Today we’ll be looking at a less known but newly discussed on-chain high interest-earning smart contract known as DeFi Money Market “DMM”.
Introduction
DeFi Money Market (DMG) is an Ethereum based decentralized protocol that allows any holder of an ETH based digital asset to earn interest on that asset. This becomes possible by utilizing the full suite of Ethereum contract services and incorporating treasury management functions with a Chainlink compatible data feed. Enabling the contract users to link real-world assets with digital ones to earn interest completely on-chain.
By working within the Chainlink oracle service system this allows DeFi Money Market to provide the same security guarantee as the contract itself by eliminating most single points of failure. With the vast majority of the world’s currencies (in digital or traditional form) earning little, zero, or even negative interest. DeFi Money Market looks to operate in a simple and transparent manner, so anyone can understand it as well as verify the on-chain assets and their collateralization.
The user simply deposits USDC into the DMMA smart contract and receives DMM tokens at the current exchange rate. A part of the deposited funds are then converted to USD and loaned out through real-world collateralized loans. The loans are repaid with interest (6.25% ) which is then deposited back into the DMMA smart contract. After which the user then returns their DMM tokens back to the smart contract and receives their USDC and any interest earned during the contract period.
Collateralization of real world assets represented on-chain are currently managed with auto loans from lending partner Finova Financial and focuses on title loans for vehicles in seven of the 50 states in the USA. Finova has been looking to venture into the crypto market since it received over $100M in funding from Polymath back in Sept of 2018. But, Failing to launch its own security token using the ST-20 protocol as previously promised, it seems to have found a rightful place within the DMM ecosystem. It should also be noted that it seems DMM will expand their loans into the aviation industry, although we lack any concrete details on what that will look like at this time.
The Token
The DeFi Money Market DAO is composed of 250,000,000 DMG Governance Tokens. With 60% of the total supply (150M DMG) being deposited into time-locked smart contracts with varying vesting periods. The Foundation’s 40% allocation of the supply (100M DMG) is locked up until November 15th, 2020 in which it then begins to vest equal amounts of DMG every Ethereum block until a year later on November 15th, 2021 when the last amount unlocks. With 10% of the supply from the incentives allocation and 10% of supply from the sales, allocation both locked until November 15th, 2020 when the full amount releases and the available supply will be 60% of the total supply available.
The token sale opened on June 22nd and was set to run until all the allocated tokens had been sold. Through the sale, the DMM Foundation raised a total of $6.8M across DAI, USDC, and ETH. With the sale lasting less than 48 hours. Of the 15.7M DMG tokens offered during the sale all were sold between the DMM purchase portal and DxDAO exchange Mesa. Since the token sale, the DMM Foundation has deposited $350k of liquidity to the DMG-ETH Uniswap exchange to ensure users have the lowest slippage possible to enter and exit.
The DeFi Money Market governance token DMG, is the tool that will enable broad participation and help mitigate centralized governance risk. DMG affects the governance of the ecosystem via the DMM DAO foundation safe, which has control over the Ethereum smart contracts and its adjacent assets. While not released yet, the team is working on a governance dashboard to enable DMG governance token holders to put their tokens to use and vote for different actions to be taken. While the initial version will be designed as a simple interface to test the incentives and procedures, this governance dashboard will end up being the hub where all governance actions of the DMM DAO will take place. With future plans to include staking rewards.
The Founders
The team operates as the DMM Foundation and consists of Corey Caplan, Gregory Keough, Derek Acree, Keith D. Smith III, Zachary Rynes, and Javier Keough. Corey co-founded Dolomite as one of the first exchanges built on the Loopring platform which operates as the backend system running the DMM purchase portal mentioned earlier. Gregory is the CEO of Finova Financial and six other companies. He serves as one of the 100 founding members and chairman of the Institute for Blockchain Innovations. Derek hails from the finance world as another founding member of the Institute for Blockchain Innovation alongside Gregory. Keith comes with experience in media building brands and is the communications lead for the Blockchain Acceleration Foundation. Both Zachary and Javier are fresh out of college with the DMM foundation being their first experience in the blockchain ecosystem. Backers of the project including Collaborative Fund with DMM becoming the thirteen investment by Draper Goren Holm Venture Studio, an arm of the Draper Venture Network.
Market Potential
There’s no denying the massive potential for issuing and operating collateralized loans on-chain. With many projects in the works looking to create easy to use and manageable collateralization of real-world assets, DMM has their work cut out for them. Utilizing chainlink’s ability to bring real assets on-chain has helped DMM move to market fast. Not limiting themselves to one stable coin market and splitting the liquidity between USDC and DAI money markets is something that does help to separate them.
The foundation has stated they’re looking to collaborate with others in the Ethereum community to create more DMMA’s for the many different digital assets that currently exist. They believe DMM will provide the ability of any Ethereum digital asset to earn interest providing greater diversification and stability in the platform’s interest rates. With plans to create a DMM fiat gateway to enable anyone globally to take part in the community, the team has set their goals extremely high.
Concerns
Many concerns were noted while researching DMM this week. From the team’s inability to answer simple questions asked in the project’s Discord, Telegram, and Maker DAO forums to falsely associating themselves with partners they’re not affiliated with like Coinbase, Trust Wallet, and Huobi. Heck, even the contracts accessible (increaseTotalSupply) and (decreaseTotalSupply) functions that can easily destroy the entire token metrics take a back seat to the following.
With loan collateralization being the key component in the functions of the platform and its liquidity. I was left shaking my head quite a bit while reviewing the DMM loan explorer that shows the DMM contracts currently issued to vehicles on the platform. Not only are there many instances of false, conveniently redacted, or missing title information. There’s also a huge discrepancy between the value of the loans being issued and the real-world value of the assets. From the half dozen loans I was able to verify I found that loans issued were on average at least a 50% higher evaluation than the vehicle’s actual Kelly Blue Book value (note DMM states they use Black Book, but there is a big differences in valuations). Meaning there’s a very obvious inflation issue happening just a month into the project. As you know, over time assets like automobiles depreciate in value and rarely ever appreciate outside of very special circumstances like gaining a classic or historical status on the title. With an inflated loan evaluation that has no depreciation factor and Finova Financials annual interest rates on loans factored in. I don’t see how the platform will ever sustain itself long-term after the initial funds raised during the token sale dry up.
Conclusion
Safe to say that DeFi Money Market is an extremely high risk investment at this point. With more short-term value than the long-term value being seen in the project. Even with DMM riding high in the media on the Draper hype train we’re seeing very little real market interest on exchanges right now. With that said, the token price of DMG has barely moved since the token was distributed and shows very little if any price manipulation happening. This also means that there’s a huge upside to be had for those who might want to get a small bag to sell-off during the first big market moves the token may make in the future. If you do, set a tight stop loss to ensure you’re not handing over your Bitcoin to some hedge fund.
Until next time, remember the only guarantee is BTC.
-Jesse Koz
