Decentralised reserve currencies are one of the newest developments in the DeFi space, but it’s fair to say that the first iterations have been far from unqualified success. High levels of inflation have led to valuations of the associated coins experiencing wild volatility swings, which is the opposite of what is expected from such coins.
Metavault has looked at these initial models and found that a number of crucial improvements could be made which would alleviate the issues that the projects utilising them have encountered. The main issue with the first iteration of decentralised reserve currencies has proved to be their tokenomics, with protocols relentlessly printing new tokens in order to serve stakers and maintain the high APY. This model is simply not sustainable however, and the constant minting led, inevitably, to high inflation and the token losing value when demand declined. As a result, the value of the tokens collapsed dramatically in just a few weeks.
Allied to this, other than minting new tokens through bonding and staking there were generally no other clear earning strategies for investors within these early protocols, which led to increased sell pressure.
Metavault Does Things Differently
In essence, these first projects tried to create a reserve currency that simply wasn’t stable. Rather than instilling stability, their models in fact created the opposite — a token with high rates of inflation, an unstable token price, a single income stream, and a treasury that remained relatively untouched.
Metavault DAO operates on a different model. Our goal is to build a decentralised venture capital fund that invests and builds DeFi apps to benefit the ecosystem, providing low risk, high income streams for investors, with full transparency and community control. The MVD token is stabilised by a large treasury which gives it a strong floor price, while the token is designed to have a much lower rate of inflation with the target of actually becoming deflationary over time.
As a fully decentralised and community-driven venture capital fund, Metavault has the potential to outperform individual investors on many fronts, with all the rewards being shared between the DAO participants in DAI. The Metavault team has been involved in the cryptocurrency investment space for many years and built the project from an investor’s perspective, creating what we feel will be less of a service offering and more a partnership between ourselves and our community of investors.
A Better Bonding Experience
Another reason why decentralised reserve currencies ended up devaluing their own tokens through mass minting was due to how they approached bonding and staking. The concept of minting new tokens when someone takes out a Bond is not of course inherently bad, but the first protocols got their maths wrong — they typically minted two tokens for every one bonded (one for the buyer and one for the DAO), which naturally exacerbated inflation and caused continual dilution of the token value. Metavault does not mint any extra MVD tokens when a Bond is purchased, to keep the supply low and to ensure that there is no inflation or dilution of the MVD token.
On the subject of bonding, here is an insight into how Metavault will work and why it is different from what we have already seen in the decentralised reserve currency space. Bonds will be sold in order to get liquidity into the treasury, which is the pool of money that underpins the entire project, with income flows to the DAO distributed in DAI.
Rebasing is of course a key element to decentralised reserved currencies, and here we see another crucial difference in the way Metavault will operate; our rebasing reward calculations won’t include tokens held in the DAO wallet, Liquidity Pool, or the team wallets. This is important because it ensures that only tokens in general circulation are calculated for the rewards, further preventing inflation and the token dilution that would follow.
To further reduce the risk of exponential inflation there will also be an opportunity to replace the rebasing system with a farming system as the protocol develops. This, again, will be decided by community vote when the time comes.
All major project decisions will be decided by the DAO via community votes rather than being taken by the team, with full transparency of governance votes, code, and monthly audits/reports made public.
Earlier iterations of decentralised reserve currencies also featured pools that encouraged users to take on huge amounts of risk, for example the ability to lend your holdings and reinvest the return back into the protocol (9,9). These extremely high risk plays led to mass liquidations when the token price dropped a small amount, causing liquidation cascades that led to the price of the reserve currency crashing even further. Metavault doesn’t feature such risky mechanisms like 9,9, reducing the volatility on the MVD token and protecting investors as a result.
Another area where Metavault has reduced potential pressure on the MVD token price is through changes to the ‘protocol owned liquidity’ (POL) mechanism. POL was supposed to be the beating heart behind these first decentralised reserve currencies, but the mechanics of the protocols didn’t take into account the fact that liquidity can vary, with drops in liquidity having the potential to show an inaccurate floor price calculation.
The Metavault protocol also employs a buyback and burn policy, where the treasury will buy back MVD tokens if the price drops below the backing price (the treasury value divided by the circulating supply) until it recovers this value. This helps keep the MVD token value above its backing price. MVD token holders are further protected against volatility swings due to the implementation of a price anchor system, where individuals holding a large amount of MVD tokens can exit their positions without generating sell pressure and avoiding a high price impact.
Join Us Today
We hope this article has given you an appreciation of the ways in which the Metavault protocol is superior to the older decentralised reserved currencies, with investor protection baked into the changes we have made. We’re confident that Metavault can fulfil the promise of decentralised reserve currencies and be the flagbearer for this unique type of currency. We’re also extremely excited for the returns our investment arm can generate, and can’t wait to share those with our community!
For more information on Metavault and how to join the protocol, head to our website, follow us on Twitter, Telegram or join us for a chat on Discord. All relevant links are also found in our https://linktr.ee/metavault.