M^0 Labs: The Next Generation of Stablecoins
The cornerstone for crypto adoption lies in the space of stablecoins. This piece introduces M^0 Labs, a trailblazing project in this sector, detailing its methodology, financial backing, community involvement, and the minds behind its creation.
M^0 Labs (pronounced “M Zero”) is crafting a coordination layer that enables selected financial entities to mint the M stablecoin. The value of M is pegged to assets secured by the minter. For example, if M is backed by Treasury bills and minters exchange these tokens at $1, M could be regarded as a crypto dollar.
Given the current uncertainty about what will back M and which entities will act as minters, we refer to M broadly as “stablecoin.”
M is designed to merge:
- The security of tangible cash, which allows for personal storage and is beyond the reach of foreign law enforcement without domestic collaboration. For instance, in the U.S., there's no fear of Canadian law enforcement freezing dollars in one's possession.
- The convenience of digital currency, represented typically as bank deposits, featuring several benefits such as earning interest, facilitating international transfers, and ensuring security.
However, both physical and digital currencies come with their sets of challenges.
Storing significant amounts of cash physically is daunting, and its usage is dwindling. A 2022 survey by the Pew Research Center revealed that 41% of Americans report making no cash purchases in a typical week, a rise from 29% in 2018 and 25% in 2015.
Digital currencies, while accessible, face potential freezing or seizure without due process in the holder's jurisdiction. Additionally, they carry counterparty risks, with the possibility of a banking entity failing to fulfill its transactional duties.
M targets these challenges by providing:
- Autonomy and fungibility, with each M token holding equal value to any other, and with the protocol ensuring owners cannot be stripped of their tokens.
- Superior storage security, leveraging the Ethereum blockchain for M^0's protocol, thus surpassing traditional cash storage capabilities.
- Minimal counterparty risk, as M initially relies on short-term U.S. Treasury bills for backing, which are considered to have the lowest counterparty risk.
M^0 Labs aspires to do more than just digitize cash; it seeks to innovate the way liquidity is accessed through high-quality collateral.
How the M^0 Protocol Works
The M^0 protocol introduces a coordination mechanism aimed at forging new and more efficient avenues for financial entities to interact. The team behind the project posits that a “blockchain-based protocol, where rules and transparency are enforced by code, is superior to the feudal and opaque landscape of value transmission.”
Participants within the M^0 protocol include:
- Minters: Financial organizations that connect to the protocol with the intent of generating the M token. Minters are required to possess a significant off-chain balance of eligible collateral, the validity of which is confirmed by a validator.
- Validators: Independent entities that provide crucial operational information regarding the off-chain collateral utilized in minting M.
- Earner: Holders or distributors of M who have been approved by the governance system to receive the Earner Rate, an annual percentage yield.
M^0 is built on the Ethereum blockchain, with the M token adhering to the ERC-20 standard. This ensures that users can transact with M across Ethereum as well as other EVM-compatible blockchains, such as Arbitrum, Optimism, Manta, etc.
The governance framework of the protocol is anchored by the Two Token Governor (TTG) mechanism, which facilitates voting on various proposals, including the appointment of minters. The TTG system involves two distinct tokens:
- POWER. This primary governance token is employed in voting processes, with POWER holders earning ZERO tokens as rewards for their active participation in governance.
- ZERO. In contrast to POWER holders, ZERO holders are deemed more passive, participating in voting only for significant amendments. ZERO holders can revoke the governance rights of POWER holders.
TTG also addresses inactivity by reducing the token count of POWER holders who fail to participate in all voting sessions, proportionate to the overall vote count. This method, akin to the slashing mechanism used in Ethereum staking, penalizes non-participation.
Delving into the M^0 protocol's operational intricacies goes beyond the scope of this overview, as these are extensively detailed in the project's white paper. Our focus instead shifts towards a strategic analysis of the project, including aspects like funding, community, and team dynamics.
Funding
On April 5, 2023, M^0 Labs successfully closed a seed funding round, amassing $22.5 million. This round saw contributions from premier investors such as Tier 1 fund Pantera Capital, alongside other notable venture capital firms like ParaFi Capital, Standard Crypto, and Earlybird Venture Capital, among others.
M^0 Labs Funding. Source: cryptorank.io
For context, M^0 Labs' competitor, the Ethena project, secured $20.5 million across three funding rounds. As of March 2024, Ethena's USDe token stands as the 6th most capitalized stablecoin, boasting a valuation exceeding $969 million.
It's imperative to recognize that funding alone doesn't dictate a project's success trajectory. Predicting whether M^0 Labs will mirror the achievements of Ethena post-mainnet remains speculative.
Community
The community serves as the project's driving force. The development pace of a company relies on both the number and the activity level of its community members. This is evident when considering the rise of meme coins and low-capitalization assets, which grew due to a surge in new buyers attracted by the generated hype.
Price Dynamics of the Top 5 Meme Coins Over the Last Hour/Day/Week. Source: coingecko.com
M^0 Labs recognizes the significance of community engagement, hence it leverages several marketing tools:
- An account on X (formerly Twitter), where M^0 Labs shares updates about project developments (partnerships, funding, conference appearances) and interacts with influencers. The account has 4,000 followers.
- The Dirt Roads publication on Substack. The project's CEO, Luca Prosperi, writes research articles on cryptocurrency topics. These materials are published monthly and have garnered over 1,000 subscribers on Substack.
- A website that provides concise information about the project's activities, along with links to the white paper and M^0 Research.
The analytical web service TwitterScore rated M^0 Labs’ X account at 27 points (out of an optimal 50), whereas Ethena scored 171. This discrepancy likely stems from different approaches: Ethena targets retail investors (social media interaction can be a criterion for airdrops), while M^0 Labs focuses on institutional ones.
M^0 Labs’ X Account Rating. Source: twitterscore.io
This year, M^0 Labs participated in ETHDenver, one of the largest crypto conferences. The project's CEO, Luca Prosperi, was part of the “Stablecoins & Sustainability” panel discussion on stablecoins. The event attracted over 20,000 attendees from 120 countries.
Team
According to the LinkedIn profile of M^0 Labs, the project is developed by 41 specialists. Most team members have over five years of experience in blockchain and Web3 development and are alumni of top global universities (e.g., MIT, University of Sydney). Luca Prosperi, the project’s CEO, holds a MSc and BA in mathematics and economics from Bocconi University and an MBA from London Business School.
Throughout his nearly 20-year career, Luca has dedicated himself to creating, consulting, studying, and investing in financial services companies. His resume includes positions at Cherry Ventures, Partners Capital, and Morgan Stanley, among others. Luca also led the lending oversight department at MakerDAO, where he was tasked with bridging the real world and DeFi.
Moreover, M^0 Labs specialists have backgrounds in notable companies such as:
- Circle (the developer of the second-largest stablecoin by market cap, USDC). M^0 Labs’ Chief Strategy Officer, Joao Reginatto, was a product manager at the inception of Circle. After an eight-year tenure, he joined M^0 Labs in August 2023.
- Coinbase (the largest crypto exchange in the USA). M^0 Labs’ legal counsel, Thor Mathison, served as an assistant to the CEO of Coinbase, focusing on the institutional side of the business. After two years at Coinbase, he became part of M^0 Labs in June 2023.
- ConsenSys (the developer of products like the Metamask crypto wallet and zk-rollup Linea). M^0 Labs’ Head of Web3, Antonina Norair, spent over two years as a blockchain engineer at ConsenSys. Notably, Antonina is Ukrainian and graduated from the Kyiv Polytechnic Institute.
The visibility of the M^0 Labs team positively impacts user loyalty. Considering some crypto projects' creators remain anonymous, the ability to see photos, work experience, and education of each M^0 Labs team member adds to the project's chances of long-term success.
Final Thoughts
As of March 2024, the stablecoin market is vast, with a total capitalization exceeding $147 billion. Of this, $101 billion is attributed to USDT, with the remainder spread across hundreds of other assets.
Unlike its competitors, M^0 Labs aims to cater to institutional companies rather than retail market participants. Given the traditional economy's growing convergence with cryptocurrencies, products like M could become highly sought after in the coming years.
Whether this will be the case remains uncertain. Therefore, before making any investment decisions or engaging with M^0 Labs, be sure to conduct thorough research!
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