Principle

Mutuum is developing an overcollateralized stablecoin that will be minted from collateral supplied within Mutuum’s lending protocol, ensuring that every token in circulation is backed by sufficient on-chain assets. The stablecoin’s value will be algorithmically aligned with the U.S. Dollar through market-driven mechanisms. As a permissionless and decentralized token on Ethereum, it is created when users deposit collateral above a specified ratio, similar to how borrowers secure other types of loans in Mutuum.

When a user repays their stablecoin loan - or if their position is liquidated - the minted stablecoin is returned to Mutuum and subsequently burned. Consequently, the supply of the stablecoin is dynamically adjusted based on actual demand and on-chain collateralization. In contrast to standard borrowing processes, where interest is partially distributed to liquidity providers, all interest generated by stablecoin loans remains within Mutuum’s treasury, strengthening the protocol’s reserves over time.

Mutuum’s stablecoin introduces distinctive elements beyond typical borrowing processes. When someone borrows the stablecoin, there is no separate liquidity pool composed of user deposits for that specific asset, so the entirety of interest payments flows directly into the protocol treasury. Upon repayment or liquidation, the stablecoin tokens are definitively burned, removing them from circulation and preserving the overcollateralized model. This contrasts with standard loans, where the principal remains in circulation even after repayment.

While numerous stablecoins exist, decentralized and overcollateralized versions continue to show room for increased adoption. Many stablecoins in the market rely heavily on centralized custody or opaque backing, which can undermine confidence. Mutuum’s stablecoin aspires to bring added transparency, resilience, and predictability to both users and the broader DeFi ecosystem, leveraging the protocol’s security and efficient collateralization approach to fill these gaps.

Initially, Mutuum’s primary lending protocol is expected to act as the main issuer, trustlessly minting and burning the stablecoin based on collateralized positions. Additional issuers may be introduced to support advanced use cases (e.g., arbitrage or quick liquidity). Although Mutuum does not operate under a DAO, it can still offer a framework for external development teams to propose new issuers or functionality, subject to review by relevant stakeholders or the protocol’s maintainers.

Mutuum’s stablecoin will align with the ethos of decentralization. The stablecoin’s open-source code will undergo thorough smart contract audits before launch, and any upgrades or parameter adjustments will follow an organized review process. This level of transparency aims to distinguish Mutuum’s stablecoin from more centralized alternatives by ensuring censorship-resistance and publicly verifiable changes.