2. Ecosystem Description

The M^0 Protocol is designed to support permissioned Actors in the minting of a crypto asset called M. The minting of M requires collaboration across a set of Actors complying with a set of rules, some of which can be enforced on-chain.

First and foremost, a sufficient balance of Eligible Collateral (as described in the Adopted Guidance) must be constantly identifiable and constrained for the backing of Owed M. This requires a demonstration of the existence and validity of the collateral, repeated on an ongoing basis, and executed via the updateCollateral() function call. Only if sufficient collateral balance has been updated and only if such balance is still valid within the timeframe implied by the collateral update interval can a Minter (see below) mint M or retrieve collateral.

With Eligible Collateral we refer to the types of collateral that are defined to be suitable to back M, based on the criteria listed in Criteria for Eligible Collateral. With Collateral Balance we refer to the on-chain value of the Eligible Collateral available to mint M.

The sufficiency of the Collateral Balance is determined by the following Core Operating Condition:

$$(Collateral \ Balance - Total \ Pending \ Retrievals) * Mint \ Ratio \geq Owed \ M + Proposed \ M$$

subject to the following definitions:

• Total Pending Retrievals indicate the total amount of collateral a Minter is trying to retrieve from SPV by submitting a Retrieval Request to the protocol via the proposeRetrieval() function. Retrieval Request is the process by which a Minter submits a request to the Protocol to retrieve a specified amount of M. The Protocol verifies that the Core Operating Condition would not be breached by the retrieval of this amount of M, based on the latest Collateral Balance.

• Mint Ratio refers to the fraction of a Minter’s Collateral Balance that can be used to generate M, which effectively controls the leverage of a Minter and the over-collateralization of M.

• Owed M describes the amount of M generated by the Minter, plus the Minter's Accumulated Rate and Penalty, still outstanding — i.e. not burned.

• Proposed M is the amount of new M that a Minter is requesting to mint.

The Core Operating Condition intends to guarantee that no M can be minted and/or no collateral can be retrieved unless there is sufficient Collateral Balance.

We define Burn (or Burned M) as a successful call to the burn() function, which specifies a Minter’s address. Such operation effectively reduces that Minter’s Owed M balance by the amount of burned M.