The 88 Mph platform, as the name suggests, aims to speed up to generate an increasing yield over users’ deposits.
The project employs a low-profile team based in Estonia, so-called Bacon Labs, also responsible for other Ethereum-based startups such as Betoken and Fantastic12.
A Brief Background of 88 Mph
First, we need to understand the concept behind financial operations which involve APY.
APY is an acronym for Annual Percentage Yield. It can be explained as the actual rate of return the customers using this type of operation will earn in one year if the interest is compounded.
Over one year, compound interest is added periodically to the total invested by the customer, which will lead to an increase in balance. So, each interest payment will be larger, based on the higher balancer.
This type of interest leveraging can be quite interesting for investors, as the more often the interest rate is compounded, the better the returns will be.
How Does 88 Mph Work?
88 Mph is a platform where users can lock up their DAI, to earn upfront (payment in advance) fixed APY (Annual Percentage Yield) after a year.
Any customer needs to connect his Ethereum wallet into the platform and start depositing DAI into the pool. Once the deposit is locked, the funds have to stay this way for at least 91 days.
So, while the customer has a fixed APY applied instantly over his deposited digital dollars, it will start producing interest throughout the lock period for the platform’s pool at a variable APY (which uses Compound and Aave protocol as an underlying lending mechanism), which serves to ensure 88mph’s pool stability.
Although on their home page the platform promises customers earnings with 2.7545% upfront fixed-rate interest over deposits, they also state that is the rate for a one-year deposit only, so users are exposed to their own risk.
Customers can withdraw their initial deposit before it reaches maturity but being required to pay a penalty (billed equal to the upfront interest plus a 10% fee over the value), or when the 91-day period is over.
The project is still running a Beta version, with upcoming upgrades coming soon probably.
Explaining it (In Layman’s Terms)
How would it be if a user by the name of Anonymous deposited 100 DAI into 88mph yield-mechanism for one year?
First, as soon as this first 100 DAI was transferred into the platform, part of it would be returned to Anonymous wallet as an upfront (like 15 DAI, for example).
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The 88 Mph would remain with the 85 DAI left and lend it out using a lending protocol, hence generating interest for one year. Here is where Compound and Aave Protocol step into the game, as they are specialized in lending/borrowing to generate interest.
At the end of one year, it will be possible for anonymous to withdraw his initial 100 DAI.
Surpassing Obvious Issues
However, the way used by 88 Mph to do that can generate some controversy, as this operation seems to offer even more risk if we consider all factors.
So, why would users opt for it, anyway? And what if the Compound protocol fails to generate the remaining 15 DAI of interest? How the customer can be secured that the original amount will be returned?
88mph aims to solve it by pooling the deposits together, meaning to put all the deposited DAI into a single pool, from which customers can withdraw a deposit once the required one-year period is over.
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Besides, there is also a risk balancing factor. If the Compound protocol interest rate increases after a deposit, the interest generated by the lent value can surpass the upfront received by the user.
This way, it would be possible to balance out the deficit generated by deposits which suffered a decrease in the interest rate. Hence, the risk of potential insolvency can be reduced, while stability associated with interest rates is supported.
There is also the risk of overlapping deposit periods. This situation happens when an older deposit wasn’t able to generate the expected interest to cover the deficit started by the upfront, and the deadline for the deposit is coming soon.
For this, 88 Mph uses the newer deposit to partially solve the issue (at least temporarily), as the funds of new deposits cover the deficit when the older depositor withdraws his funds.
Anything is perfect, so isn’t 88 Mph approach. However, it is important to notice that these two combined solutions seem to be fully capable of balancing risk and volatility issues, maintaining the platform’s pool decently liquid to operate properly.
Despite the cool 80’s retro design and the “Back To The Future” concept-based aesthetic of the platform, their financial results don’t seem so interesting as it may sound.
The project surely had put some effort to deliver an innovative idea, especially when users can earn an upfront APY just by depositing DAI into the 88Mph’s pool. However, despite their solutions concerning risk balancing and overlapping deposit periods, the platform purpose sounds better than it turns out to be.