As an ex-corporate bond trader, I thought the idea of introducing guaranteed long-term fixed rates to investors in DeFi by @88mphapp is pretty interesting and I decided to dig in.

1/ A short thread on my findings so far

Essentially, @88mphapp $MPH protocol allows investors to buy fixed-rate and floating-rate bonds. Note: They call the fixed-rate bonds deposits, which I find confusing. Either call them both deposits or both bonds I will call both of them bonds.

2/ What makes @88mphapp unique?

The main differentiation of the protocol is the ability for investors to invest at fixed rates over a 1 year period. Under the hood, the protocol supplies the deposits to lending protocols such as @AaveAave and @compoundfinance

3/ How do I buy a 1 year fixed rate bond?

When you deposit funds, you receive a bond in form of a unique NFT (specifying maturity date, fixed-rate etc ). The NFT will be redeemable after one year, for the full principal you deposited + the fixed interest you earned.

4/ What if you need liquidity before you can redeem?

You have two options. 1) you can take on a loan against your NFT on a marketplace such as @nftfi. 2) you can redeem your NFT before maturity, but you lose out on your accrued interest.

5/ How do does @88mphapp guarantee a one year fixed rate?

There are several mechanisms to ensure the pool remains solvent (pays out the promised fixed-rate at maturity).
1) Pooling: The surplus generated from some bonds covers the deficit from others. 2) Selling floating rate bonds to hedge the pools floating rate risk.

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3) Deposit maturity mismatch: Paying temporary deficits out of the pool. 4) Last resort: Treasury.

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Taking all these measures together the risk of insolvency is fairly small. Furthermore, governance will probably come up with some kind of deficit insurance fund, to set aside funds for the unlikely event of the pool being insolvent.

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7/ All in all I think it’s a nice implementation that allows investors to invest with certainty with a one-year horizon bringing yet another piece of established finance to DeFi. It is rudimentary but which v1 is not in DeFi?

8/ Suggestions for improvements

1) Optimizing the selection of which underlying lending protocol. 2) Optimizing the fixed interest rate model to take into account the demand for floating-rate bonds and the risk of deficits.

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3) Allowing depositors to redeem early, subject to a penalty less severe than the full accrued interest, and potentially link it dynamically to weather a floating rate bond has taken the opposite side of that specific interest debt.

9/ Summary

This is not investment advice but a guide for users. I have not looked into tokenomics of $MPH. Also, I have not analyzed the SC but looks like they got audited by Quantstamp. The team looks decent with @guillaumpalayer @boredGenius, maybe you can input on my suggestions?