Monolith Project Budget Request

[nour]

1. Summary

We propose the launch of a stablecoin-as-a-service platform, Monolith, enabling permissionless creation of immutable stablecoins using any collateral on any chain.

Monolith-deployed stablecoins feature:

• Immutable over-collateralized single-collateral design
• Autonomous interest rate controller.
• Borrower choice between Interest-free or redemption-free borrowing.
• Yield-bearing vaults for stablecoin holders.
• Fee access for deployers.

Benefits to Inverse Finance DAO:

• New revenue streams.
• Reduced DOLA liquidity costs.
• Accelerated cross-chain expansion.
• Expanded collateral options for FiRM.
• Faster DOLA bad debt repayment.

2. Background

• The urgency of immutable stablecoins has never been greater. The stablecoin market is dominated by centralized issuers (~95% of all stablecoin TVL) bringing systemic fragility.
• The world awaits a more scalable immutable stablecoin design. While we give a nod of appreciation to the efforts of existing projects, immutable stablecoins today suffer from poor capital efficiency, bad borrower experience, and unreliable peg mechanisms.
• All stablecoin projects face formidable barriers to entry. Design, development, testing, audits, marketing, legal, capital raising, regulatory, liquidity, risk, and treasury management. Monolith allows anyone with a quality price feed and collateral asset to easily launch their own stablecoin.
• The “long tail” of stablecoin collateral is a large, untapped opportunity. Today stablecoin collateral is dominated by a short list of collateral assets due to risk, liquidity, and other factors. However, if barriers to entry for launching and providing liquidity for stablecoins can be radically reduced, a marketplace with many more stablecoins, each supported by a unique collateral asset, becomes feasible.
  

3. The Solution: Monolith

• Dual Debt System

  1. Redeemable Borrowers: 0% interest, collateral subject to pro-rata redemptions.
  2. Non-Redeemable Borrowers: Exempt from redemptions, pay variable borrow rate.
     
     

• Interest Rate Controller

  1. The interest rate is always 0% for redeemable borrowers while non-redeemable borrowers are required to pay a variable borrow rate. Borrowers may switch at any time.
  2. The variable rate is autonomously adjusted over time as determined by the ratio of free debt to total debt, aka the Free Debt Ratio (e.g. 2:8)
     
  

• Bad Debt Recovery

  1. Stablecoins deployed via Monolith can have different collaterals, price feeds and collateral factors that expose users to varying degrees of risk. Therefore, stablecoins with high degrees of risk must be able to recover from potential bad debt in order to avoid bank run and price depeg situations.
  2. In the event where a user’s collateral value falls below the value of their debt, the debt can be written off. The write off is initiated either by a liquidation call, or by a direct call to the write off function. The protocol avoids the occurrence of bad debt by redistributing the remaining debt of the borrower among other borrowers, impacting the users benefiting from the loose parameterization rather than the stablecoin holders.

• Pro Rata Redemptions & Redemption Protection

  1. Unlike punitive redemption models where all borrowers are subject to redemption, only opt-in 0% interest rate borrowers are subject to collateral redemptions.
  2. Rather than subject the least-collateralized borrowers to complete redemptions, Monolith applies each redemption pro-rata among all 0% interest borrowers. This means a user is redeemed only in proportion to their share of all 0% rate debt, and avoids a race to the bottom where the requirements to avoid redemption continue to increase.
  3. Pro-rata redemptions reduce 0% interest rate borrowers’ collateral by the same dollar value as their debt minus a fee paid by redeemers to borrowers.
  4. Variable rate borrowers are exempt from redemptions.
     
     

• Staking Vault

  1. Stablecoins launched via Monolith automatically launch a yield-bearing, auto-compounding vault for the stablecoin.
  2. Stablecoin holders can stake in the vault in order to earn a portion of interest paid by non-redeemable stablecoin borrowers.
  3. Vault yield is derived from interest revenues from non-redeemable borrowers and does not exceed the borrow rate of non-redeemable borrowers but may be lower depending on the free debt ratio.
  4. Excess interest not paid to stakers is added to the protocol’s reserve which is only accessible to the stablecoin deployer. Additionally, the deployer may also charge up to 10% on all interest generated by borrowers.

4. The Monolith Factory

• Cross-chain deployment.

Once a Monolith Factory is deployed on a chain, Monolith stablecoins can be deployed immediately and permissionlessly.

• Collateral Agnostic.

Monolith stablecoins may implement any collateral asset with a price feed. For example, M1USD, the first stablecoin to be deployed on Monolith, will utilize Chainlink’s wstETH oracle but other stablecoin deployers may choose any other ERC20 token as collateral with an available price feed contract address.

• Pre-audited.

Monolith will launch with audits by multiple top auditors and audit contests, reducing security considerations to parameterization and collateral choice…

• Fee Switch

Monolith stablecoins include a) a local fee switch that Deployers may activate capturing up to 10% of a stablecoin’s interest revenue in addition to all excess interest and b) a global fee switch that Monolith (Inverse Finance) may activate capturing up to 10% of a stablecoin’s interest revenue. Deployers are also free to implement other mechanisms to financially benefit liquidity providers, community members, etc.

• UI Exposure

Stablecoin instances launched via the factory gain instant exposure to existing Monolith users via a Monolith website that showcases Monolith stablecoins and allows users to access verified on-chain information about them and interact with their contracts without requiring full trust in the stablecoin deployer.

• Minimally Configurable. Stablecoins launched on Monolith are nearly identical apart from minimal configuration parameters including:

1. Collateral asset selection (immutable at launch)

2. Collateral factor (immutable at launch, maximum is 90%)

3. Set/change operator role

4. Fee Switch configuration

5. Oracle address (immutable at launch)

6. Interest rate controller configuration

7. Immutability deadline

   • Stablecoins launched on Monolith may specify an immutability deadline to allow for changes to interest rate controller configuration parameters prior to full immutability (with the exception of fee switch access).

5. Rollout

• Monolith Factory’s first deployment is on Ethereum mainnet with the launch of M1USD using wstETH as collateral. M1USD will provide the marketplace with a reference implementation of Monolith.

6. Competitive Environment

• Today there is no comparable alternative to Monolith offering permissionless creation of immutable stablecoins as a service.
• Stablecoins created via Monolith utilize a design that is expected to compete with existing immutable stablecoin designs including Liquity’s BOLD and LUSD, though without the reliance on proactive “redemption avoidance” for users among other advantages.
• Liquidity’s BOLD design leaves a large competitive opening for Monolith:

6. Why Launch Monolith?

• Multi-billion Dollar Market Opportunity. The immutable stablecoin opportunity is large and under-served by incumbents and demands an easier to use, and capital efficient design. Use cases for Monolith-created stablecoins include reserve assets for other stablecoins, DAO treasury diversification, immutable store of value, liquidity pairing, payments, as well as simply addressing the concerns of users seeking refuge from creeping centralization. The “long tail” of potential stablecoin collateral that today goes un-used by existing immutable stablecoins itself represents a significant opportunity.
• Reduced DOLA Liquidity Costs. Today Inverse spends heavily on liquidity incentives for pairs where only the DOLA portion is incentivized. For example, the USDC portion of DOLA-USDC pairs are incentivized by Inverse Finance for free. With Monolith, this liquidity incentive “leakage” is eliminated directly with instances like M1USD that are launched by Inverse Finance DAO and indirectly with Monolith-compliant stablecoins where Inverse earns a portion of the stablecoin’s interest revenue, and don’t have to fear getting rugged by the issuer.
• Protocol-wide Fee Switch. In addition to our own Monolith stablecoin from which Inverse Finance captures 10% of revenue, there is an option to activate a Monolith Fee Switch which collects revenue from all Monolith-created stablecoins. This revenue can be directed towards liquidity, community, and other incentives to supplement the efforts of individual Monolith stablecoin communities or kept as profit. This fee switch, and the decision to use it, will be 100% controlled by Inverse Finance governance.

7. How does Monolith Generate Revenue?

• Monolith stablecoins generate fees from interest paid by non-redeemable variable rate borrowers.
• Monolith is automatically allocated 10% of the revenue from any Monolith stablecoin…

9. Immutability Deadline and Guarded Launch,

• Immutability Deadline

  1. Monolith stablecoins can be made immutable either at launch or upon a deadline set by the stablecoin’s Deployer.

     • For example, for the M1USD reference stablecoin, a temporary operator role allows for limited parameter adjustments before the full immutability deadline. This temporary operator role cannot upgrade the protocol or make changes beyond predetermined parameters.

  2. Guarded Launch

  • While a limited number of parameters are configurable post-launch until the immutability deadline, as an additional safety precaution Monolith Factory and the M1USD reference stablecoin will be launched in “guarded mode” to allow for live testing of default protocol parameters and to ensure reduced capital at risk… As an immutable protocol, this means users who borrow M1USD during the guarded mode period may, if the protocol requires additional updates, be required to withdraw and re-deposit into a redeployed version of the protocol. The length of the guarded mode period is TBA.

10. Audits & Risk Mitigation

• The following audits are planned for Monolith:

  1. ChainSecurity is known for handling large-scale, complex audits and will conduct a 1.5-week engagement with 2 expert auditors for $49,500. They include a free second review (2 auditor-days).
  2. yAudit will provide a 5-day audit by two Residents for $25,000. This includes a free second review.
  3. Spearbit will conduct a 4-day review with a 4-person team (2 LSRs, 1 SR, 1 ASR) for a base $47,000 plus a 15% marketplace fee. The total is ~$55,300.

• The following audit competitions are planned for Monolith:

  1. Cantina Competition with a proposed pool size of $70,000 prize pool plus a 10% fee (total ~$72,250), with partial or full refunds if no medium/high-severity issues are found. Cantina claim higher participation than Code4rena and are offering a significant discounts because we are bundling with Spearbit’s private audit detailed above

  2. A more detailed discussion of the risks of using Monolith-created stablecoins will be available in Monolith docs.

11. Marketing & Community

• Raising Awareness for Monolith

  1. To carry this brand strategy forward into a brand identity that is entirely separate from Inverse Finance as well as build marketing assets in support of the launch of Monolith, we propose retaining a third party marketing agency, MOM, for brand identity, creative design, launch, and post-launch marketing deliverables. The MOM team is known for its performance with partner projects like Yearn and is seen as an excellent partner for Monolith.

  2. In addition to MOM, we will engage third party podcasters (e.g Blocmates, Bankless) and other creatives who want to help spread the word about Monolith.

  3. Community & Ecosystem

  • Monolith is launched as a sister project that is separate from Inverse Finance and therefore will have its own brand identity, community, communications tools, points, partner programs, etc. Upon approval by Inverse Finance governance to fund the launch of Monolith, a new Discord community and other tools will go live to launch the community.

12. Liquidity

• Monolith provides a pathway—pending Inverse Finance governance approval—for stablecoins launched on its protocol to potentially access DOLA liquidity and liquidity incentives, including options such as DOLA Feds, treasury DOLA, veNFT-based incentives, and more. Although no support is guaranteed, stablecoin projects on Monolith gain a direct line to the DAO and the possibility of co-incentivization, which can lead to stronger peg stability, lower slippage, accelerated TVL growth, and minimized liquidity costs. At the same time, Inverse Finance benefits from partnering with projects that offer co-incentives, potentially reducing reliance on less favorable liquidity providers like USDC/Circle.

13. Licensing & Legal

• Monolith will launch using a Business Source License granted by Monolith’s author, Nour Haridy, that reverts to General Public License after a three year period.
• In a separate proposal, Inverse Finance governance will have the opportunity to approve the creation of a legal entity (or entities) that assumes ownership of the Monolith code and enforces the terms of the Business Source License.

14. Timeline

• The code for Monolith is complete and ready for audit.
• Upon governance approval of this proposal, audit and marketing activities leading up to guarded launch will begin.

15. Budget Request

• To minimize the investment in Monolith for Inverse Finance, we present a single budget request leading to the launch of Monolith as it is expected that ongoing marketing and other post-launch Monolith expenses will be paid via Monolith-generated revenues.

Monolith 90-Day Launch Expenses

Monolith Launch Expenses
Risk
Cantina Competition	72,252
yAudit Private Audit	25,000
Chainsecurity Private Audit	49,500
Spearbit Private Audit	55,300
Growth
Creative Agency	90,000
Major podcast partnership(s) (e.g. Bankless, Blocmates)	25,000
Analysts, content creators	10,000
Miscellaneous	5,000
Total	332,052

16. Let’s Do This

• Monolith is a historic opportunity to leverage Inverse Finance expertise, community, DOLA Fed, treasury, and other capabilities to catalyze an underserved demand for DeFi stablecoins.
• For more information on the Monolith stablecoin reference implementation, M1USD, visit the interim docs page. (coming soon)
• For more information on the Monolith Factory, visit the interim docs page. (coming soon)

17. On-chain Actions

• Approve 332,052 DOLA to Product Working Group multisig