The world of decentralized finance (DeFi) can at times be extremely volatile and unstable. For crypto mass adoption to occur, these factors must first be tamed. The DeFi Money Market Protocol and the DMG token aim to solve this problem by bringing trust and stability to the DeFi ecosystem. This is achieved by using real-world, income-generating assets for collateralization. 

This is a first for the blockchain ecosystem. Soon, we could expect this to become the ‘norm’ as more people discover the benefits and ease of using decentralized financial protocols.

In this article, we take an in-depth look at the DeFi Money Market (DMM) Protocol and highlight some of the unique and innovative solutions provided by the project. We’ll also explore some of the different DMM tokens, including the DMG token. Furthermore, we’ll look at how the ecosystem operates.

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What Is DeFi Money Market?

The DeFi Money Market is the brainchild of the DeFi Money Market Foundation, which was established in Dubai back in 2019. The project’s goal is to offer financial and blockchain services to anyone and everyone, empowering citizens everywhere. The Foundation runs the wider DMM Ecosystem, and has many aliases; the DeFi Money Market DAO, DMM DAO and the DMM Foundation.

According to the DeFi Money Market Protocol whitepaper, the DMM ecosystem is: “a permissionless and fully decentralized protocol to earn interest on any Ethereum digital asset backed by real-world assets represented on-chain”. DMM allows users to earn consistent interest in a way that is much more stable than current DeFi protocols.

The rate of interest paid out by DMM assets does not fluctuate. This makes DeFi more accessible to those with a lower risk appetite. This is made possible because DMM assets are backed by real-world assets that can be tracked using the blockchain. This adds trust and transparency to the protocol. DMM assets are also verifiably income-generating, meaning that depreciating cannot be used as collateral within the ecosystem.

Underlying assets used in DMM are always overcollateralized. The revenue generated by any underlying asset is always higher than the annual percentage yield (APY) paid out from the DMM asset. In short, the underlying asset is guaranteed to generate more income than the asset issued against it. 

According to DeFi Money Market proponents, this is a game-changer for DeFi. Despite the risk-seekers in the sector, DeFi is supposed to be open to everyone. Offering services on the blockchain with high returns, while also reducing the risk involved, is key for crypto mass adoption.

Furthermore, the DMM ecosystem requires no gas fees thanks to the integration of delegated payments on Ethereum.

How Does DeFi Money Market Work?

• Users deposit DAI, USDC, USDT, or ETH to the DMM smart contract in exchange for DMM mTokens
• These deposits are used to take ownership of real-world income-generating assets, all of which are viewable on the blockchain.
• The acquired real-world assets accumulate and pay out interest back into the DMM ecosystem
• Newly minted DMM mTokens can be traded back for the original deposit, on top of any additional interest accrued. 

As DMM assets are backed by real-world, stable assets, users can depend on consistent interest rates and dependable yield that serves as a steady way to earn a passive income with DeFi.

DMM tokens are ERC-20 compliant and can be managed with most standard Ethereum wallets, however, users are not required to pay gas in ETH to make transactions thanks to integrating delegated payments on the Ethereum network. 

Ethereum Delegated Transactions are a universal framework for Ethereum applications that remove the need for gas to be paid in Ether. When the Ethereum blockchain is congested, network fees can soar. This helps to fix this issue, allowing the user to reap the rewards.

As with many DeFi ecosystems, the DMM ecosystem is community-led, with token holders making up the decentralized autonomous organization (DAO) that carries out governance for the protocol, deciding on any future changes to the protocol.

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The DeFi Money Market Ecosystem

The DMM Ecosystem (DMME) is creating a worldwide, decentralized community and a transparent, permissionless platform that enables anybody to earn a steady return in DeFi by real-world assets shown on the blockchain. An Ethereum-based decentralized protocol, the DMME creates a new DeFi native asset class known as DeFi Money Market Accounts (DMMA). DMMAs allow hodlers of Ethereum-based tokens to earn interest simply and familiarly.

When DMMA’s are created, specific Ethereum assets are held in smart contracts with a particular annual percentage yield (APY). Users are then issued with DeFi Money Market tokens (mTokens). Each DMMA is specific to an Ethereum asset, depending on the needs of the individual user.

The DMM token is created using the DeFi Money Market Wrapper (DMMW). The DMMW is an ERC-20 smart contract wrapper that can be used with any Ethereum token. Once wrapped, the token can then be used within the borderless DeFi Money Market environment.

A DeFi Money Market Account (DMMA) must be decentralized, transparent, and permissionless, and earn a consistent interest. All DMMAs are backed by real-world income-generating assets that are viewable on chain at all times.

The DMME ensures that the real-world assets backing DMM are of higher value than the DMM issued and that the income generated by the real-world assets is greater than the annual percentage yield (APY). This means that the DMME is always over collateralized. Any income generated by real-world assets exceeds any due payments.

Innovation

The DeFi Money Market initiative strives for diversification. It offers stable interest rates that make the platform stand out from other DeFi projects within the Ethereum ecosystem.

Most traditional Money Market Accounts are backed by the Federal Deposit Insurance Corporation (FDIC) or other centralized authorities. DeFi Money Market Accounts, however, are based solely on the underlying value of the assets provided, which can be easily verified. 

DeFi Money Market is making modern financial applications available to anyone. Deposits start from $1, meaning that the barrier to entry is incredibly low. DMM aims to provide up to a steady return 5 to 6 times higher than traditional money market accounts. This opens the doors for financial inclusion and promotes financial freedom.

DMG Token

The goal of the DeFi Money Market protocol is to bridge the gap between the traditional and cryptocurrency ecosystems. DMM gives users the chance to combine real-world assets with on-chain digital assets, plus earn interest on these holdings too. In order to achieve this, in a completely decentralized and transparent manner, the DMM DAO token was created.

The Decentralized Autonomous Organization is a globally-distributed construction that governs the DMME. The DMM DAO functions through the use of its native DMG token. DMG token holders have voting rights on the governance of the protocol, creating a community of users actively incentivized to maintain and improve the DeFi Money Market Ecosystem. 

In addition to governance of the DMM parameters, and voting rights on new assets within the DMME, DMG token holders receive a percentage of rewards from the profits generated within the ecosystem. The token itself is ERC-20-based and is a fork of Compound’s COMP governance token.

However, the DMG token boasts additional capabilities. These include a native burn function and meta-transaction support. The DMM DAO may choose to burn some of the 250 million DMG tokens - the current max supply. The circulating supply is around 20% of this, at just over 48 million tokens.

The DeFi Money Market Foundation hopes that, through a combination of the DAO community and DMG token functionality, the DMM platform will be a completely self-sustainable, evolving, decentralized protocol with no single-point-of-failure. 

DeFi Money Market and Chainlink Integration

The DMM protocol is all about distributed networks. DMM is bridging the traditional asset market with the decentralized ecosystem in a secure and trustless way. DMMAs operate through the use of smart contracts. Smart contracts will carry out a set task when a certain condition is met. The way the smart contract can confirm whether a specified condition is met is through the use of oracles. Oracles bring real-life off-chain data, on-chain, for smart contracts to execute the movement of data or money.

The largest oracle network in the crypto ecosystem is Chainlink. Chainlink is the chosen oracle for thousands of decentralized applications. This includes large corporations such as Google, IBM, and Microsoft. It was only natural then, for the DMM protocol to integrate the number-one oracle for use in their smart contracts. 

Chainlink’s role in the DMME is to gather data about the real-world assets being used as collateral and publicizing this information on the blockchain. The full integration is still a work in progress, however, Chainlink will have two main roles. Firstly, DMM is collaborating with Chainlink to find a transparent and verifiable method of connecting financial ecosystems. 

For example, if someone is to convert cryptocurrency to fiat from a smart contract to purchase another asset that produces income (such as a car), this process currently could take a few business days to complete. This is due to the current semi-dependency on the legacy financial system. Developers of both DMM and Chainlink are working to improve the transparency of the process.

Secondly, once the fiat is transferred for the real-world asset, Chainlink will be able to recognize this transaction and publicize it on-chain. 

Collateral Available For Income Generation

The DeFi Money Market Foundation hopes to include every type of ‘hard’ asset that could be collateralized for generating income. At present, this hard asset protocol is only available in the United States for vehicles. In the future, other hard assets that could be used include real estate, fine art, gold, or other commodities. 

Assets that are used as collateral are first subject to a legal lien against the asset. This means, as the result of payments of the loan not being met, the asset will be sold by DMM. Funds generated will refund the loan and add any additional revenue sent to the ecosystem. The use of tokenized vehicle-backed loans is the first of its kind in history. 

One of the reasons DMM is starting with vehicle collateral is due to the heavy amount of road users in the US. According to DMM, “76.3% of US workers use a personal vehicle to commute to work”, covering a wide spectrum of demographics. Interestingly, according to the statistics, citizens are more likely to repay their car loans before repaying their mortgage or rent. 

Depreciation of the value of vehicles is also taken into consideration. The average car is 5 to 9 years old, which, after an initial couple of years of 10% to 30% depreciation, the value of the vehicle begins to stabilize and depreciate at a slower rate. Shorter-term loans (a year or less) provide the most liquidity and is unlikely a vehicle will depreciate substantially during this period.

Black Book, an additional third-party oracle, powering the automotive industry with dynamic vehicle data, is used by DMM to receive reliable trust-worthy data about their vehicle collateral. Black Book has been the go-to valuation service for automotive valuations since 1955. 

DeFi Money Market & DMG Token Summary

DMM is providing a stable and reliable way to make a passive income with crypto by using real-world assets as collateral. Moreover, it's backed by a team of successful crypto investors including Tim Draper, Alon Goren, and Josef Holm.

Tim Draper

This investment team is at the forefront of innovation in the crypto space and continues to expand its crypto ventures into the DeFi landscape. DeFi doesn’t have to be volatile. Despite the appeal, it is volatility and unpredictability that prevent many potential users from participating. By removing much of the risk associated, DMM is paving the way for a sustainable, equitable form of decentralized finance that is accessible to all.

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