What is Mai Finance? DeFi Protocol Guide

Mai Finance is a decentralized application acting as the front-end for the QiDao Protocol, an open-source, non-custodial stablecoin system. The protocol permits users to borrow MAI, a U.S. dollar–pegged stablecoin, without recurring interest by locking up cryptocurrency as collateral. Governance of the system is performed by a decentralized autonomous organization using the native QI token.

Overview

Users interact with the protocol by depositing approved crypto assets into smart contracts called "Vaults," which enable the minting of MAI, a soft-pegged USD stablecoin. The protocol’s primary appeal is its 0% interest borrowing structure; rather than charging ongoing interest, it levies a single repayment fee when debt is settled. This approach aims to let token holders access liquidity from their holdings without selling them or accumulating compounding interest.

Control of protocol parameters, including fee levels, collateral types, and risk settings, is exercised by the QiDao community through QI token governance. Fee revenue is partly allocated to participants who stake QI. A notable architectural choice is native multi-chain deployment, which allows MAI to be minted on multiple blockchains directly and reduces dependence on bridged asset exposures.

History

The QiDao Protocol debuted in May 2021, launching initially on the Polygon network. After the introduction, the project broadened its deployments across several other chains during late 2021 and 2022, including Fantom, Avalanche, Optimism, and Arbitrum. By January 2022, the protocol had achieved $200 million in Total Value Locked (TVL).

Mai Finance encountered indirect fallout from the Terra ecosystem collapse in May 2022. A vault that accepted aUST (the wrapped version of Terra’s UST from Anchor Protocol) was emptied as UST’s value plunged toward zero, contributing to a pronounced de-pegging of MAI.

A distinct security incident occurred on April 8, 2022, when an integration with Superfluid on the Polygon network was exploited, enabling an attacker to mint about $13 million worth of MAI without adequate collateral. That unauthorized minting triggered a sharp de-peg of MAI. The QiDao team proposed a compensation plan for impacted users and employed buybacks and other stabilization measures to restore the peg. Earlier, in February 2022, the project’s vesting contract had been exploited, although user funds held in vaults were reported to remain safe.

MAI has experienced additional episodes of price instability; notably, in October 2023 MAI materially de-pegged, dropping to an all-time low near $0.65. Such occurrences underscore the vulnerability of crypto-collateralized stablecoins during market turmoil or following security breaches.

Technology and Mechanism

QiDao is derived from the MakerDAO design and follows a comparable overcollateralized debt model. Its system is organized into multiple components that collaborate to enable borrowing and preserve the solvency of the stablecoin.

Vaults and MAI Minting: The principal capability of Mai Finance is to let users generate MAI via Vaults, which are non-custodial smart contracts operating as Collateralized Debt Positions (CDPs).

MAI Stablecoin and Peg Stability: MAI is a decentralized stablecoin lightly pegged to the U.S. Dollar; on Polygon it is commonly referenced by the ticker miMATIC. The protocol uses various mechanisms to support this peg.

• Deposit Collateral: A user deposits an approved crypto asset into a Vault.
• Mint MAI: The user may then mint (borrow) MAI stablecoins backed by the value of their collateral.
• Overcollateralization: All debt positions are overcollateralized, requiring the locked collateral’s value to exceed the borrowed MAI. Each Vault enforces a Minimum Collateral Ratio (MCR) that reflects the asset’s volatility. For instance, a stablecoin such as USDC may have an MCR of 110%, whereas a more volatile token like MATIC might require an MCR of 150% or higher.
• Repayment: To recover their collateral, the user must repay the borrowed MAI principal plus a one-time repayment fee. No ongoing interest is charged on the debt.
• Over-collateralization: The chief stability safeguard is that every MAI outstanding is backed by crypto assets whose value is greater than the MAI in circulation.
• Arbitrage: Market incentives encourage arbitrage. If MAI trades below $1, traders can profit from the gap. If MAI trades above $1, actors are motivated to mint MAI and sell it, increasing supply and nudging the price down toward the peg.
• Redemption Mechanism: The system supports direct redemptions whereby 1 MAI can be swapped for $1 worth of protocol collateral, establishing a hard floor and a mechanism to uphold the peg.
• Peg Stability Module (PSM): Also called the "Anchor" module, the PSM permits swaps of approved stablecoins (for example USDC) for MAI at a 1:1 rate minus a small fee, furnishing a direct arbitrage path to help keep MAI near $1.
• Polygon
• Ethereum

Protocol Economics

Revenue Model: Although loans carry a 0% interest rate, the QiDao protocol collects revenue through several fee streams.

Revenue Distribution: Income amassed by the protocol is split between the DAO treasury and QI stakers. An analysis by Exponential.fi details the allocation. Rewards for stakers are accrued weekly and distributed on the subsequent Wednesday.

• Repayment Fee: A one-time fee, typically 0.5%, is charged on the debt amount when a user repays their loan to unlock their collateral. This fee is paid in the collateral asset.
• Liquidation Penalties: A penalty is applied during liquidations, with a portion of the proceeds directed to the protocol.
• Anchor Module Fee: A fee is charged for minting or redeeming MAI through the Peg Stability Module (Anchor).
• Direct Deposit Module (DDM) Revenue: The protocol deploys its protocol-controlled assets into external money markets to earn interest.
• Repayment Fees: 30% to QI stakers, 70% to the treasury.
• Anchor Fees: 30% to QI stakers.
• DDM Revenue: 50% to QI stakers, 50% to the treasury.
• Deposit Fees on LP Tokens: 100% to QI stakers.

Governance and Tokenomics

QI Token: QI serves as the native governance and revenue-sharing token of the QiDao Protocol. Holders of QI can draft and vote on QiDao Improvement Proposals (QIPs) that affect protocol settings, such as introducing new collateral types, changing fees, or directing treasury allocations. Governance discussions often begin as community ideas (QiDao Community Ideas or QCIs) and can progress to formal QIPs that are voted on using platforms like Snapshot.

eQI and aveQI: Users can lock QI tokens to engage in governance and receive an escrowed, non-transferable token called eQI or aveQI in return. The quantity of eQI issued corresponds to both the amount of QI locked and the lock duration, which can be up to four years. Possession of eQI confers two principal benefits, and holders of aveQI may also take part in gauge weight voting to steer QI token emissions toward particular liquidity pools and farms within the ecosystem.

• Boosted Voting Power: Greater influence in governance votes.
• Enhanced Revenue Share: A larger share of the protocol's revenue, distributed in MAI.