DeFi Money Market (DMM) and Chainlink Launch Higher Yield Money Market on the Ethereum Mainnet Backed by Tokenized Real-World Assets DMM Foundation Follow Mar 2 · 11 min read

DeFi Money Market (DMM) Ecosystem acts as a bridge between Ethereum digital assets and real-world assets allowing holders to earn interest completely on-chain.

At the moment, there’s around $274 billion of value in cryptocurrencies with exponential growth predicted in the coming years as fiat currencies are increasingly converted into digital currencies. While cryptocurrencies have grown tremendously since their inception, they’re still a drop in the bucket compared to the $90.4 trillion of physical money and money held in easily accessible accounts in the world. The vast majority of these world currencies (in digital or traditional form) are earning little, zero, or even negative interest. Currently, there is $17 trillion of negative yielding debt globally, which is more than 25% of global investment grade debt.

Herein lies a massive opportunity to capitalize on declining yields in traditional money markets through the creation of higher yield decentralized money markets via blockchain technology. Decentralized money markets tap into the growing pool of digital currency by allowing borrowers to pledge real-world assets represented on-chain as collateral for cryptocurrency loans.

While protocols like Compound have already achieved this for cryptocurrency, DMM aims to create the first blockchain-based money market that moves beyond cryptocurrency-only collateral and into the much larger pool of real-world assets outside of the blockchain. This enables low-risk investors the ability to lend digital currency for passive interest income, while borrowers can receive digital currency loans for short-term capital by pledging their real-world assets as collateral.

One of the key technologies helping DMM make this a reality is Chainlink, a decentralized oracle network that allows DMM to obtain, and make accessible to everyone on the blockchain (on-chain), information about these tokenized assets based on a secure connection to reliable sources of data from outside of the blockchain (off-chain).

To further understand this new frontier, let’s dive deeper into both the DMM and Chainlink protocols. Once understood, we’ll showcase how our collaboration has resulted in a new money market that’s collateralized by $10M USD in tokenized car loans on Ethereum. The end goal is an expansion of the possible collateral pool and more stable Annual Percentage Rates (APRs) for the DeFi market.

The DeFi Money Market Ecosystem (DMME)

The DMME has several essential and complementary components that work together to generate consistent interest income and provide transparent real-world backing represented on-chain for any Ethereum digital asset.

The DMME is composed of different and separate DeFi Money Market Accounts (DMMA). DMMA’s are specific to each individual Ethereum-based digital asset (Dai Money Market, USDC Money Market, etc.) which empowers investors or digital asset holders to remain in the digital asset class that best suits their needs while simultaneously gaining exposure to the money market yield.

DMMAs are created when a specific Ethereum-based asset is converted to the DeFi Money Market equivalent — represented as mDAI, mUSDC, mETH, etc., collectively known as ‘mAssets’ — through a smart contract that has a specific Annual Percentage Yield (APY). When a DMMA is created for a specific digital asset (using USDC as an example), USDC is swapped for the DeFi Money Market equivalent, mUSDC. The initial amount of USDC is programmatically pledged to be returned, plus a prescribed amount of interest. When withdrawn, the mUSDC is converted back to USDC plus the interest. As an example, if a person deposited 1 USDC and the APY was 6.25% and held the corresponding mUSDC for one year, they would get back 1.0625 USDC. Interest is accumulated per block and people may enter and exit the DMMA with no time restrictions.

A portion of the USDC deposited is held to provide ongoing liquidity to the DMMA. Initially, we will keep this reserve ratio (the amount of crypto purposely kept in the smart contracts) higher to ensure there is sufficient liquidity. As we gather more data on the usage of the protocol, we will adjust this ratio accordingly, in order to put more of the allocated capital to work.

mAssets are created by applying the DeFi Money Market Wrapper (DMMW) — an ERC20 smart contract wrapper that can be placed on any Ethereum token to generate income and provide diversification and security through backing by real-world assets represented on chain. Access to the token is permissionless, making it accessible to anyone, and also provides total transparency to the ecosystem’s collateralization.

To be considered a DeFi Money Market Account (DMMA), outside of the requirements of it being decentralized, transparent, and supporting the requisite Ethereum functionality, DMMA’s must have the following additional and essential attributes:

It earns consistent interest. It is backed by real-world assets that generate verifiable income, which ensures the interest is paid. Information about the real-world assets backing the DMM is made transparently available on-chain. DMME is always over collateralized in two significant ways: 1) The real-world assets backing the DMMA are always greater than mAsset issued. 2) Income generated by the real-world assets is greater than APY owed to the DMMA.

We believe the over-collateralization, diversification, and consistency in interest rates makes the DMMA a compelling addition to the Ethereum ecosystem.

Sourcing External Events Using Chainlink

The DMME team is closely collaborating with Chainlink, the market-leading decentralized oracle network. An oracle is a piece of middleware that connects blockchain-based smart contracts to off-chain data and systems. However, connecting off-chain puts the entire smart contract at risk if the security of the oracle mechanism is not as high as the underlying blockchain. Chainlink’s decentralized oracle network extends the blockchain’s security guarantees to the oracle layer by decentralizing the data delivery mechanism (multiple oracle nodes retrieve the same data point) and data source (oracles retrieve information from multiple data sources). Chainlink oracles greatly enhance the overall functionality of the DMM smart contracts, yet maintain the utmost security standards to ensure DMM remains highly secure, reliable, and trustworthy.

Chainlink’s role is to reliably and securely obtain accurate information about the assets that back the DMME and publicize it on-chain. This includes anonymized (and essential) information about active loans, as well as the current valuations of these loans. Between the two prior bits of information, Chainlink will be able to accurately portray the health of the DMME by making the overall collateralization transparent through detailing each of the assets in the pool. This gives ecosystem participants the necessary information needed to assess risk by knowing how their crypto is being allocated to generate interest.

To accomplish this, Chainlink will be involved with two processes: 1) tracking the conversion of cryptocurrency loans to fiat currency; 2) documenting on-chain how that fiat is allocated to real-world assets to produce income.

For monitoring the conversion of loans, Chainlink has already demonstrated the ability to track and confirm crypto to fiat conversions that incorporates existing payment systems like PayPal. We hope to work with them in the future to apply a similar model to DMM to make the process more transparent. Once the fiat is converted, it’s allocated to real-world assets that produce income. As soon as the fiat is allocated, Chainlink will source this new data and publicize it on-chain.

The real-world assets backing DMM include vehicles, property and other “hard” real-world assets, which are income-generating. The pledged assets serve as collateral for DMM and are secured through a first lien, senior-secured position (meaning it is above all other rights and have first priority in the event of lack of payment). If income payments produced by the loans are not met, the secured asset can be sold to recover the capital and add collateral back to the system. The income produced by the loans is used to cover the interest payments due when mAssets are converted back to the original digital asset, plus interest. All the loans produce greater income streams than the interest payable to mAsset holders, which acts as an overcollateralization of DMM and will generate revenue for the eventual DMM DAO that will run the protocol.

Launching a New Money Market Backed by $10 Million in Vehicle Loans

The initial backing of DMM will be a pool of vehicles (cars, trucks, etc.) located in the United States of America, which we believe is the first time that vehicles have been tokenized to provide interest in this manner. Specifically, it is auto loans secured by a first lien on the vehicles. The reason we chose this as the first asset class is because the core team has deep domain experience spanning several decades in this space, generating income production of between 15% — 20% return over the last 5 years. Additionally, this asset class has several other substantial benefits as a backing for DMM when compared to other real-world assets. Check out our white paper for a more detailed analysis of these benefits.

Assigning ongoing valuations to these underlying assets is provided by Chainlink’s decentralized oracle network, retrieved from Black Book, a leading industry valuation tool. This function is performed for each individual asset, as opposed to bundled together. This pertinent information will provide a clear on-chain view of the underlying backing of the DMMAs.

These factors combine to create a stable asset pool for DMMAs that’s backed by consistent, predictable overcollateralized income streams to pay the interest on mAssets. The assets backing DMMAs are overcollateralized at a minimum of 10%, providing fallback security against any asset pricing volatility.

The initial money markets created will be the USDC DeFi Money Market (mUSDC) and DAI DeFi Money Market (mDAI), which will offer 6.25% APY and be backed by a pool of vehicle-secured loans. While our two initial use cases are both stablecoins, the next DeFi Money Market Account will be for Ethereum (mETH). This will allow the roughly $29 billion market for ETH to earn consistent, uncorrelated interest backed by real-world assets represented on-chain. While we have yet to determine the interest rate for mETH, our goal, as in all DMMAs, is to provide attractive yield, diversification, and backing of real-world assets. If you would like to be alerted when mETH is available please visit here and register with your email address.

DMM Governance Token: DMG

The DeFi Money Market governance token, DMG, is the tool through which the community governs and grows the DMME. DMG grants its owner the right to vote and direct the system that bridges the gap between real-world assets and the new on-chain economy. As we look to build a vibrant global community, DMG is a critical component that will engender broad participation and eliminate centralized control risk. Specifically, DMG effectuates governance of the DMME via the DMM DAO, which will be given control over the Ethereum smart contracts and adjacent assets.

Further, as the DMME is overcollateralized — with real-assets yielding more than payments due to mAsset holders — the DMM DAO is the recipient of a positive income stream that can be used to fund further loans, capitalize related assets, or otherwise grow the ecosystem. DMG thus represents the right to govern the project, and a claim on the excess revenue.

DMG will be made available through a series of dutch auctions that will run on the DutchX trading protocol: an on-chain auction mechanism that is tamper-proof, front-running resistant, and fully transparent. The DutchX is owned and governed by the dxDAO, a group of approximately 400 stakeholders that controls the protocol and many other DeFi and Ethereum related assets and services. Auctions are slated to begin in the second half of March 2020 and will run continuously for one month in discrete tranches that last an average of 6 hours each. Any Ethereum address is able to participate in the DMG auctions by bidding ETH. The DutchX ensures that all participants in a given auction receive DMG at the same clearing price — mechanics especially well suited for price discovery on new issuance. If you have an interest in being advised when the first dutch auction will begin, you may sign up here to be alerted 24 hrs prior to its start.

Expanding the Reach of DeFi Money Markets

The DeFi Money Market Ecosystem (DMME) is designed to solve the crucial $17 trillion problem of bringing low risk, interest-bearing money back to global citizens. While initially focused on holders of Ethereum digital assets, The DMM Foundation believes the ability to earn interest with a fully-transparent on-chain view into the backing, along with overcollateralization of income streams, will provide a strong reason for those in the fiat world to join the Ethereum community. Accessing consistent, secured yield is essential to a vibrant economy — both on-chain and off-chain — and DMM aims to bring the premier solution to the market.

Sergey Nazarov, Co-founder of Chainlink, commented on the DMM protocol saying, “We’re excited to work with DMM to pioneer development of this new class of DeFi products by providing secure and reliable oracles for sourcing information about real-world assets from trusted off-chain sources. Adding real-world assets as collateral for blockchain-based money markets has the potential to create consistent, stable yields in a decentralized, permissionless manner.”

Gregory Keough, from the DeFi Money Market Foundation stated, “We are really pleased to be working with Sergey and the whole Chainlink team in order to bridge the Ethereum ecosystem with real-world assets on-chain. Chainlink’s decentralized oracle network is an essential element to realizing this end in a provably secure manner. Chainlink allows DMM to provide an on-chain view into DMM backing, down to the level of each individual asset, with its valuation, proof of asset and other essential elements for transparency. This type of on-chain view has never been available before and we believe is a true benefit to consumers.”

Corey Caplan, also from DeFi Money Market Foundation said, “It is incredibly exciting to see DeFi blossom into this global force for good. So far, we’ve seen the best projects in the DeFi space produce yield through margin lending and stable-coin generation. DMM will be the first to bring yield to the crypto space that is uncorrelated with sentiment and the movement of crypto’s price. DMM will help bring legitimacy and real-world applications to the rapidly-growing DeFi space.”

About DMM

DeFi Money Market (DMM) is building a vibrant global community to provide a decentralized, transparent and permissionless environment to empower all citizens to once again earn interest on their currency backed by real-world assets represented on-chain. DeFi Money Market (DMM) acts as a bridge between Ethereum digital assets and real-world assets, allowing digital asset holders to earn interest completely on-chain in the way they are accustomed to, but driven by a secure and uncorrelated basket of real-world assets. The DMM protocol operates in a simple and transparent manner, enabling anyone to readily understand it as well as verify the veracity of the underlying assets and collateralization.

About Chainlink

Chainlink is a decentralized oracle network that enables smart contracts to securely access off-chain data feeds, web APIs, and traditional bank payments. Chainlink is consistently selected as one of the top blockchain technologies by leading independent research firms such as Gartner. It is well known for providing highly secure and reliable oracles to large enterprises (Google, Oracle, and SWIFT) and leading smart contract development teams such as Polkadot/Substrate, Synthetix, Loopring, Aave, OpenLaw, Etherisc, Conflux, and many others.

Learn more by visiting the Chainlink website, Twitter or Reddit. If you’re a developer, visit the developer documentation or join the technical discussion on Discord.

Final Thoughts

To keep up to date with the project or learn more about DMM, be sure to follow us on social media, read our white paper, browse the explorer, and earn some interest via mAssets: