Mitigating Liquidity Risks for mtTokens
When users deposit assets in Mutuum’s lending pools, they receive mtTokens in return - tokenized representations of their deposits that continuously accrue interest. Although these mtTokens can typically be redeemed directly through the protocol, certain market conditions could result in limited on-chain liquidity, making immediate redemption challenging. If much of the pool’s capital is borrowed out, there may not be enough underlying assets (e.g., DAI, USDC, or ETH) available to honor all withdrawals right away.
To address potential liquidity shortfalls, Mutuum envisions providing additional redemption avenues. By fostering liquidity pools on decentralized exchanges and automated market makers, users can trade their mtTokens for other assets—even when the protocol’s main pool is under strain. In other words, the existence of external liquidity pools helps reduce reliance on the protocol’s internal reserves for redemptions.
DEX Liquidity Pools
Uniswap, Balancer, and Beyond: Mutuum may encourage the creation of pools that pair mtTokens (e.g., mtDAI, mtUSDC, mtUSDT) with corresponding base assets or other crypto tokens. If a user holds mtDAI and there is insufficient DAI available within Mutuum’s primary pool, the user could swap mtDAI for DAI, USDC, or another token in these external liquidity pools.
Specialized Stable Pools
Curve-Style Solutions: For tokens linked to stablecoins or correlated assets, establishing specialized AMM pools can be particularly effective. These pools (modeled on platforms like Curve) minimize slippage and optimize rates for assets with similar price targets.
Advantages of External Liquidity:
Easier Withdrawals: By tapping into external pools, users can redeem mtTokens for base assets even when Mutuum’s internal reserves are temporarily low.
Reduced Liquidity Pressure: Offloading some redemption demand to external AMMs decreases the chance that a sudden withdrawal wave will deplete the protocol’s liquidity.
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