IV.I Minters
Minters are primarily incentivized to join the protocol because they want to earn the spread between the yield (net of expenses) on their Eligible Collateral and the protocol’s Minter Rate. In addition, the Mint Ratio will determine the attractiveness of Minting relative to the yield spread.
The effective ROC (return on capital) of a Minter is net yield generated on the Eligible Collateral, divided by the net cash investment, which is the capital invested into Eligible Collateral, minus their Owed M (assuming they were able to sell this M at $1) plus the Administrative Buffer.
It is anticipated that Minters in the M^0 protocol will correspond to financial services providers (such as cryptodollar issuers) off-chain. The ultimate function of the Minter is the generation and management of the supply of M.
Considering the initial Eligible Collateral is intended to be short term T-bills, it is assumed that the Minter Rate will need to be less than the US Federal Funds rate. See the diagram below for a visual example of the basic Minter economics.
It is also anticipated that Minters will engage in arbitrage. If M is trading above $1 on secondary markets, it is logical for Minters to deposit Eligible Collateral in order to generate more M. This will boost their net yield. Conversely, if M is trading below $1 on secondary markets, it is logical for Minters to repurchase M and to use it to Retrieve Eligible Collateral. This will also boost their net yield. It is for this reason that M is expected to trade with some volatility around (US) $1 – the mechanism relies on sometimes inefficient and unpredictable market forces to achieve an average price of $1 over the long term.
There will be no built in mechanism at the protocol level to ensure the price stability of M; rather, that will be achieved via the economic incentives described and visualized above.
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