In the last 5 months, Mento core team has been working hard on the upcoming Core Contract Upgrade. There are two pieces in it: Multi-collateral Minting and Circuit Breaker. It will open new possibilities for Mento users and is an important step towards providing highly liquid stable assets to the ecosystem.
Let’s take a closer look of what’s coming up:
Multi Collateral Mento is a generalization of the current Mento system with the aim of allowing virtual pools between any mento stable asset and any mento collateral asset to be traded under different exchange mechanisms (constant-product, constant-sum, etc.). In contrast to the current Mento which only permits trading against CELO, and with a constant-product mechanism. It is designed with the following goals in mind:
- Split responsibility of asset management (control over the Reserve’s collateral assets, minting/burning stable assets) and the pricing logic for virtual pools into separate components, to improve security and robustness.
- Make it possible to deploy new asset pools through configuration only, and have that structured in such a way that clients (UIs) can pick it up automatically.
- Extend the system to permit swaps between stable assets and any collateral type.
- Introduce the necessary abstractions that can be used to create more exotic asset exchanges in the future without having to change existing parts of the protocol.
Even though this upgrade will allow issuing or redeeming stable assets with any collateral already held by the reserve, as a first step we are proposing to add issuance & redemption with USDCet (USDC bridged to Celo via Portal Bridge).
Circuit Breaker. The last couple of months were not easy in the industry. We have seen a couple of occasions when by applying ‘effective trading strategies’ malicious actors were able to manipulate oracle prices and do severe damage to defi protocols. These tragic events proved once again the importance of having multiple safety measures in place. You can never be too safe.
And this is why we have built an automated on-chain circuit breaker to limit trading via Mento when prices reported by Oracles shift more than a calculated threshold. Oracles deliver the necessary price data for our stable assets to maintain their peg. In the case of decentralized oracles, price data is potentially subject to manipulation by the entity running the oracle or other malicious actors. Introducing an on-chain circuit breaker will provide an extra layer of security to protect from any manipulation, attacks or extreme market volatility. This feature will also serve as a base for future functionality to be built on whilst supporting the move to decentralized oracles.
How exactly will it benefit Mento users? One of the bigger problems the users are facing with Mento, is the high slippage when issuing/redeeming cUSD/cEUR/cREAL for CELO. Another recurring feedback we heard from builders in Celo ecosystem, is that they are looking to onramp from USDC or USDT directly. These are exactly the issues we are solving with this upgrade. As the USDC/USD price has significantly lower volatility we can tighten risk measures to protect against price manipulation while increasing throughput. By defining price intervals outside of which issuance/redemption is suspended, within the price interval we can safely enable processing larger amounts with lower slippage. Technically, cUSD can be issued with or redeemed for USDC at a price of 1 as long the USDC/USD remains within $1\pm x%$. In other words, Mento will offer a constant sum AMM for cUSD/USDC which is protected by a circuit breaker.
We are wrapping up the development process right now and are aiming to submit the code for an audit soon. If all goes well, the CGP for this contract upgrade will be created in the second half of January. I hope the community will be as excited about this update as we are!