bondholders are not allowed to redeem when the MIC is below 1 USDT.
Boardroom
Boardroom refers to the smart contract which MITH Shareholders, or stakers, interact with to receive their share of MIC if there is an excess in the total supply. Those who stake MIS tokens get MIC as rewards if MIC trades at or above $1.01 during seigniorage time.
What is seigniorage time?
The first seigniorage will be on 5th January 2021 at 2:00am (UTC) and thereafter at 24-hour intervals. At this time, if MIC trades a $1.01 or more, Mithril Cash will be printed and distributed to holders of Mithril Share ($MIS) who have staked their coin in the Boardroom.
Conclusion
What’s difficult with most stablecoins is that they are either centralized or they can become volatile. Tether’s USDT may have proven to be stable but it is still under the mercy of governments since it a company-issued fiat-backed currency.
As for volatility, we’ve seen what happened with MakerDAO’s DAI during the cryptocurrency market drop last March 2020. Its value was rocked hard by the fall of ETH, which even resulted in multiple positions getting liquidated. Pegging the value of a stablecoin on something which might exhibit momentary fluctuations defeats the purpose.
Mithril Cash is a promising step forward in coming up with a more reliable stablecoin. MIC is more purely-governed by market economics than the movement of its peg. And without the dependence on huge collateralization requirements, this stablecoin model might even be able to withstand unexpected cryptocurrency shifts should they happen at any point in time.
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