DCP-14: mStable Acquisition

[ermin]

Header	Content
Author	Ermin (@_ermin )
Created	2023-03-10
Status	Draft

Overview

This proposal sets out the basic structure for dHEDGE to Acquire mStable. This proposal will formally be written up into a governance proposal for mStable governance next week. This will only go ahead if passed by both dHEDGE and mStable protocols.

Introduction to mStable

mStable is a DeFi protocol that has been a key player since its launch in May 2020. With a peak total value locked (TVL) of $200M and over $7B in trading volume, mStable has made significant contributions to the DeFi ecosystem. One of their most notable innovations is the Meta-vaults, which have been widely recognized for their ingenuity.

However, mStable is currently facing several core structural issues, including a short runway, poor team incentives, and tokenomics issues. To address these challenges, this proposal has been put forward that could benefit not only mStable but also dHEDGE and Toros. By collaborating and sharing resources, these protocols can work together to overcome their respective challenges and create a more sustainable and successful DeFi ecosystem.

mStable has currently $12.5M in TVL on both Ethereum L1 and Polygon.

The mStable Treasury has around $2.4M in liquid assets.(excluding MTA)

Motivation

dHEDGE proposes to acquire mStable and grow it to a leading yield vault aggregator across multiple chains. mStable would become the primary source for yield vault strategies.

dHEDGE has been in contact with mStable since the early days, and would like to see mStable continue to grow.

Description

dHEDGE would like to help mStable continue in its vision of becoming a leading yield vault aggregator. Starting with single chains, and moving to becoming a cross-chain vault protocol.

All of mStable’s current products, which are uncompetitive in yield, would be migrated to ~20% APY offered by Toros Finance stable yield strategies. This would boost the mStable TVL immediately and offer better returns. The Toros Finance yield strategies can then become mStable vault strategies. (see below image)

dHEDGE would acquire the mStable Treasury as part of this acquisition, relevant protocol multisigs and offchain support infrastructure.

dHEDGE would set a floor price for MTA, equal to liquid treasury at the time of the acquisition / circulating supply (adjusted for unvested investor/advisor tokens) /, giving existing MTA holders a limited downside and unlimited upside potential.

On acquisition mStable governance would migrate to dHEDGE governance until a new MTA governance structure is in place. Timeline TBD for the new governance but anticipated in 12 months. The MTA token would remain in circulation and potentially be part of future liquidity mining rewards.

Implementation

dHEDGE wants to see the revitalisation of mStable Vaults & draw upon the mStable brand and expertise of key stakeholders.

dHEDGE proposes to acquire mStable and grow it to a leading yield vault aggregator across chains.

mStable would become the primary source for stable yield vault strategies including:

• Stablecoin LP yields
• Delta neutral yields
• Basis trading
• ETH and BTC yields

Users can choose their yield aggregation vaults based on risk ie. the chain, underlying assets, protocols, hedge margin positions etc.

These single chain vaults can then be aggregated into a full cross-chain vault protocol, switching to best yields across chains.

dHEDGE’s automation arm, Toros Finance, has already built successful yield strategies:

• Stablecoin Yield
• Ethereum Yield
• Delta Neutral Yield

These can be migrated into mStable, creating a trifecta of vault brands:

MTA Token

dHEDGE wants to see mStable and MTA thrive.

The proposal is to set a floor price on MTA while having unlimited upside.

dHEDGE would set the MTA floor price to:
mStable liquid treasury / MTA circulating supply
Liquid treasury excludes MTA. The circulating supply is adjusted for unvested investor/advisor tokens
The price would be locked in at the time of the acquisition and deployment of contracts. Allowing MTA holders to acquire their fair share of the treasury assets if they wish.

dHEDGE is confident that it’s able to generate revenue from new mStable vault strategies to grow mStable and MTA value well into the future.

mStable Governance would move to dHEDGE and DHT stakers for a period of time until a new MTA governance system is in place.

Resourcing

dHEDGE would need expertise from key mStable core contributors and can provide salaries for key roles at mStable. Full requirements TBD.

Resources would be allocated to fast-track development of yield vaults, including building mStable as a cross-chain yield aggregator.

Summary

dHEDGE has been building through the bear market and is in a strong financial position with an extensive runway to capitalise on this opportunity and continue the joint vision of all 3 protocols.

dHEDGE and Toros have seen rapid growth especially on the Optimism network, offering some of the best yield vaults on stables and ETH, as well as enabling Synthetix stakers to hedge their SNX debt.

Bringing mStable into the dHEDGE ecosystem means that there can be better focus on yield vault strategies using both Toros and mStable expertise in the area. Leading the way to have a complete cross-chain vault protocol.

Vote

Vote here

[patet]

Im confused on how this will benefit $DHT holders, and why maintain $MTA as the governance token for mStable if dHEDGE were to aquire it?

What does mStable offer that Toros does not? How will the acquisition be financed?

[exponent]

Fantastic initiative @ermin, complementing vault strategies with some of the mStable vaults could strengthen the dHEDGE ecosystem

However, regarding the mechanics of the transaction, I propose a few changes that IMO are critical to the long term success of dHEDGE.

@ermin

dHEDGE wants to see mStable and MTA thrive.

The proposal is to set a floor price on MTA while having unlimited upside.

@ermin

Governance would move to dHEDGE and DHT stakers for a period of time until a new MTA governance system is in place.

I believe charting out a conversion process from MTA to DHT such that the MTA token seizes to exist / seizes to be accepted anywhere by the end of it. It should be clear to all and communicated to both projects respective stakeholders, exchanges, coin ranking (eg Coingecko), DAO ranking (DeepDAO) etc.

Dealing with continuous token mechanic design to see it succeeding is a liability and a Sisyphic long term resource sink. Taking on the handling of an additional token affairs is unnecessary and a step that will compromise dHEDGE’s project and DHT holders interest

Since DHT is currently undervalued than the conversion should include vesting and a premium on the price of DHT.

Since MTA holders and mStable are practically in a need for a lifeline here in many respects, there’s enough leverage to structure the terms to maximize the interest of dHEDGE and DHT holders and protect them.

@ermin

dHEDGE would need expertise from key mStable core contributors and can provide salaries for key roles at mStable. Full requirements TBD.

To guarantee alignment, contributors coming from mStable should be at least symbolically taking some pay cut that can be substituted by long term vested DHT. Again, the rational here is to make sure the focus of this deal is on strengthening the support and alignment toward dHEDGE’s and DHT holders long term.

Bottom line, I support the deal in principle, but I’m concerned that maintaining the continuity of the MTA token will be compromising or become a burden on dHEDGE’s and DHT holders long term success, brand legitimacy and be taxing on the team and more so on the ecosystem.

[ermin]

Just to be clear, there’s no premium to be paid for the acquisition (ie no additional cost).
The acquisition value, is the value of the mStable treasury (not including MTA), which dHedge would acquire.
From that point of view, it feels like a win-win. The only costs would be paying salaries for any mStable contributors (yet to be determined). But they have some talented people over there, so again, it’s a win-win imo.

Some good comments from @exponent around keeping MTA token alive.
Keeping MTA alive means that MTA token holders won’t necessarily swap their MTA for the treasury assets. Meaning there will be additional treasury funds available for development of mStable to create value for the token. dHedge DAO would also hold a % of MTA after the acquisition. Again, looks like a win-win.

I think if we don’t keep MTA, it might be best for mStable to wind down.

[exponent]

Thanks for the clarification.

Something that’s a bit confusing is the rational of keeping mStable independent while engaging acquisition. If mStable an independent project that’s getting support from dHEDGE treasury in exchange for some funding (payroll bankrolling included) than it’s more of an investment / DAO token swap than a proper M&A scenario.

I get the motivation of disruption minimization in the transition that guides your rational to keep MTA alive and keep mStable somewhat independent. But the equivalent would be to imagine when Apple acquired Dr. Dre’s Beats to keep it independent rather than absorb it into its headsets and speakers business segment. It’s better for both sides to chart out a proper long term prospect than keeping a leg in both boats.

An optional way to address the issues where MTA holders could otherwise prefer to liquidate their proportional share of the mStable treasury is to pass a vote in mStable DAO where the options are for either

1. some MTA to DHT swap (+ vesting and any other needed term)

2. Claim proportional part of treasury with very marked down price to disincentivize and protect dHEDGE’s interest as well.

Seems like a good idea to summon a joint DAO + token holders call to discuss.

[ermin]

Yeah you’re right, you could equate it to trad m&a.

Rather than an acquisition of a valuable private company, I think you could look at mStable as an unprofitable/failing public company.
In that sense, it’s a purchase of a controlling share at 0 premium. Whilst keeping it public, with the goal of creating value.

There’s really no risk for dHedge and makes the acquisition clean. Also all upside for mStable compared to a shutdown.

A spaces event is a great idea!

[Taminater]

Yes seems like a win-win situation.

[miguel]

Can we have a call to discuss some points regarding this acquisition? maybe we could record it and leave it available at youtube. what do you think?

[runex]

The proposal is nice and I agree on acquiring mstable. Not so sure about the conditions. Even if this proposal goes through, which it seems it will at first sight, I would still take time to discuss the terms on which mta tokens will be acquired. They should be indeed supportive of mstable and their builders, but also adding value to the dhedge value. The latter is not completely true.

It would also be nice to clearly specify how mstable adds value in comparison to a Toros-vault. It basically means dhedge is acquiring a stable coin that automatically bears interest? How widely accepted is this stablecoin? Just some fair questions I would think and I think it’s better this is discussed before the token-acquisition, than after.

Good luck.