Mountain Protocol

USDM (Mountain Protocol) Review

USDM (Mountain Protocol) Economic and Legal Review

February 21, 2024

Full Report: PDF


Editorial

NB: While Steakhouse endeavors to provide an objective and comprehensive overview, it is important for readers to be aware that our existing business relationship with Mountain Protocol might influence our views and interpretations. This disclaimer is intended to provide transparency about our affiliations and ensure readers can consider the potential for any biases that might affect the content of this report. While the report is oriented to provide as cold and objective an outline as possible on the risks and benefits of USDM, we wanted to take a moment to explain our rationale for collaborating with Mountain Protocol more closely.

USDM is a case apart, a fintech innovation and proof positive that business-friendly regulation can empower the creation of products that deliver real value to ordinary, hard-working people.

We are stablecoin nerds and we believe that the space is big, is getting bigger and will have many products to offer a multitude of different customer use-cases. Stablecoin maximalism means believing that smart contracts can create self-regulating balance sheets for any flavor of stablecoin enjoyer.

In this context, working with Mountain Protocol is a no-brainer. We talk a lot about decentralized stablecoins and the virtues of smart-contract enforced self-regulatory frameworks. We regularly engage regulators and advocate for common-sense principles that we believe can produce better prudential regulatory outcomes.

Through our collaboration with USDM, we see an opportunity to help shape the future of centrally-issued, fiat-backed stablecoins too. Centralized and decentralized stablecoins serve different, complementary, use-cases. This aligns with the way we see this subsector of the crypto industry–-a broad universe of many stablecoins fit for many purposes. 

Mountain Protocol represents a clear advancement on the state of fiat-backed stablecoins at the moment. It offers a clear value proposition to users - transparent rewards tied to the underlying risk-free rate. It also has had the chance to improve on technical stablecoin annoyance - for example, its token contract blissfully counts in 18 decimal places (instead of breaking from convention and using a bizarre 2 or 6 decimals) and USDM’s deployers had the prescience to use the same address regardless of the chain, sparing users the trouble of pasting the wrong token address. Finally, unlike some leading fiat-backed stablecoins at time of writing, USDM is closely supervised by the Bermuda Monetary Authority, one of the leading financial regulatory bodies worldwide.

On that point, it's worth elaborating that many other existing regulatory frameworks rely on outdated modes of understanding fintech, which, for example, categorize services into ‘payments’ or ‘investments’ but not both. This was scarcely true when this framing was written into laws around the world, in a way that conveniently defended incumbent financial institutions from the advent of first-generation web innovators such as PayPal. That same framing today suspiciously suits incumbent stablecoin issuers, as well as incumbent banking institutions. 

This is an unfortunate evolution for a number of reasons. Firstly, it prevents perfectly compliant and deeply supervised products from living up to their full potential and disintermediating access to the underlying yield curve. This monopolization of profits by government ruling is a market distortion that only rewards the issuer, but not the user, in an all-too-familiar rent-extractive pattern. Secondly, it decides by equally arbitrary ruling what the shape of innovation must look like without prejudice to the possibilities that could emerge. Competition is the greatest source of consumer welfare in virtually all segments of the economy and money-like instruments are no different. The alternative that is presented is a bleak duopoly of a) CBDCs that compel holders to lend to the government for free, and b) enshrined stablecoin issuers that compel holders to expose themselves to reward-free risk.

We welcome and champion stablecoins such as USDM for pushing back against this narrative simply by building a better product. In our view, consumers ought not be protected from the underlying “risk-free rate” of the currencies they use in their day-to-day lives. USDM is one of those first-principle experiments that simply asks ‘but what if things were different’? 

On the basis of our economic and legal review we are confident that collaborating with Mountain Protocol is a bet on the future and aligns our efforts with the stablecoin future we believe in. By sharing this review with the public, we hope to lay clear the reasoning that brought us to that conclusion and improve the understanding of the possibilities of stablecoins as a force for good for all non-US human beings on the planet.

Full Report: PDF

Full Report: PDF


Editorial

NB: While Steakhouse endeavors to provide an objective and comprehensive overview, it is important for readers to be aware that our existing business relationship with Mountain Protocol might influence our views and interpretations. This disclaimer is intended to provide transparency about our affiliations and ensure readers can consider the potential for any biases that might affect the content of this report. While the report is oriented to provide as cold and objective an outline as possible on the risks and benefits of USDM, we wanted to take a moment to explain our rationale for collaborating with Mountain Protocol more closely.

USDM is a case apart, a fintech innovation and proof positive that business-friendly regulation can empower the creation of products that deliver real value to ordinary, hard-working people.

We are stablecoin nerds and we believe that the space is big, is getting bigger and will have many products to offer a multitude of different customer use-cases. Stablecoin maximalism means believing that smart contracts can create self-regulating balance sheets for any flavor of stablecoin enjoyer.

In this context, working with Mountain Protocol is a no-brainer. We talk a lot about decentralized stablecoins and the virtues of smart-contract enforced self-regulatory frameworks. We regularly engage regulators and advocate for common-sense principles that we believe can produce better prudential regulatory outcomes.

Through our collaboration with USDM, we see an opportunity to help shape the future of centrally-issued, fiat-backed stablecoins too. Centralized and decentralized stablecoins serve different, complementary, use-cases. This aligns with the way we see this subsector of the crypto industry–-a broad universe of many stablecoins fit for many purposes. 

Mountain Protocol represents a clear advancement on the state of fiat-backed stablecoins at the moment. It offers a clear value proposition to users - transparent rewards tied to the underlying risk-free rate. It also has had the chance to improve on technical stablecoin annoyance - for example, its token contract blissfully counts in 18 decimal places (instead of breaking from convention and using a bizarre 2 or 6 decimals) and USDM’s deployers had the prescience to use the same address regardless of the chain, sparing users the trouble of pasting the wrong token address. Finally, unlike some leading fiat-backed stablecoins at time of writing, USDM is closely supervised by the Bermuda Monetary Authority, one of the leading financial regulatory bodies worldwide.

On that point, it's worth elaborating that many other existing regulatory frameworks rely on outdated modes of understanding fintech, which, for example, categorize services into ‘payments’ or ‘investments’ but not both. This was scarcely true when this framing was written into laws around the world, in a way that conveniently defended incumbent financial institutions from the advent of first-generation web innovators such as PayPal. That same framing today suspiciously suits incumbent stablecoin issuers, as well as incumbent banking institutions. 

This is an unfortunate evolution for a number of reasons. Firstly, it prevents perfectly compliant and deeply supervised products from living up to their full potential and disintermediating access to the underlying yield curve. This monopolization of profits by government ruling is a market distortion that only rewards the issuer, but not the user, in an all-too-familiar rent-extractive pattern. Secondly, it decides by equally arbitrary ruling what the shape of innovation must look like without prejudice to the possibilities that could emerge. Competition is the greatest source of consumer welfare in virtually all segments of the economy and money-like instruments are no different. The alternative that is presented is a bleak duopoly of a) CBDCs that compel holders to lend to the government for free, and b) enshrined stablecoin issuers that compel holders to expose themselves to reward-free risk.

We welcome and champion stablecoins such as USDM for pushing back against this narrative simply by building a better product. In our view, consumers ought not be protected from the underlying “risk-free rate” of the currencies they use in their day-to-day lives. USDM is one of those first-principle experiments that simply asks ‘but what if things were different’? 

On the basis of our economic and legal review we are confident that collaborating with Mountain Protocol is a bet on the future and aligns our efforts with the stablecoin future we believe in. By sharing this review with the public, we hope to lay clear the reasoning that brought us to that conclusion and improve the understanding of the possibilities of stablecoins as a force for good for all non-US human beings on the planet.

Full Report: PDF

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