DAM: Release the Liquidity of Long-tail Assets in the Polkadot Ecosystem

On July 13, 2022, the exchange rate between the US dollar and the euro reached 1:1, marking a historically significant moment. Since the 2008 financial crisis, the US dollar has remained strong against other fiat currencies. Short-term dollar weakness is usually caused by Federal Reserve policies. According to the "Dollar Milkshake Theory" proposed by Brent Johnson of Santiago Capital, the dollar shortage arises from foreign governments and companies borrowing dollars to expand capital, even though their income is not in dollars, the demand to repay dollar debts persists. However, the circulating dollars are insufficient to cover these debts, which is also one of the reasons for the "big liquidity" and has, to some extent, accelerated inflation.

In this context, the cryptocurrency market increasingly requires USD-pegged stablecoins. Currently, the most circulated "centralized" stablecoins in the market are USDT and USDC, which typically involve fiat collateralization off-chain. Although this method provides users with protection, the costs of minting and redeeming can be quite high, and there are risks associated with centralization. Consequently, decentralized stablecoins represented by MakerDAO have emerged. These protocols generate stablecoins through cryptocurrency collateralization, transferring the minting and redemption mechanisms on-chain, and incorporating incentive mechanisms to maintain the peg, featuring characteristics of decentralization and censorship resistance.

As of early August, the total market capitalization of the cryptocurrency market is approximately $1.1 trillion, with BTC, ETH, USDT, and USDC accounting for about 58% of the total market capitalization. Most DeFi protocols and services revolve around ETH. However, nearly 40% of asset holders cannot enjoy similar services, particularly users in the Polkadot ecosystem. As a project that has consistently ranked in the top ten of the cryptocurrency market capitalization, Polkadot has received a lot of attention. Those who understand Polkadot know that its current DeFi development situation is severely underestimated, possibly due to the lack of leading DeFi protocols like MakerDAO and Lido.

At the beginning of this year, Lido announced that it would be deployed on Moonbeam to provide Liquidity services for Polkadot ecosystem users. However, the performance after the launch was not as expected. This is mainly because stDOT lacks good application scenarios in the Moonbeam ecosystem.

So, how can we meet users' demands for stablecoins and Liquidity while providing services based on the actual situation of the Polkadot ecosystem? DAM has emerged.

DAM is a liquidity protocol built on Moonbeam that allows users to lend the platform's stablecoin dPRIME through over-collateralization, enabling users to release liquidity without having to sell their existing assets, thus participating more fully in Moonbeam and even the entire Polkadot ecosystem.

Moonbeam, as the "Ethereum" in the Polkadot ecosystem, plays a crucial role in deploying smart contracts and is the chain with the most ecosystems among the various parachains of Polkadot, having the highest number of XCM integrations. At the same time, Moonbeam is user-centric, has a strong track record of delivering high-quality dapps, and has secured official partnerships with leading Ethereum projects such as Curve, Lido, and Sushi.

Moonbeam founder Derek Yoo stated: "Existing cross-chain methods suffer from low asset utilization and fragmented liquidity issues." DAM, as a new type of cross-chain DeFi protocol, leverages connection contracts on Moonbeam to acquire assets from multiple blockchains, enabling the safe and efficient aggregation of liquidity and providing an exceptional user experience.

Currently, there is no native stablecoin in the Moonbeam ecosystem. Based on the vision of Polkadot's multi-chain unification, dPRIME has chosen to deploy as a multi-asset collateral stablecoin on Moonbeam, which is crucial for providing lending services to Moonbeam ecosystem users and for releasing the liquidity of long-tail assets across the entire Polkadot parachain in the future.

Unlike MakerDAO's model of generating DAI solely through staking ETH, DAM focuses on staking long-tail assets on parachains within the Polkadot ecosystem to generate dPRIME, such as GLMR, ACA, ASTR, etc. DAM places greater emphasis on the ecosystem and its assets within each parachain on Polkadot, providing liquidity release services for every user participating in the Polkadot ecosystem, targeting the diverse assets across numerous parachains of Polkadot to release liquidity and increase application scenarios.

DAM is essentially a lending platform on Moonbeam, differing from traditional lending models like Moonwell, where generating stablecoins can provide users with lower liquidation risks and create rather than transfer purchasing power. Its core revolves around the platform's two tokens: the multi-collateral stablecoin dPRIME and the platform governance token DAM.

dPRIME can be obtained through over-collateralizing mainstream and long-tail assets in the parallel chain. Borrowers deposit protocol-approved collateral into the DAM's linked-multi-collateral-vault ("LMCV") based on the total portfolio value and asset quality, requiring only a one-time mint fee.

dPRIME holders can mint and obtain dPRIME as a reserve asset on the secondary market, or convert it into other assets to seek better investment opportunities. When the borrower's vault situation is unhealthy, liquidators can receive a portion of the collateral and bonuses to pay the borrower's vault fee on time.

The platform governance token DAM can not only be used for regular community governance, voting, and deciding protocol revenues, but it can also be used to collateralize assets in the mint platform. Users can deposit DAM into the stableswap pool to obtain LP Tokens, and then stake them in places like Curve to earn ddPRIME, which can be used to mint dPRIME or other assets available for collateral, thereby incentivizing users to participate in the ecosystem.

The design features of DAM include:

1. dPRIME is over-collateralized; it is a type of debt.
2. Each asset has a cap to ensure that the protocol does not have excessive risk exposure to any single asset.
3. DAM aims to provide ddPRIME holders with more sustainable returns, namely sharing the protocol's revenue.

DAM, as the first platform on Moonbeam to support over-collateralized long-tail asset lending, will be based on Moonbeam and gradually expand to all Polkadot parachains, providing equal services to every Polkadot ecosystem user. In the future, DAM is expected to open new directions for the long-tail asset market in the multi-chain domain, allowing every user’s every asset to "run".

DAM Finance recently completed a $1.8 million Pre-seed funding round, co-led by Jsquare and DFG, with participation from institutions such as Arrington Capital, Ledgerprime, D1 Ventures, 11-11 Capital, and Stacker Ventures.

Jsquare, as an investment institution focused on research and technology, believes that DAM, as the first over-collateralized stablecoin project in the Moonbeam ecosystem, can bring better liquidity to the multi-chain universe like Polkadot, while maximizing respect for users holding diverse assets and further providing value for long-tail assets.

As a leading Web3 fund that has been deeply supporting the long-term development of the Polkadot ecosystem, DFG has always believed in the potential and future of the Polkadot ecosystem. They have been deeply involved in investments in high-quality projects such as Acala, Astar, and Efinity, and have supported their parachain slot auctions. DFG firmly believes that the current Polkadot ecosystem is severely undervalued, which is why they are very excited to participate in the DAM project.