Author: defioasis

On December 4th, the L2 network Mantle announced the launch of the ETH liquidity staking protocol Mantle LSP, a core product deployed on Ethereum L1 and managed by Mantle. As of December 14th, 10 days after its launch, Mantle LSP’s TVL reached 120k ETH, valued at approximately $274 million; with over 3,700 validators, the APY reached 3.92%. (All data in this article are as of 18:00 UTC+8 on December 14th)

Mantle LSP Development History

On June 14, 2023, Mantle Builder, core contributor, and advisor Cateatpeanut published the first discussion about Mantle LSD (the predecessor of Mantle LSP) on the Mantle governance forum, suggesting the introduction of the liquidity staking protocol Mantle LSD deployed on the Ethereum mainnet. Users, including Mantle Treasury, could stake ETH and receive the certificate token mntETH (the predecessor of mETH), which accumulates staking rewards.

On July 29, 2023, Cateatpeanut and the Mantle core team formally proposed MIP-25 to the community: Mantle Economic Committee and ETH Staking Strategy Proposal, which was supported by the community with a 100% voting approval rate.

On October 6, 2023, the Mantle LSP mainnet contract was deployed, but it was limited to selected core contributors on a whitelist, with a cap of 1,000 mETH.

On December 4, 2023, the ETH liquidity staking protocol Mantle LSP was officially launched for all users.

Despite achieving hundreds of millions of dollars in ETH staking within a week, the journey from community discussion to proposal to official launch took nearly half a year, adhering to the governance process established by the Mantle community. Mantle LSP adopted a simple and usable design after the Ethereum Shanghai upgrade, emphasizing the integrity of mETH operating on L1, without adding complexity to other PoS tokens and chains.

mETH Distribution

mETH, as the staked ETH token of Mantle LSP, allows for the identification of the composition of staking entities and user preferences in Mantle LSP, as well as the adoption of the protocol, based on the holdings of mETH.

(Source: https://etherscan.io/token/0xd5f7838f5c461feff7fe49ea5ebaf7728bb0adfa#balances,

As of 18:00, December 14)

The largest holder of mETH comes from Mantle Treasury, totaling approximately 92.7k mETH, which accounts for about 81.4% of the total. During the initial proposal discussion phase in June, Mantle Treasury was allowed to participate in Mantle LSP as part of the users. Unlike most LSD protocols with no staking cap, Mantle LSP eventually established a cap of 250,000 mETH. This means that it ultimately serves and benefits important partners within the Mantle ecosystem, including Mantle Treasury, institutional partners, and ecosystem supporters. Mantle Treasury can also use its mETH for liquidity support in on-chain DeFi protocols, expanding its use cases.

The second-largest holder of mETH comes from Mantle Network. Mantle LSP and the L2 Mantle Network are developing in coordination, expanding the adoption of mETH on L2 and establishing partnerships with DeFi protocols. In the coming weeks, mETH will start to be used as ETH in various Mantle DeFi protocols. There are plans to explore using mETH as Gas fees for the L2 Mantle Network in the future.

mETH can be bought and sold on the secondary markets of Uniswap and Bybit, but its price on these markets is determined by price discovery, with large transactions potentially facing higher slippage. Notably, mETH has also been listed on SideShift ai, an on-chain exchange that does not require account registration.

The largest non-exchange EOA (Externally Owned Account) users of mETH come from two DeFi players. One user participated in the Convex USDT+crvUSD staking, while the other may have close ties with the venture capital firm Taureon Capital, which has invested in the significant LSD trading protocol Maverick. (Arkham data shows that this address transferred over 150 wstETH to a suspected Taureon Capital address.) Apart from their institutional identity, this user is also a seasoned DeFi Degen player, having injected 375.4 stETH into the LSD stablecoin protocol Prisma Finance, loaned out 383,000 mkUSD, and used mkUSD for Farming mining, accumulating rewards valued at approximately $7,000. Additionally, the address participated in Ethena USDe staking. The more fully a Degen player utilizes mETH’s composability, the more they can penetrate into various DeFi protocols and applications within the Mantle Network, earning profits while providing efficient liquidity between protocols.

Eco Stablecoin & Mantle LSP Dual Drive

A month before the launch of Mantle LSP, in early November, Mantle and Ondo Finance announced the launch of the RWA-backed USD stablecoin USDY, and its rebasing wrapped version mUSD on the Mantle Network. Currently, the TVL of Ondo Finance USDY exceeds $35 million, with an APY of 5.2%. Of this, more than $3.7 million is issued on Ethereum, and over $29 million on Mantle. The stablecoins USDY and mUSD provide another stable income channel for the Mantle ecosystem.

USDY adopts over-collateralization and is essentially a tokenized note secured by short-term U.S. Treasury bonds and bank demand deposits, significantly different from other stablecoins issued by centralized entities:

(1) Bankruptcy Remote Entity. Most stablecoins have a specific issuer, like Tether with USDT, Circle with USDC. If the issuer goes bankrupt, stablecoin holders might not be able to redeem their assets. In contrast, USDY adopts a financial structure issued by a bankruptcy remote entity, ensuring that assets are not entangled in bankruptcy proceedings if the initiator or affiliated entities go bankrupt. This means even if the operating company Ondo USDY LLC goes bankrupt, the financial structure of USDY ensures that the holders’ assets are isolated and protected, not directly affected by the company’s bankruptcy.

(2) Stablecoin Holder Returns. Most stablecoins are non-interest bearing assets, meaning holders do not receive interest. However, holders of the RWA-backed USDY receive returns from underlying assets like short-term U.S. Treasury bonds (minus management fees). USDY has a variable interest rate, adjusted in advance by Ondo each month; the yield compounds automatically, meaning the dollar value of USDY that can be minted and redeemed is slowly growing every day.

(3) Holder-Prioritized Redemption Mechanism. When stablecoin issuers cannot meet redemption requests within a specific time, they often adopt delayed withdrawal strategies to cope with bank runs. Most stablecoin holders do not have the right to passive default or automatic liquidation. USDY holders have the right to initiate liquidation. If Ondo USDY LLC fails to meet redemption requests promptly, holders can request a third party to liquidate the portfolio and reimburse Ankura Trust Company as Liquidator, acting as Validation Agent and Collateral Agent Protection Agency.

(4) Private stablecoins often exist in a regulatory grey area, whereas USDY is issued in compliance with U.S. federal securities laws and anti-money laundering regulations.

The RWA-backed USDY has already seen widespread adoption within the Mantle Network ecosystem.

In Agni Finance, the largest DEX on Mantle with a TVL of $53 million, USDY has a TVL of $2.2 million, making it the fifth-largest asset in the protocol. Moreover, the USDC/USDY 0.01% LP Pool is the third-largest LP Pool in the protocol, with over $4.5 million in liquidity.

In FusionX Finance, the third-largest DEX with over $27 million in TVL, the USDC/USDY 0.01% LP Pool has the highest liquidity among all stablecoin pairs on the site, with a TVL of $5.2 million.

Mantle’s first liquidity management tool, Range Protocol, launched the USDC-USDY pegged strategy on November 14, offering a Vault APY of 5.1% (including transaction fee APY and incentives), with a current TVL of about $62,000. Although this protocol is still relatively small in scale, the potential of USDY as a means of income appreciation is evident. USDY itself has an automatic compounding yield of 5.1%, supported by RWA. If the adoption of USDY in on-chain trading can be expanded, this will significantly increase LP transaction fee revenues. When combined with other incentive measures, it could unlock even greater potential for returns. Based on the stablecoins USDY/mUSD and Mantle LSP mETH, Mantle Network has effectively formed a dual-channel yield aggregator supported by RWA and ETH PoS.

Furthermore, the Mantle Economic Committee continues to seek high-quality, sustainable yield products and ecosystem applications to serve the Mantle ecosystem. A recent example is the Committee’s approval of a $10 million investment in Ethena-USDe. Ethena has built a stablecoin USDe, collateralized by Ethereum derivatives, by holding long positions in staked ETH and short positions in ETH perpetual contracts to mitigate the price instability of the underlying collateral assets in constructing a stablecoin. In July of this year, Ethena completed a $6 million seed funding round led by Dragonfly and was selected for Binance Labs’ incubator program, Binance Labs Incubation Season 6, in September. Once USDe launches on Mantle in the first quarter of 2024, the Mantle Economic Committee will inject $10 million into various DEX liquidity pools to support liquidity, making USDe, like mUSD, more advantageous in the Mantle ecosystem compared to other general stablecoins.

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