6. Mirror Protocol – what it is?
Mirror Protocol is a decentralized financial application. It allows us to create and trade synthetic assets. These are assets with which we can replicate the value of other assets without owning them. Mirror Protocol brings together the world of traditional assets and blockchain networks in one place that is accessible to all.
Mirror Protocol is focuses on creating synthetic assets, similar to Synthetix (SNX). Such assets are often called mAssets or Mirror Assets. They are a reference to any type of asset – from gold, oil, to cryptocurrencies. The whole thing is integrated into a large market and operates in one place. Trading such assets is completely decentralized and does not require KYC verification.
The possibilities of the mirror protocol are enormous. Many people use them and operate freely between the traditional financial world and the cryptocurrency world. Everything is done quickly and in complete security.
How do mirror protocols work?
Through Mirror Protocol, we operate assets that synthesize and reflect the value of another asset. Hence, you will come across the name “mirror protocol” in the crypto world. Users can trade tokens without owning current financial assets. This allows traders from every corner of the world to actively invest on the platform. All thanks to the use of smart contracts, through which synthetic assets are created. This issue is explained below with an example:
We assume that you want to buy shares of company X. For this action, we would like to use the Mirror Protocol platform. So, we go to the platform’s website and create a new mAsset named e.g., mX. The next step is to create the necessary liquidity to make our action successful. Creating mX is the answer to the Mirror Protocol’s Overcollateralized staking, which generates a certain amount of mX for us when completed. Our mAsset needs to be Overcollateralized as this helps to avoid its sudden drop due to the high volatility of the crypto used to create it. In this way, the smart contracts involved in creating the mX help to ensure that our mX reflects the current value of X on the Nasdaq exchange. All in a completely decentralized way, of course.
Cryptocurrency investor, should pay attention to investments such as the above. Company assets admittedly don’t have large upside, but unlike cryptocurrencies, they are very stable. They provide a good return and guarantee less risk. You can see from the example above that the possibilities of the Mirror Protocol platform are huge. You can multiply such examples and do so with any company or business. This is the door to entirely new investment markets, thus – new benefits and earnings.
In itself, the project is unique. In the cryptocurrency world, you will find the opinion that Mirror Protocol is a top DeFi network. Even users of the network can earn liquidity and rewards based on participation, and the entire management system is fully decentralized and democratized.
MIR – native protocol token
The Mirror Token (MIR) is the platform’s native token. It acts as a reward system for stakers and a decision token for its holders, within the decentralized management of the protocol. It is essential for the protocol, so the developers limited the number of tokens to 370,575,000, all to achieve its revaluation. Furthermore, it is worth noting that the technical value of the Mirror Protocol does not always correspond to the market price of the MIR token. The value of MIR is often susceptible to changes and trend reversals.
At the time of writing, there are 153,540,748 MIR in circulation. As we have already mentioned, the supply of coins is limited. This makes devaluation of MIR tokens almost impossible through inflation.
It is worth remembering that the prices of mAssets correspond to the real prices of the stocks and other assets they represent. Therefore, to achieve this, Mirror Protocols uses Oracle, powered by Band Protocol from 2021. The MIR token will find its way into any stock market or portfolio. It all depends on what you want to use it for and how much you will have.
Mirror Protocol – defined roles
Even with the native token example, we can see that in the mirror protocol, each user has a well-defined role. So let’s take a look at them:
They are the creators of synthetic assets (mAssets). They are responsible for providing the necessary liquidity when generating new mAssets. Therefore, to create our mX token (let’s assume its value in the range of $3,500 per token/share).
Anyone interested in buying a particular token/share. They can be bought freely as you do not need to register on Mirror Protocol. Everything works in real time.
Mirror protocols are DEX of the AMM type. The concepts are familiar to you from our previous lessons. So, it needs liquidity providers to generate the so-called liquidity pools necessary to create exchanges made by traders. Everything works in the same way as in other AMM DEXs. Liquidity providers are paid a commission for every trade within the pool they participate in.
We divide them into two groups. Those who are staking LP tokens and receiving MIR tokens in return. And those who stake MIR tokens and earn commissions on CDP payouts. What are CDPs? They are responsible for allowing minters to generate mAssets within the platform.
Tendermint Delegated Proof of Stake
Tendermint Delegated Proof of Stake is a consensus mechanism that secures the Mirror protocol. It is also used by the Terra network, on which it is hosted and developed. The network is fully decentralized and owned by MIR users. Mirror Protocol is also available on Ethereum and the Binance Smart Chain. There it is secured by smart contract audits, which are carried out fairly regularly. The value of mAsset is secured by collateralization, as it is the users who must deposit the collateral, before creating synthetic assets.
Mirror Protocol story
Mirror protocols launched in 2020. Entirely created and developed by Terraform Labs. Mirror Protocol is completely decentralized and managed by MIR token holders. These tokens are mined and fairly distributed among network participants according to their role in the protocol. The main idea of the project is to enable easy entry into financial markets, while facilitating liquidity to support the creation of synthetic assets.
Mirror Protocol is a very fascinating project. It offers many possibilities. It connects the world of asset finance with the world of blockchain. Not only that, but it will definitely bring us new opportunities and attract definitely more investors. Using Mirror Protocol as an example, it is worth noting that the power of DeFi is revealed once again.