IIP-175: Launch the Money Market Index ($MMI)

Hello everyone! Paul from Morpho Labs here.

@allan.g thank you for this very complete post.Excited to see Morpho’s lending pool optimiser being proposed in this forum post.

@m0xt here are some element of answers to your questions, let me know if this is clear enough

I am not sure what you mean by “originator”.
Actually, on Morpho-Aave/Compound, if no P2P match is found, then the liquidity will be put into Aave/Compound itself. This way, every deposit can be fully completed it is just that in the worse case scenario it will get the Aave/Compound APY, in average all or a part of the deposit will be matched P2P and benefit from additional efficiency and a better APY.

Morpho Labs team is happy to help answering any questions regarding the Morpho Protocol and its integration.


Hey there, Teddy from Notional here. Just want to clarify a few things:

  1. A 70% reduction in incentives is a goal, not a plan. We understand the importance of maintaining liquid fixed rate markets on Notional and I won’t vote in favor of a proposal to cut incentives without having reason to believe that we will retain sufficient liquidity.

  2. Our goal for the 70% reduction is for end of year 2023, not Q2 2023.

  3. We have several product improvements coming down the pipe which we believe will increase organic returns to LPs significantly. This is the key point - we believe that the coming upgrades will allow us to cut incentives without losing liquidity because the underlying returns will improve organically.

Ultimately, we can’t guarantee that there will always be X amount of liquidity on the protocol - no protocol can make that guarantee. But what we can say is that we understand the importance of liquidity, we are committed to ensuring sufficient liquidity, and we are making all possible improvements to the protocol to increase returns for LPs and make providing liquidity on Notional as attractive as possible.


Hey @allan.g!

This is an interesting proposal, and one I think that would benefit IC as well as stablecoin users.

You may recognize me from the IC forums- I used to contribute pretty frequently in 2020/2021 for IC :smiley:. I’m now working with the Fuji team, and the engine we are building (and most of which is already built) would be a perfect fit for what you are looking to offer with $MMI.

Fuji is a money market aggregator built using ERC-4626, and we have integrations supported with most of these money markets (including many others!). The way Fuji’s engine works, is we integrated functions into the ERC4626 vaults that you to easily rebalance positions across money markets so that vault users either get the most yield or lowest interest rate according to the strategy choice.

For example, a vault on Ethereum could support the AaveV3+CompoundV2 money markets, or add in additional ones if you choose to (e.g. Morpho, Euler, among others). According to defined thresholds, the vault could be rebalanced to the market with the highest yield on DAI. This allows you to take advantage of a disparity/arbitrage opportunity according to threshold between the money markets. Since Fuji is built using ERC4626, you could also easily harvest/compound any additional token rewards.

In addition, we are open to working together with the IC community to customize a vault (they will be permissionless later on) to support whichever money markets you want. We can support any variable money market (no fixed at the moment). On mainnet, we currently have integrations supporting 9 different money markets.

Happy to discuss things further with your team. If you would like to speak in more detail, you can find me on Telegram @ansteadm, or Twitter @The_Shark_7.


Hi Teddy, thanks for your responses.

It’s great that you understand the importance of liquidity and that you wouldn’t vote against reducing incentives if you didn’t believe in sufficient liquidity.
I don’t mean it in a negative way, but we don’t know how others will vote. Nor do we know how your upcoming improvements will increase motivation for LPs.

It would seem fair to me that before $MMI has $xM in Notional’s products, the community is aware of Notional’s roadmap and how these key issues will be addressed.

I would prefer to have more specific information rather than just general promises that these issues will be addressed.

It’s possible that others are okay with it and these questions are not important to them, and it’s just my ‘trust no one’ approach.:rofl:

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Thanks for your responses, Paul.

How long does it sit in Morpho looking for P2P match before it goes to Aave/Compound?

Do you think the market will be dynamic enough to respond to increased deposits? Or like are you afraid that it could significantly decrease the success rate of finding P2P matches?"

Ok great! I’m not sure what issues you are referring to though. As I stated previously, no protocol can guarantee that it will have X amount of liquidity at a future date, Notional included. It’s not a matter of trust.

I agree that Index shouldn’t allocate with the anticipation of liquidity being larger in the future based on what we say we will do. I think the prudent decision would be for Index to cap its allocation to Notional based on prevailing liquidity and increase or decrease that cap as observed liquidity changes. No trust required :slight_smile:


Hello @m0xt, here are my answers:

There is no waiting time, it sits on the pool while waiting for a match and exits when a match happens.

It depends on the state of each market. For example, if there are too many borrowers on a market in morpho-aave, they will borrow on aave and wait for a depositor. In that scenario, as a depositor, the supply of the index will be instantly matched P2P.
If at the opposite, there are more suppliers than borrowers, then index funds will have to wait on aave for a borrower to come (or a lender to leave to take his place) and create a P2P match. It is hard to anticipate how long it will take before the matching happens but if it does not happen right away, let s keep in mind that you are at least experiencing the aave rate.
Is it helpful?

Hey @m0xt - thank you for the constructive comments! I’ll try and address the points that @PaulFrambot and @twoodward haven’t covered.

This is a timely topic, especially considering the volatility over the past week. It’s an excellent question though and there are certainly many ways to “cut the cake”. One alternative would be to use a simple market cap weighting, but that would lead to a large allocation in USDT that doesn’t necessarily reflect the stablecoin composition across lending markets today. A TVL-driven approach that measures stablecoin allocation across the top DeFi lending protocols would lead to the largest allocation in USDC (which has its issues) and the second largest allocation in DAI (which is largely backed by USDC). There are other permutations that we considered, but rather than over-complicating the stablecoin allocation, we settled on an equal distribution for the stablecoins that met the inclusion criteria. Though some stablecoins are riskier than others, the returns across lending protocols tend to track accordingly.

Strategies inside of $MMI will certainly be monitored, and a public Dune dashboard will be built as well with the most meaningful metrics for tracking and transparency!

It is worth noting that $MMI will not be an actively managed product - the methodology and rebalancing parameters voted on by $INDEX token holders determine how the product will function. Any material alterations to the methodology or rebalancing process must be proposed by the Internal Methodologist Committee (IMC).

In the event of a time-sensitive situation, the IMC will publicly communicate any changes (here on the forum as well as across social channels) and propose a course of action. Via the optimistic governance model, $INDEX holders can object to any proposed changes before action is taken; otherwise, the proposal will be enacted in an effort to protect $MMI token holders.

Thank you again for the feedback - we truly appreciate it!

Hey @paulx - thanks for the question!

Because the positions inside of $MMI will be pure lending positions, they are not exposed to liquidation risk. However, third parties that borrow stablecoins from the same pools $MMI deposits are eligible for liquidation, which can indirectly affect $MMI holders. However, all of the protocols in scope - Compound, Aave, Morpho, and Notional - require borrowers to be overcollateralized and have strong protections and incentives to prevent bad debt from affecting depositors. I would be happy to find you more resources on this per protocol if that would be helpful!

One liquidity risk to consider is each pool’s utilization or the amount of deposited supply that is currently being borrowed. In general, if a pool that contains $MMI deposits has 100% utilization, withdraws or $MMI redemptions will not be possible (it’s worth noting that those deposits will still be earning very high interest based on the interest rate curves in play for that pool). One way $MMI mitigates that liquidity risk is by depositing to some of the largest stablecoin pools with low utilization rate volatility and where the index will make up a minority of the supply. See the proposal excerpt below for more info:

Liquidity conditions generally will be monitored post-launch and factored into future rebalances. Please let me know if this answers your question!


Hey Mark - great to see you on the forum again!

Thank you for bringing Fuji to our attention - it could certainly be a useful tool in our stablecoin suite (of which $MMI is the first product).

We’ll be in touch soon :pray:

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Thank you for the detailed response @allan.g, very helpful indeed . I think for Aave v2 the “optimal” utilization rate (as set by the protocol) is at 90% so it’s a fine line between capital efficiency and risk.

Over the weekend, as SVB was going down, I did notice max utilization across Aave and Compound for USDT (~99%) as people fled USDC, so that may be something to keep in mind as you move forward.

I also recently learned that Compound hard codes their USDC prices to $1 which will prevent liquidation from happening in a timely manner and could accrue bad debt in that market. See here: Compound v2 Docs | Open Price Feed

In any case, looking forward to your launch!


Love this initiative. I would suggest that Index Coop consider Flux Finance as an option. Flux is a special purpose lending marketplace enabling lending against only tokenized US Treasuries as collateral. The collateral is in the form of OUSG from Ondo. Adding fStables (i.e. stablecoins lent into Flux, such as fUSDC, fDAI, and fUSDT) would, in our opinion, decrease the risk, increase the yield, and provide important diversification to this proposed basket, including around the ultimate source of yield. Target yields for lenders at the target 90% utilization are currently OBFR - 50 bps, which is currently in excess of 4%.


Flux made a proposal to Maker to invest DAI into fDAI, and that proposal has additional details around the structure: MIP119: Onboard DAI Funds to the Flux Finance DAI Lending Pool - RFC - The Maker Forum

Hi, I am glad to see many comments here since the summer of 2022. I want to see MMI on the right track. 1. I would like to see a backtesting chart for one year, please. 2. What would happen if the Federal Reserve were to create a new digital dollar tomorrow? Would you be able to convert DAI, USDC, and USDT to the new digital dollar? However, everything looks good. I look forward to your launch!

Handle Twitter: @MarchantHedge

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I’ve always been here, just hiding in the shadows :ghost:!

Jokes aside, I was talking internally about a concept around MMI internally that could be of potential interest for your proposal- I know you are planning to have the tokens balanced (USDT, USDC, and DAI) split equally - 33% to each, but wanted to share a thought.

Would the IC community be interested in optimizing to the stablecoin which is able to provide the highest yield?

For example, if one stablecoin, DAI, has quite low yield, while USDC is able to provide significantly higher yield on a money market, would you be interested in rebalancing the DAI → USDC and placing those stables into a protocol that has the most attractive yield? Or focusing more on keeping them in separate"tranches"?

This is something that already works out of the box with our infrastructure, and just wanted to share.

Look forward to talking more in depth!

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Hey Mark!

We have opted to keep the equal weighting to minimise the risk to the product if one asset where to fail in isolation. Chasing yield would obviously throw this out of whack for a product where the main objective is wealth preservation not wealth creation…

We are working on other stablecoin products with different risk/reward profiles which may be better suited to this particular style though. I’ve DM’d you so looking forward to catch up ser :slight_smile:

Hi @nathan.allman, thanks for dropping in.

This is very interesting. Will keep it on the radar for potential future use cases in our stablecoin products.

This Proposal is now live on Snapshot

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Hi @LONGnostradamus

You can see the results of the 1y backtest here

and get stuck into the numbers here

We would not include CBDC’s into our decentralised products.


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Look good so far. Thanks so much:)