Summary
- Synthetic assets represent real-life assets on the blockchain. These assets can range from stocks to gold. Almost every asset that exists in the real world can be synthesized on the blockchain. Synthetic assets are also known as tokenized assets.
- Mirror Protocol is a decentralized trading protocol for synthetic assets. There are over 30+ stocks that can be traded including Micosoft, Google, Apple, Tesla, Amazon, Alibaba, AirBnb, and others.
- The underlying stock is not owned by the user when they trade on Mirror Protocol, but they own “mAssets” pegged to the value of the asset. Mirror Protocol’s name is derived from the fact it mirrors the price of these assets.
- The protocol utilizes blockchain oracles which are intermediaries between smart contracts and real-life prices to deliver price feeds for the protocol. Oracles are used to fully decentralize the trading.
- The mAssets on the protocol can be bought, borrowed, and farmed. If a user wants to farm mAssets, they can join liquidity pools and submit the equivalent value in UST.
- The platform allows traders outside the United States to trade US stocks. Users don’t need to sign up for a brokerage account and pass an approval procedure. They can immediately deposit assets and start trading.
- The protocol launched in 2020 and is part of the Terra ecosystem. Users need Terra’s stablecoin UST to trade on the platform. Terra-specific wallets are also required.
- The MIR coin is the governance token of the Mirror Protocol ecosystem. There is a circulating supply of 78 million MIR crypto coins with a maximum supply of 370 million tokens vested over 4 years.
What is Mirror Protocol?
Mirror Protocol (MIR) is a decentralized trading protocol for synthetic assets such as stocks. The native token of the ecosystem is MIR. The MIR price is $1.70 at the time of writing with a $130 million market cap and a circulating supply of 78 million. The maximum supply is 370 million.
Mirror Protocol runs on the Terra (LUNA) blockchain and users can trade 30+ tokenized stocks such as Amazon, Facebook, Google, and more. Trading on the protocol is automated using smart contracts. The tokenized stocks are not the underlying stocks, but they are “mAssets” (Mirrored Asses) pegged to the value of the actual stock.
The platform utilizes blockchain oracles to deliver real-time pricing for stocks. Liquidity is provided using AMM (automated market maker) algorithms and users can add liquidity in exchange for trading fees. The mAssets on the website can be traded, borrowed, and farmed.
As the protocol is part of Terra’s DeFi ecosystem, users need to deposit the TerraUSD (UST) stablecoin to trade stocks on the platform. Users can purchase UST from Phemex, deposit it to their decentralized wallet, and start trading. There is a flat 0.1% fee applied to all transactions on the protocol.
Benefits of Mirror Protocol: Why Trade Stocks With Crypto?
Stock trading is more restricted compared to crypto trading. Non-US based customers are restricted from accessing most US stock-trading brokerages. Even inside the United States, it can be difficult to obtain a brokerage account as there are lengthy KYC (Know-Your-Customer) procedures and other requirements.
Using decentralized services, anyone in the world has access to stock trading. For example, if we want to buy Tesla shares but don’t have a brokerage, we could instantly purchase mAssets on Mirror Protocol MIR that are pegged to $TSLA. If the price of Tesla stock goes up, we can sell these assets and pocket the difference.
The DeFi (decentralized finance) industry also provides advantages that regular stock brokers lack. Users can “farm” mAssets by locking them up on the protocol and receive a yearly bonus once they unlock the assets. When the value of these assets increases, users receive 10-20% annual yields proportionate to their stake.
How Does Mirror Protocol Work?
Mirror Protocol uses “mAssets” which are crypto tokens that are pegged to the value of stock or other assets. There are more than 30+ assets users can choose from and instantly swap on Terra’s blockchain. They only need a Terra wallet such as Coin98 or Wallet Connect to get started:
Synthetic assets available for trade on Mirror Protocol.
The liquidity used for trading is TerraUSD (UST). Users submit their own liquidity to provide value for mAssets and the current Mirror Protocol TVL (total value locked) is $750 million, which means there is almost a billion dollars worth of backing for these decentralized assets.
The stock prices refresh every 60 seconds. To derive accurate data for its price feeds, the protocol uses blockchain oracles that connect to price feeds in the real world and send this data to the smart contract. The oracles are provided by Chainlink (LINK) and the protocol is fully powered by their data feeds.
For each ticker, the mAsset pool price varies from the oracle price. As users have to submit their own liquidity to mint these assets, the price of some assets varies. For example, the pool price for Apple stock is $176 while the oracle price is $174, effectively charging a 1.4% premium. For Amazon’s stock, there is a 7.18% premium:
Users can click on these assets and swap them directly for UST. For example, if we were to purchase 1 Apple stock, currently trading at $174, the 1.4% premium would apply and increase the price to $177 with the fee included:
The fees are paid and settled in UST. Once a user purchases a share, they can hold the share and sell it on Terra Swap for a higher price. They can also enter staking pools and choose long or short positions if they want to sell it for an even higher price later.
The “Farm” section allows users to stake their mAssets by depositing those assets and an equivalent value in UST. This can provide a yearly yield of as much as 30% for some assets:
A user must choose between a “Long” farm and a “Short” farm. Once they enter this position, they are only in profit if the stock price goes up or down respectively and risk liquidation at a certain point. This is akin to trading on the stock markets.
Let’s say we want to long Apple stock that currently yields 20.74% per year by investing $1000. We would have to purchase Apple mAssets with a value of $500 and deposit $500 in UST liquidity to match the other side of the liquidity pool:
The Mirror Protocol algorithm automatically calculates the annual yield. If our position goes right, we would yield the equivalent of $100 on our UST deposit and the 20% equivalent for Apple mAssets on the platform. The value of Apple stock could appreciate in the meantime, leading to even bigger profits.
MIR is now trading on Phemex:
What Is MIR Coin?
The MIR coin is the governance coin of the Mirror Protocol ecosystem. The market cap of the MIR crypto is $130 million with circulating supply of 78 million and a maximum supply of 370 million. At the moment, 43 million are staked on the platform.
As trading is fully decentralized and automated using smart contracts, users can also take part in decision-making on the protocol by purchasing the MIR altcoin and staking it on the platform. The governance section is where Mirror Protocol staking takes place and allows users to vote on polls:
The most recent poll on the governance protocol was to utilize Chainlink oracles for all data feeds on the protocol. Most users voted in favor of the integration and the development team acted in accordance. All price feeds on the network are now fed by the Chainlink network.
Is Mirror Protocol A Good Investment?
The bullish case for Mirror Protocol is that it’s one of the largest DApps (decentralized applications) on the Terra ecosystem, which is the largest DeFi ecosystem after Ethereum (ETH). With a total value locked of $750 million, it’s likely a good investment long-term.
The bearish case is that only 20% of the MIR coin supply is in circulation which gives it a fully diluted market cap of $620 million. These tokens are vested over 4 years and it could impact the price negatively if more tokens are released in circulation – diluting the current supply.
The Mirror Protocol chart indicates sideways movement for the past couple of months:
The MIR token is not used for trading on the protocol, and instead users deposit UST. Even as the TVL of the network keeps increasing, this might not reflect in the MIR price. The price was also affected by the May 2021 Bitcoin crash and has since stagnated. Traders who are bullish on the Terra ecosystem will find this one of the most promising projects to invest in.
Conclusion
The DeFi industry is booming, and in the future it’s estimated that hundreds of billions worth of assets will be tokenized. Mirror Protocol will play an important role in that as it tokenizes shares in the largest companies on Wall Street, it effectively allows millions of traders to trade in those markets without restrictions.
Trading on the protocol is fully trustless without any centralized entities controlling user data or liquidity flows. The protocol is built on the backbone of traditional finance and integrated new technologies from DeFi such as yield farming to vastly improve the trading experience.
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