Tamara Wilhite is a technical writer, industrial engineer, mother of two, and published sci-fi and horror author.
DeFi or distributed finance is one of the key goals of cryptocurrency. Distributed finance allows people to access loans and wire money without going through Big Banks. However, it is necessary to set up systems to prevent fraud. The solution is to make cryptocurrency exchanges as transparent as possible, though many solutions must provide anonymity, too.
DMG is the ERC-20 governance token created for the DeFi Money Market or DMM protocol on the Ethereum network. DMM is a transparent and permission-less environment. It allows users to receive interest or royalties on digital assets brought into the DeFi space. This includes everything from interest on peer-to-peer or P2P loans to royalties on leased 3D printer files. DMM primarily supports de facto crowdfunding through the Ethereum platform. More importantly, it allows people to bypass websites like Kickstarter or Prosper. This lowers the total cost of financial services while democratizing them, theoretically making them much more widely available. The challenge has been protecting investors.
The solution has been backing mTokens with assets like Ethereum’s cryptocurrency. In fact, the DMM tokens have been over-collateralized. For example, a lender may have to offer up 120% of the loan’s value in Ether to be allowed to borrow cash. In other cases, they’re backed by real world assets. This is commonly done with smart contracts. All of this means that DMM mTokens are much more stable than Bitcoin funded loans. This functionality is so strong that wrapped Bitcoin or WBTC that can be traded or collateralized on Ethereum’s blockchain are now a thing.
There are additional benefits to using mTokens. They allow many lenders to receive up to six percent interest without the same level of risk that comes with other lending platforms. All parties are protected by the transparency that comes with asset tracking through DMM, and you don’t have to go through a crowdfunding platform that takes a piece of the money. You can track the ownership of the assets, the valuation currently assigned to them and the behavior of all involved via auditing tools like DMM Explorer. Chainlinks, a type of decentralized oracle, provide an additional layer of security. This prevents someone from hijacking your account and stealing intellectual property or the financial assets underlying the smart contract. Buy art, license music for use in your video, or sell proprietary 3D printer files where you’re paid by the print job.
DAO is a decentralized organization for setting and supervising contracts on Ethereum. It will have the ability to alter the parameters for the DMM protocol. The DAO governance token DMG is the one used for mTokens. It is based off the Compounds COMP governance token. This connects the mTokens to the broader Ethereum ecosystem. Furthermore, it lets mTokens be used with Ethereum smart contracts and other Dapps. In theory, the DAO could tap into extra revenue generated within the DMM system. In practice, the DMG token will be controlled based on vote weighting and native delegation tied to the token and any rules written into the smart contract.
DMG is a control mechanism literally built into the algorithm, forcing pre-selected events to occur based on the initial contract or decision points. For example, DMG will pay out money to those who were the most correct out of those who contributed to a predictive model just as it can pay out money to those who win a cryptocurrency lottery. It will automatically send money when a deal is closed or release funds once a majority vote is reached. Automatic behavior reduces the potential for fraud, since someone doesn’t have to decide to release the money or transfer assets. And everyone can see what happened and when thanks to the data encoded in Ethereum’s blockchain.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2020 Tamara Wilhite
Dale Anderson from The High Seas on September 25, 2020:
I am intrigued to see where the whole crypto-currency thing develops. I know some very experienced and well-respected business men / owners that whole heartedly believe that it is a fad and will blow over. One of those men also told me the same thing about the internet so....