Of the myriad projects on the DeFi scene, the Mirror Protocol is perhaps one of the most intriguing and influential.
To understand more, let’s discuss its purposes, its capabilities, and its role in creating crypto arbitrage opportunities outside of traditional markets.
The basics
The fundamentals of the Mirror Protocol are straightforward enough. The idea is that it uses blockchain tech to allow for synthetic assets to be minted, effectively mirroring another asset elsewhere, with the collateral put forward allowing the synthetic asset’s value to be maintained.
So-called mAssets, which of course stands for mirrored assets, can be a reflection of almost anything, whether that’s a crypto asset like Bitcoin or a stock in a company like GameStop or Alibaba.
All of this is underpinned by the Terra ecosystem, and while this is quick and convenient, it does come with associated fees. Each trade is hit by a 0.3% charge which is standard on the Terraswap platform, and the Mirror Protocol itself also takes a 1.5% cut of each minted asset’s value.
Whether or not this is suited to your short-term trading goals will depend on your circumstances and preferences. Longer-term trades may be better suited to this process, although there are arguments for its use in arbitrage, which we’ll get into momentarily.
The power of the Mirror Protocol
For a lot of people, the selling point of this particular DeFi niche is its ability to open up the equities and securities market to people who might not otherwise have been able to gain access to it.
There are now plenty of investors out there who know how to buy cryptocurrency and perhaps got into this scene first and foremost, before choosing to turn their attention elsewhere and look for fresh angles to make their money work for them.
It’s easy to buy crypto on reputable exchanges, and yet more of a challenge to achieve the same with more traditional asset classes.
This protocol breaks down the barriers by creating synthetic assets and unlocks markets that may have felt out of reach until now.
The issue of oversight
As you’d expect, the Mirror Protocol is not without any kind of governance, and instead has a decentralized autonomous organization (DAO) at its helm in order to oversee the various operational aspects of the project.
One of the roles fulfilled by the DAO in this context is to assess prospective assets and decide whether or not to give them the green light, as well as to decide on the amount of collateral that investors need to put up to mint them.
Anyone who has a stake in the DAO is able to earn a cut of the minting fees mentioned earlier, although because this can be a sporadic process, earnings of the native MIR token are not paid out particularly consistently.
Even so, it makes sense to get involved in the DAO staking and voting, because this gives you access to more of the fees from the community pool. As such, it’s not just about using arbitrage to benefit from price volatility and small differences across exchanges but also thinking about how other contributions made to DeFi projects can be advantageous from an earnings perspective.
The bottom line
There’s no question that the Mirror Protocol represents an intriguing take on an established set of ideas and could become even more potent in the future as new versions of the project are rolled out, with further proposed integrations on the cards.
If this has piqued your interest, it’s definitely worth investigating in more depth to determine if now is a good moment to get on board.