‘We need to construct Minterest as a fairer monetary system,’ says CEO Josh Rogers
Decentralized Financial Protocols (DeFi) have grown significantly in prominence in the cryptocurrency sector, valued at over $ 271 billion in total, based on data from DefiLlama. An exceptionally popular category of DeFi services is decentralized borrowing and lending, where users can mortgage their crypto as collateral and take out stablecoin loans (or vice versa) to pay for daily expenses as their investments keep growing.
Total value locked in DeFi. Source: DefiLama
Such logs typically calculate a spread or difference between deposit and loan rates as a service fee. But then there are protocols like Minterest that try to return a majority, if not all, of their profits to the users. Earlier this month, Minterest launched on Moonbeam, an Ethereum-compatible smart contract Parachain on the Polkadot network. In an exclusive interview with Cointelegraph, Minterest CEO Josh Rogers discussed the goals of building a user-centric DeFi platform.
We pride ourselves on being the only @ MoonbeamNetwork native protocol on this list, as well as the only loan / rental protocol. #DeFiTwoPointOh let’s go!
Thank you ducky for your impressive job collating and maintaining these statistics! https://t.co/twn0xAyoDo
– Minterest (@Minterest) November 17, 2021
Cointelegraph: Your company claims to be the world’s first credit record that captures 100% of the value of interest, lightning loans, and liquidation fees, which are then passed on to users. Would you like to explain that in more detail?
Josh Rogers: Traditionally, when looking at models and valuing them, one finds that there are different beneficiaries. So you are looking at credit logs where the owners / developers take profits. They have outside liquidators who act as third parties who collect liquidation fees. And what you especially need to know is lightning loan fees, which can be extreme [inaduible] in some way to the community. But the thing you should know is that this protocol is for fee and income value reporting to all of these different parties. The intent with Minterest is that we keep track of all of this fee income in the chain, in the log, and then distribute it to the user community in a way that we think is much larger and richer. One of the things to notice about implementing an auto-liquidation process is that the log fee revenue that it collects is far more significant than anything else, as those fees are usually lost from the log.
CT: So what are some expected returns from passing these revenues on to users?
JR: Well what happened, the answer is I don’t know [laughs]. It is very difficult for me to predict such a thing. But when you think of that kind of headline, when you look at some of the sector’s appraisals, it is measured in hundreds of millions of dollars. What is interesting, however, is that when looking at credit logs, there is generally no correlation between the supply of liquidity and credit activity and the token price. So the value of the token does not correlate with the performance of the protocols.
That’s what we do when we capture all of this fee income. The protocol is launched and Minterest is buying back its own tokens and distributing those tokens to its users. Well, it’s not my place to say that, and a great disclaimer is that I’m not trying to make predictions. But if you make the headlines and the logs are generating $ 100 million in fee income, which we probably should do when the borrowing is between $ 3 billion and $ 7 billion, it means the log is making $ 8 million monthly for its Issues token. The protocol issues 820,000 tokens per month as part of its liquidity mod. So if you spend $ 8 million a month and the token price is $ 10, the protocol can supply all of the tokens it issues, which is unrealistic. If the log is $ 8 million per month, then what is the token price? The answer is it’s over $ 10. Now, at $ 40 per token, it is buying back 50% of the token emissions. At $ 80, it will buy back 10%, which probably sounds more realistic.
The answer to the question is in there somewhere, or maybe more. The intent here is, and the reason that’s important for the protocol in general, is that it can compete with others on APY. The more the token prices rise, the greater the internal APY that is actually caused for the borrowers and lenders. This means that it can attract more liquidity, set itself apart from the competition and gain in longevity and relevance.
CT: Why choose Moonbeam to start your protocol?
JR: Well there are a couple of important things. First, the question arises why polkadot first and why polkadot is much more than just another solana or algorand. There are some very strong things about polkadot that we really like. Initially, Minterest was built on substrates – it was built to have its own parachain. But what really mattered was time.
CT: Probably one of the biggest barriers to entry for new DeFi users is the high gas charges. What is Minest doing to mitigate this?
JR: Well, that’s one of the beauties of Polkadot and Moonbeam. Gas charges are literally disappearing as a problem. If you think about Ethereum coming out with varying degrees of success, but at the end of the day the Polkadot architecture is designed for that. It’s designed to accommodate a large number of transactions while maintaining very, very low gas prices and very, very high latency. So that’s one of the main benefits: we see gas prices as a nominal concern, a concern that will go away on Polkadot. Gas prices just get pretty insignificant, not just for a short time, but permanently. And that’s a very important consideration.
CT: Has the platform been checked financially or in terms of programming?
JR: We are currently going through three audits. We have auditors next month, so three very significant employment firms come and the auditing process is really underway [inaudible]. Again, we have more than 10,000 lines of code. It is the most significant type of code base of any lending protocol out there. So this process takes time. But we’re obviously not going to do anything until we get these things. We have internal security on board our team, but from our point of view you don’t just rely on auditors. Auditors are really there to make sure nothing is overlooked. And we consider the relationships between audit teams to be ongoing. We really want our relationships to be with very, very incredible accounting firms. So the idea is security and trust.
CT: What steps is Minterest taking to protect users’ assets from malicious activity?
JR: That is actually part of the structure of the protocol. One of the most important things is that if it is actually catching value like Minterest does, insuring yourself isn’t a huge step, but rather growing the fee income that it is tracking. Ultimately, however, this is the case that building protocols is not easy. While there are hundreds of DeFi projects out there, they are really a small handful of major credit protocols, and the reason why is because they are expensive to do well. If you want to do them cheaply and quickly, five people in a garage might be enough. We have a team of 30 to 40 full-time employees, and that is not an insignificant task. The reason we do this is because it needs to be done on one level to make sure that this kind of event that you see in smaller logs does not occur. Incidentally, mistakes can also be made. You’ve seen problems recently with one of the leading protocols; It wasn’t an exploit, it was just a minor mistake, and I consider their teams to be exceptional professionals. Because of this, we’re putting some sort of insurance into the system so that people don’t lose their money.
CT: What is your overall vision for Minest?
JR: We want to build Minterest as a fairer financial system. And the reason we think it’s fairer is that if you look at the credit logs, very often people get liquidated and that money is off the log. What this is about is how the people who create the value of the protocol benefit from it. And the people who create the value of the protocol are a large ecosystem of users, not just a small subset. So Minterest is geared towards enabling people to really get the value they create from participating. We believe that the introduction of a new design and framework into the protocol will be a new innovation in the sector. One of the things to look at is that all of the industry leaders in space have created groundbreaking innovations. Look at Maker, look at Curve, look at Aave – each of the three protocols has brought tremendous innovations to the room, innovations that I deeply respect. We like to think that minterest is a very new innovation for space for the benefit of people too, and that’s what the protocol is really about.