Protocol Economics
Value flows, fees, incentives, and revenue in Mento V3. For the design rationale (why oracle pricing, no LVR), see FPMMs.
Where value goes
Every swap pays a fee (split between LP fee and protocol fee). LPs earn from swap volume; the protocol earns a share of fees. When the pool's inventory drifts (e.g. too much of one token), only allowlisted liquidity strategies can rebalance: the pool sends one token to the strategy and receives the other at the oracle rate. The strategy may keep a capped rebalance incentive (the pool enforces a minimum repayment), so value loss to the pool is bounded and keepers/strategies can earn for providing rebalancing.
Backing and rebalancing sources. USDm and EURm are Reserve-backed: the protocol Reserve holds fiat-backed collateral (USDC, USDT, EUROC, etc.) and a Reserve liquidity strategy rebalances the relevant FPMM pools by minting/burning stables and moving collateral. GBPm and other synthetic stables are CDP-backed (Liquity v2–style): users deposit USDm as collateral and borrow the synthetic stable; a CDP liquidity strategy rebalances using the stability pool and borrowing/repayment. Governance sets Reserve composition, strategy parameters, and which strategies are allowlisted on each pool.
Safety and governance. TradingLimitsV2 (per-token net flow caps) and an on-chain circuit breaker (e.g. halt when the oracle is invalid or stale) protect pools when the oracle is wrong or manipulated. Governance—driven by MENTO token holders—controls protocol parameters (fees, rebalance incentives, TradingLimitsV2, circuit breaker thresholds), oracle and feed configuration, pool allowlists, and Reserve policy. See Understanding Mento Governance and MENTO Tokenomics.
MENTO token. MENTO is the protocol's governance and value-accrual token. Holders vote on parameter changes, oracle config, and treasury use. Locking MENTO as veMENTO (vote-escrowed) increases voting power (longer lock = more weight). Governance can direct protocol revenue (trading fees, reserve yield, CDP interest, rebalancing-related fees) toward uses such as MENTO buybacks, treasury growth, and liquidity programs. In the current design, value is expected to flow to MENTO holders indirectly through protocol-driven MENTO token buybacks, not through direct revenue sharing with veMENTO holders. See MENTO Tokenomics and veMENTO & Voting Power.
Incentive structure (V3)
Unless noted otherwise, the figures below are examples of the mechanism. For current deployed values, see Parameters.
Incentives align five groups: CDP borrowers, Stability Pool (SP) depositors, FPMM LPs, keepers/facilitators, and MENTO token holders.
CDP borrowers
Pay ongoing interest; can take a short position by selling the stable or earn by providing liquidity in the SP or FPMM.
Stability Pool
Holds deposited stables to backstop liquidations; earns a governable share of borrower interest (SP_YIELD_SPLIT) plus liquidation gains. In the currently documented GBPm/Celo deployment, SP_YIELD_SPLIT = 75%.
FPMM LPs
Earn trading fees at the oracle price; may receive MENTO emissions (governable). On CDP-backed pools they also fund the pool's capped rebalancing incentives.
Keepers
Earn bounties for triggering rebalances (e.g. block expansions, redemptions).
MENTO holders
Govern parameters (fees, sp_yield_split, rebalance incentives, emissions) and treasury use (e.g. buy-backs, LP/SP incentives).
Revenue overview (CDP-backed pools)
The table below uses the currently documented GBPm on Celo deployment as the concrete reference point where the docs provide one. Values may differ by pool and chain.
Borrower interest
SP_YIELD_SPLIT = 75%
Stability Pool depositors
Borrower interest
25% treasury share
Mento Protocol Treasury
Liquidations
LIQUIDATION_PENALTY_SP = 5%
Stability Pool depositors
Redemption fees
REDEMPTION_FEE_FLOOR = 0.5%
Redeemed CDPs
FPMM trading fees
LP fee + optional protocol fee
FPMM LPs; protocol
CDP strategy liquidity-source incentive
0.05% on expansion; 0.05% on contraction; protocol split 0%
Liquidity source used by the strategy
MENTO emissions
Governable
LPs, keepers, partners (bootstrapping; expected to taper)
Reserve-backed pools (USDm, EURm) do not have CDP interest or SP; rebalancing is via the Reserve strategy with a capped rebalance incentive.
Risks
For protocol risks—oracle manipulation, reserve and inventory risk, smart contract and blockchain risk—see Risk overview.
Next steps
FPMMs — Design rationale, invariant, operations.
Governance & MENTO — How the protocol is governed.
Security — Risk overview and audit reports.
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