Mountain Protocol STEP 2 Application
Updates Summary
| Original | STEP 2 | |
|---|---|---|
| Date | May 1st, 2024 | March 20th, 2024 |
| Expected Yield | 5.0% | 4.5% |
| Underlying asset | Short-term US T-Bills | Short-term US T-Bills, Money Market Funds (TRIXX by State Street), and Crypto T-Bills-backed products (BUIDL, USTB) |
| Total TVL | 52,006,853 | 53,275,483 |
| Total TVL on Arbitrum | 3,332,331 | 16,926,004 |
| Total Transfers | 5,056 | 199,550 |
| Total Holders | 792 | 17,178 |
| Total Holders on Arbitrum | 201 | 13,642 |
| Licensing | Class M (Modified) license | Class F (Full) license |
| Company Structure | Segregated USDM Reserves accounts | Charitable Orphan SPV (bankruptcy remote) |
| Process and expected timeline for liquidation of assets | Standard redemption: T+2 business days. | Arbitrum STEP liquidation: T+0 days; Standard redemption: T+2 business days. |
| Chains present | Arbitrum, Ethereum Mainnet, Polygon POS, Optimism, and Base. | Arbitrum, Ethereum Mainnet, Polygon POS, Optimism, Base, ZKsync, and Celo. |
| Oracles | Chronicle: wUSDM/USDM (link) | Chronicle: wUSDM/USDM (link) Chainlink: USDM/USD (link) |
| Bridging | N/a | Chainlink’s CCIP |
Structural Updates
Since STEP 1, USDM has reinforced its regulatory foundation, bankruptcy remoteness, financial redundancy, and network availability, improving security, liquidity execution, and cross-chain accessibility.
Mountain Protocol has obtained a class “F” (Full) license from the Bermuda Monetary Authority (BMA), the maximum attainable license in Bermuda, shared with Coinbase International, Kraken International, and other large players in the industry. This upgrade from the previously held “M” (Modified) license provides greater regulatory certainty and demonstrates Mountain Protocol’s adherence to the highest standards in operations, finance, cybersecurity, and compliance.
To secure customer protection, USDM Reserves Ltd has been established as a Special Purpose Vehicle (SPV), structured as a charitable orphan trust administered by Carey Olsen Fiduciaries Bermuda Limited. This structure ensures full separation between Mountain Protocol Ltd and USDM Reserves, making USDM a fully bankruptcy-remote asset for customers.
To improve liquidity redundancy and redemption execution, USDM Reserves’ underlying asset mix has expanded beyond 60-day U.S. Treasury Bills. The portfolio now includes Money Market Funds such as TRIXX by State Street and crypto-native T-Bill-backed products like BUIDL (BlackRock) and USTB. These additions allow for greater flexibility in managing redemptions and optimizing capital allocation. As a result, we are now able to offer T+0 redemptions specifically for Arbitrum. This structure allows Mountain Protocol to efficiently manage USDM Reserves’ holdings, optimizing yield generation and operational flexibility.
Additionally, we have integrated USDM into Chainlink’s Cross-Chain Interoperability Protocol (CCIP), allowing users to bridge it across blockchains. Moreover, we added a Chainlink oracle for fetching USDM/USD pricing.
Adoption and Growth
DeFi integrations
Since STEP 1, Mountain Protocol has largely increased its usage and adoption, especially on Arbitrum. USDM has been integrated in several renowned DeFi protocols, including Compound, Morpho, Euler, Uniswap, and Balancer, to name a few.
Building block for other Arbitrum apps
In addition, USDM has increased its presence beyond DeFi, making itself available in different Fintech and Consumer Apps with real world usage. A perfect example of this is El Dorado Gana, which has enabled thousands of people in Latin America to access yield savings accounts in USD powered by USDM on Arbitrum, offering protection not only against hyperinflation but also against the often overlooked inflation of the U.S. dollar, in a very simple-to-use and accessible app.
Increased usage across Arbitrum
This increased adoption is reflected in key metrics:
- USDM TVL on Arbitrum grew 5x (4x excluding STEP allocation), increasing from 6% to 32% share of total USDM TVL.
- Before STEP 1, total transfers per month averaged 722. Since May 1st 2024 to date, the average has increased to more than 18,000. To date, 55% of all USDM transfers have occurred on Arbitrum.
- While total USDM holders grew 22x since STEP 1, Arbitrum-specific holders grew 68x, increasing from 25% to nearly 80% of all USDM holders.
Arbitrum has become the primary blockchain for USDM adoption, now hosting a great share of its activity. This growth highlights the strong focus Mountain Protocol has placed on Arbitrum and reinforces its position as the ideal ecosystem to scale USDM’s adoption.
USDM Deployment in DeFi (Proposal)
Given USDM’s permissionless fashion, we propose that all or part of the USDM acquired by Arbitrum in STEP 1—and potentially in STEP 2—be actively deployed within the ecosystem to enhance liquidity and optimize capital efficiency, following the steps of the proposal to also deploy ETH in DeFi (link)
Instead of holding USDM passively, Arbitrum could:
- Deploy USDM into liquidity pools (Uniswap, Balancer, Curve) to generate additional yield from trading fees while improving on-chain liquidity.
- Supply USDM in lending protocols, enhancing rates and increasing liquidity for stablecoin borrowing, while earning additional rates (e.g., prospective lending markets on AAVE, Compound, Fluid).
While deploying assets introduces additional risk, structuring these allocations within blue-chip DeFi protocols and under predefined risk parameters would minimize any risk. As Arbitrum has already shown its commitment to deploy part of its treasury within the ecosystem, we see this as an excellent opportunity for Arbitrum to increase revenue derived from the STEP program and to boost the ecosystem’s liquidity while maintaining a prudent risk management.
Final Remarks
USDM’s growth on Arbitrum reflects both the (yet) untapped demand for yield-bearing assets and Mountain Protocol’s commitment to expanding within the ecosystem. USDM has already established itself as a key player in Arbitrum’s RWA landscape, and we believe it is well-positioned for further growth. Its flexibility, permissionless nature, and stablecoin structure make it a distinctive and versatile asset, capable of driving greater efficiency and liquidity across the network.
Looking ahead, we remain dedicated to scaling USDM’s presence on Arbitrum, fostering innovation, expanding integrations, and enhancing liquidity to create value for both institutional and retail users. We hope that Arbitrum continues to place its trust in us to increase its USDM holdings and support our proposal, helping to strengthen the ecosystem for the benefit of all.
We are happy to provide any additional information or clarifications as needed. Thank you for your time and consideration.