Fantom Protocol’s fMint is a DeFi Solution With Some Risks

CryptoMode Fantom Protocol fMint DeFi

More and more blockchain networks have started rolling out their DeFi ecosystem. Fantom Finance is the latest venture to launch. Its first component, known as fMint, is now live, with more features to be added in the future. 

What is fMint Exactly?

As the name suggests, the goal is to mint the native Fantom stablecoin through this DeFi platform. fUSD is the collateralized stablecoin, and the first to be issued on the Fantom blockchain. Users can participate by staking their existing FTM balances and leverage it as minting collateral. 

When contributing one’s existing FTM balance, the platform will automatically convert it to wFTM, or Wrapped Fantom. This is a very common trend. Native tokens apparently need to be “wrapped” before they can be of use to the  DeFi ecosystem. A very odd approach, although TRON is doing the exact same

Locking in one’s wFTM will create a collateral balance. Based on this balance, Users will begin minting the fUSD stablecoin after starting the procedure. There is a 0.5% minting fee, deducted from the minted amount. Cashing out one’s “earnings” will be done free of charge. 

Explaining the C-Ratio

On the fMint platform, users may notice there is a C-Ratio. This simply stands for collateralization ratio. A minimum ratio of 300% must be maintained at all times. Users will only be able to mine 33% of their wFTM balance in fUSD at all times. 

However, if users push this ratio to 500% or more, they will earn 6% APY in wFTM rewards. It is an incentive for users to contribute as much funds as possible from day one. Whether this 6% APY will be sufficient to convince larger holders, remains to be determined. Inability to claim the rewards before a ratio drops below 500% will see all earned rewards burned in the process. 

Failing to keep the C-Ratio at 300% or more ensures all funds become “locked”. As such, users cannot access the money until the ratio is restored. A very dangerous way of handling liquidity, even if it is done with the best intentions. 

Losing one’s locked wFTM is impossible, for now. The blog post mentions there will not be any liquidation initially. This indicates that the situation may – and probably will – change over time. 

Finding use Cases for fUSD

Creating a new stablecoin out of thin air is not complex. Doing anything with it, on the other hand, is something very different. For now, there are no use cases of fUSD as of right now. This makes the minting of this asset less appealing, on paper.

Under the hood, the fUSD token is an ERC20 token on Opera. DeFi developers can, in theory, port them to Ethereum, or integrate fUSD into other products. Finding people willing to do so, will be challenging. It will be interesting to see if anyone decides to explore these options in the future. 

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