88mph is an Ethereum-based, decentralized application (dApp) for users who want to borrow and lend at a fixed interest rate. But instead of being a self-contained protocol, 88mph is actually a mediator for more popular third-party lending dApps, such as Aave or Compound. It’s designed for advanced DeFi investors who understand the perils of financial complexity.
Why Do Markets Need Fixed Deposits
It can be challenging to navigate volatile markets. That’s why assets with fixed rates, such as mortgages, can be so attractive during stressful periods.
This idea lay at the heart of 88mph. In 2019, developers Guillaume Palayer and Zefram Lou started to work on the protocol with the goal of enabling users to consistently earn rewards with fixed yield rate in the form of MPH tokens.
After its release in 2020, the venture offered an upfront interest rate. In banking, this means that the interest rate is collected in advance of the loan. So with 88mph, lenders received guaranteed interest yield the moment smart contracts executed their loans.
This mechanism was soon tweaked with 88mph v2, integrating Aave and Compound yield protocols. Guillaume Palayer described this novel yield farming method as:
“It’s like your interest is traveling back from the future! It’s weird at first, we know. But it’s real.”
After the v3 upgrade, 88mph added yield tokens (YTs) into the mix. These tokens are made for veteran DeFi users, allowing them to buy fixed-rate deposits. They could then profit from the underlying variable yield rate from the attached lending protocols. At its top total-value-locked, 88mph had $70M worth of yield assets in November 2021.
How Does 88mph Work?
First, let’s explain the less advanced 88mph product in more detail, the fixed-interest yields. When a user connects to 88mph app via MetaMask wallet, they can deposit an assortment of cryptocurrencies into existing liquidity pools.
These are smart contracts that collect tokens into virtual vaults and issue a fixed annual percentage rate (APR) according to their governing logic.
88mph diverts these assets into other protocols, typically Aave or Compound, as the largest DeFi lending dApps. The user only has to select the deposit maturity date, from one day to one year.
Once the deposit and maturity range is set, the rest is up to 88mph. It allocates these assets to other protocols not as fixed rate, but as variable rate annual percentage yield (APY). To put it differently, 88mph automates the laborious process of moving around tokens into the highest variable yields.
- User deposits 1,000 USDC for a maturity period of 12 months.
- If the fixed rate is 7%, user receives 70 USDC at the end of that 12-month period, in addition to receiving MPH rewards.
- 88mph protocol delivers that fixed-rate yield when applying a 30-day exponential moving average (EMA) on the variable yield rate of the underlying third-party protocol (Aave, Compound, Balancer, etc.)
- If user withdraws before 12 months, the fixed rate is forfeited, and a 0.5% withdrawal fee is applied.
- In turn, if user’s deposit matures, he can use it to create a new deposit, employing both the original deposit principal and the gained interest rate on that principal.
Users receive an NFT as ERC-721, representing the deposit if the maturity is customized. If the maturity is preset, they receive the regular ERC-20 token. Both tokens allow depositors to have full control.
Alongside fixed yields, depositors also receive MPH token rewards as an extra bonus. These protocol tokens can then be staked while also providing proportional voting rights to govern the 88mph protocol.
Yield Tokens (YTs) for DeFi Experts
Obviously, it is the nature of a variable yield rate to either go up or down. It is in this volatility range that profitable opportunities appear. Here is how that works in a specific example:
- Depositor deposits USDC stablecoin at a fixed rate on a 88mph protocol.
- 88mph then allocates that USDC as cUSDC (Compound mints “c” tokens, representing deposits in equal value).
- 88mph users can then buy cUSDC-YT tokens, representing specifically those tokens on Compound with variable interest rate.
- If the value of cUSDC increases on Compound, YT token holders receive that profit, represented with their Yield Tokens.
On the other hand, if cUSDC yield decreases, YTs guard against insolvency because it provides extra liquidity for the protocol. For example, if the underlying fixed-rate deposit is withdrawn before the set maturity date, YT token holders receive the estimated lost yields, automatically calculated by 88mph smart contracts.
For the premature depositor, their interest is deducted by 10% as a protocol fee.
MPH tokens are incentivizing and governance tokens for the 88mph protocols. They don’t have a maximum supply, but their circulating supply typically ranges between 460,000–485,000. Once 88mph users earn MPH rewards by depositing assets, they can stake them to gain xMPH.
xMPH tokens make users eligible to earn protocol’s revenue in addition to participating in voting. As 88mph integrates more protocols, MPH tokens become more useful. Case in point, they can be directly used as a collateral to secure loans on Mantra DAO or Rari Capital.
Another integrated protocol is Balancer, an automated market maker (AMM) to create liquidity pools with up to eight tokens in any weighting ratio. For example, if a user provides liquidity to the 80/20 MPH/WETH Balancer pool on Ethereum, they receive veMPH tokens.
In turn, veMPH token holders gain the right to earn a share of 50% of collected protocol fees.
88mph Risk Assessment
Notwithstanding YT tokens as yield-speculative assets, 88mph has been undergoing regular and full audits by respectable cybersecurity firms Trail of Bits, Code423n4, and PeckShield. 88mph’s latest iteration is v4, available as an open-source protocol on GitHub.
In January 2021, 88mph also received a Security Assessment Certificate from Quantstamp.
In addition to regular audits, 88mph is using its revenue to fund bug bounties. This became a necessity after the incident on Nov. 16, 2020, when a bug was exploited for $100k. Half a year later, in June 2021, a security researcher Ashiq Amien received a $42,069 bounty for spotlighting a critical 88mph bug.
This series article is intended for general guidance and information purposes only for beginners participating in cryptocurrencies and DeFi. The contents of this article are not to be construed as legal, business, investment, or tax advice. You should consult with your advisors for all legal, business, investment, and tax implications and advice. The Defiant is not responsible for any lost funds. Please use your best judgment and practice due diligence before interacting with smart contracts.