So I've been researching the next DeFi project to grow my wealth and I came across a very interesting project called MantraDAO, which is basically focusing on staking, lending and governance, and it is community-driven. The native token for MantraDAO is called OM, which is an ERC-20 token migrating to the Polkadot Network.
Cryptonator has covered the basics of MantraDAO so you can look up to the article before you continue reading this. If you want more details, you can also check out MantraDAO's whitepaper. Currently, they are offering a pre-staking promotion of 88.88% per annum on exchanges such as BitMax to hold their tokens, and the rewards are distributed daily with compounding interests. The only downside is that once you staked your money to it, to undelegate for free you'll have to wait for 8 days for your tokens to be reflected and are able to sell. If you choose the instant unbonding option, then an 8% of the total staked amount fee will be incurred. Recently, there is massive price drop on the OM token which prompts many users especially in Twitter & Reddit to comment that this project might be a scam. The price chart since the month of August is shown below:
The price for the first day of listing is $0.28, and then it shoots up to an all time high of $0.62 before crashing down to an all-time low of $0.081 from the time of writing this article (25/10/2020). The spike in volume which pumps up the price has proved that many users are excited about the speculative project. For the users who have staked a lot of money during the month of August, you're in very bad luck as the price has already dropped 86% form its all time high. If you look at the MantraDAO Twitter accounts, you can see comments like this:
Okay, it's understandable that they are all frustrated that they have been losing a lot of money from locking their funds there since August. That's the risk of investing in a platform which is not fully ready yet. I'll give my opinions to why is this happening.
So let's start of with the tokenomics. The OM token circulating supply schedule can be reviewed here. To summarize that article, there are a total of 888,888,888 OM supply tokens. 75,555,555 OM tokens have been distributed publicly for staking from the 1st day of token generation event (TGE). Next, a private distribution of 80,000,000 OM tokens will be locked up with 6-month vesting period, with 1/6 of the tokens will be released on each of the 31st, 61st, 91st, 121st and 151st days upon TGE. 17.5% of total supply is for the team and advisors and will vest and come into circulation every 30 days, stating from the 181st day through the 691st day since TGE. 30% of total supply is for staking rewards and will be unlocked on a rolling basis at a decaying growth rate. 12.5% is for referrals while 10% is for the reserves to provide the MantraDAO foundation an alternate source of funding.
What does this all mean? According to the laws of supply and demand, this scheduled supply should increase the token price as the delayed supply and higher demand for the tokens will boost up the price, but according to the price chart, the price at 31st day (14/9/2020) is around $0.30, and the price at the 61st day (14/10/2020) is around $0.14. So what happen? We can look at the volume and liquidity perspective. From the price chart, the 24-hour trading volume at the all-time-high was about $110 million, while as of today the volume is only $3 million, this is a whopping 97% decrease. This means there is lower liquidity due to more and more people staking their tokens and the conditions of unstaking causes token illiquidity, while the supply will be increasing due to the scheduled OM circulation released. Furthermore, with the bearish prices, traders might wait for a better buying opportunity due to the lower liquidity, which also contributes to an even lower liquidity.
Lower liquidity also leads to less stable prices for an asset, meaning that slippage and price manipulation are risks in low liquidity environments. Dips in prices can turn into flash crashes, while the lack of market participants can lead to long waiting times.
So how can the prices go back up again? As of today, the platform is not ready as only staking is supported. When the platform is fully functional, there will be more use cases for the OM token which pushes demand for the token and increases the price, though it is unclear whether the staking conditions will change by shortening the staking period to increase the liquidity. If more big exchanges such as Binance, Kraken, KuCoin etc listing OM tokens, higher liquidity can be achieved which stabilizes the OM price.
Is MantraDAO trustable?
MantraDAO uses Rio Chain, which claims to be a secure and scalable blockchain that will connect to the Polkadot network. Rio chain is also audited from CertiK which also audit the likes of NEO, ICON and Crypto.com. The council members comprises of people with wealth of experiences, with John Patrick Mullin, Will Corkin and James Anderson are ambassadors for the Polkadot ecosystem and are advisors for RioDeFi. I've been following the Twitter and Reddit official MantraDAO pages, where I found the constant updates especially on the partnerships with the likes of Band Protocol and Kava to be quite bullish about the progress of the platform. John is also active in Twitter and updates a lot on the platform progress and his personal life, which shows his authenticity. I've also watched the interviews with John (You can check on the 1 hour+ interview between him and BlockchainBrad regarding the project), and found his way of answering to Brad's hard questions to be quite confident and bullish. However, there's no response from the council members about the recent price drops so this is also something to be taken note of.
Q4 2020 will be the key to the token ecosystem as the launch of mantrapool, enhanced lending/staking suite, integration of compound lending protocol and mobile app will be the next releases for this quarter. I don't see much red flags to this project other than the price falls due to lack of liquidity and the platform not being fully ready. For me, I've recently bought and staked some of my funds to OM at an average price of $0.10++, I will DCA a bit more but will only be a small part in my investment portfolio until the platform is ready for its use cases. It's important to do your own research and make a decision, while never risk more of your funds into projects which are not fully ready and require the funds to be locked. Let me know in the comments if I missed something.