MOET Core Concepts
This guide explains the fundamental mechanics of MOET and how it functions within the Flow Credit Market ecosystem.
What Makes MOET Different
MOET is fundamentally different from traditional stablecoins like USDC or DAI. Rather than existing as an independent token backed by separate reserves, MOET is directly integrated into the lending protocol as the protocol debt token.
Comparison with Other Stablecoins
| Feature | MOET | USDC | DAI |
|---|---|---|---|
| Backing | Over-collateralized debt positions | Fiat reserves held by Circle | Crypto collateral in Maker vaults |
| Issuance | Minted when users borrow from ALP | Minted when fiat deposited | Minted when users lock collateral |
| Supply Control | Automatic (tied to borrowing demand) | Centralized (Circle controls) | Decentralized (MakerDAO governance) |
| Use Case | FCM ecosystem (lending, yield) | General payments, DeFi | General DeFi usage |
| Peg Mechanism | Over-collateralization + liquidations | 1:1 fiat redemption | Stability fee + DSR + liquidations |
The key insight is that MOET doesn't need separate reserves because every MOET token represents debt backed by collateral already locked in ALP positions.
The Lifecycle of MOET
Understanding MOET requires following its complete lifecycle from creation to destruction:
1. Creation (Minting)
MOET tokens are created when users borrow from their ALP positions.
Example: Alice Deposits Collateral
_29Initial State:_29├── Alice has: 1000 FLOW tokens_29├── FLOW price: $1.00_29├── MOET supply: 10,000 tokens (existing)_29_29Alice's Action:_29├── Deposits: 1000 FLOW into new ALP position_29├── Target Health Factor: 1.3_29├── Collateral Factor for FLOW: 0.8_29_29Calculation:_29├── Total Collateral Value: 1000 × $1.00 = $1,000_29├── Effective Collateral: $1,000 × 0.8 = $800_29├── Max Borrow: $800 / 1.3 = $615.38 MOET_29└── ALP auto-borrows: 615.38 MOET_29_29Minting Process:_29├── Protocol Minter creates: 615.38 new MOET tokens_29├── Tokens deposited into: Alice's position_29├── MOET supply increases: 10,000 → 10,615.38_29└── Alice's debt recorded: 615.38 MOET_29_29Result:_29├── Alice's Position:_29│ ├── Collateral: 1000 FLOW ($1,000)_29│ ├── Debt: 615.38 MOET_29│ └── Health Factor: $800 / $615.38 = 1.30 ✓_29├── Alice's Wallet: 615.38 MOET (to use for yield farming)_29└── Total MOET Supply: 10,615.38 tokens
Key Principle: Every MOET minted increases a user's debt and must be repaid later.
2. Utilization (Capital Deployment)
Once minted, MOET flows through the FCM ecosystem to generate yield.
Alice's MOET Journey:
_18Step 1: Borrow from ALP_18├── Alice's position borrows: 615.38 MOET_18└── MOET created and ready for deployment_18_18Step 2: Flow to FYV (via DrawDownSink)_18├── MOET automatically flows to: FYV TracerStrategy_18├── No manual transfer needed (DeFi Actions handle it)_18└── Alice's 615.38 MOET enters yield generation_18_18Step 3: Convert to Yield Assets_18├── FYV swaps: 615.38 MOET → 615.38 LP tokens_18├── LP tokens are yield-bearing (e.g., AMM liquidity positions)_18└── AutoBalancer holds LP tokens in optimal vault_18_18Step 4: Yield Generation_18├── LP tokens earn: Trading fees, liquidity rewards_18├── After 30 days: 615.38 LP → 640 LP (+4% yield)_18└── Value growth: $615.38 → $640.00 (+$24.62)
Key Principle: MOET doesn't sit idle - it's immediately deployed to generate returns that exceed the borrowing cost.
3. Rebalancing (Risk Management)
MOET enables automated position protection through yield-powered rebalancing.
Scenario: FLOW Price Drops
_31Market Event:_31├── FLOW price drops: $1.00 → $0.80 (-20%)_31├── Alice's collateral value: $1,000 → $800_31├── Effective collateral: $800 × 0.8 = $640_31└── Health Factor: $640 / $615.38 = 1.04 (DANGER!)_31_31Automated Response:_31├── ALP detects: HF < 1.1 (minimum threshold)_31├── Target: Restore HF to 1.3_31├── Required debt: $640 / 1.3 = $492.31_31├── Must repay: $615.38 - $492.31 = $123.07 MOET_31└── ALP pulls from TopUpSource (FYV)_31_31FYV Provides Liquidity:_31├── FYV checks balance: 640 LP tokens available_31├── Converts: 123.07 LP → 123.07 MOET (via SwapConnector)_31├── Sends: 123.07 MOET to ALP (via TopUpSource)_31└── Remaining: 517 LP tokens still generating yield_31_31Debt Repayment:_31├── ALP receives: 123.07 MOET_31├── Burns: 123.07 MOET (supply decreases)_31├── New debt: 615.38 - 123.07 = 492.31 MOET_31└── New HF: $640 / $492.31 = 1.30 ✓ (restored!)_31_31Result:_31├── Liquidation prevented automatically_31├── Position health restored_31├── Alice keeps all collateral_31├── Yield continues with remaining 517 LP tokens_31└── Total MOET supply: 10,615.38 → 10,492.31
Key Principle: MOET serves as the common denominator for debt, enabling seamless value transfer between yield sources and debt obligations.
4. Destruction (Burning)
MOET tokens are permanently destroyed when debt is repaid.
Alice Closes Her Position:
_28Final State:_28├── Collateral: 1000 FLOW @ $1.00 = $1,000_28├── Debt: 492.31 MOET (after rebalancing)_28├── FYV Holdings: 517 LP tokens worth $517_28├── Accrued Interest: 30 days @ 5% APY = ~$2.05_28_28Closure Process:_28Step 1: Liquidate Yield Position_28├── FYV converts: 517 LP → 517 MOET_28├── Alice now has: 517 MOET available_28└── Debt to repay: 492.31 + 2.05 = 494.36 MOET_28_28Step 2: Repay Debt_28├── ALP receives: 494.36 MOET from FYV_28├── Burns: 494.36 MOET (automatic on repayment)_28├── Debt cleared: 494.36 - 494.36 = 0 MOET_28└── Total MOET supply: 10,492.31 → 9,997.95_28_28Step 3: Withdraw Collateral_28├── Health Factor: infinite (no debt)_28├── Alice withdraws: 1000 FLOW_28└── Position closed_28_28Alice's Profit:_28├── MOET remaining: 517 - 494.36 = 22.64 MOET_28├── Value: $22.64_28├── ROI: $22.64 / $1,000 = 2.26% for 30 days_28└── Annualized: ~27% APY
Key Principle: Burning MOET reduces total supply, ensuring supply always equals outstanding debt.
How MOET Maintains Its Peg
While MOET is a mock token in testing, the production version relies on several mechanisms to maintain its $1 peg:
Over-Collateralization
Every MOET is backed by collateral worth significantly more than $1.
Collateralization Calculation:
_13Position Parameters:_13├── Collateral Factor (CF): 0.8 (80% of value usable)_13├── Target Health Factor (HF): 1.3_13└── Typical Collateralization = CF × HF = 0.8 × 1.3 = 1.04_13_13For $1 of MOET debt:_13├── Effective Collateral Required: $1.30 (due to HF = 1.3)_13├── Total Collateral Required: $1.30 / 0.8 = $1.625_13└── Collateralization Ratio: 162.5%_13_13Buffer Against Price Drops:_13├── Collateral can drop: ($1.625 - $1.00) / $1.625 = 38.5%_13└── Before reaching liquidation threshold (HF = 1.0)
This substantial over-collateralization provides safety margin for price volatility and creates confidence that MOET is redeemable for its backing collateral.
Liquidation Mechanism
When positions become under-collateralized (HF < 1.0), liquidators can repay debt to seize collateral at a profit.
Liquidation Example:
_23Under-collateralized Position:_23├── Collateral: 1000 FLOW @ $0.60 = $600_23├── Effective Collateral: $600 × 0.8 = $480_23├── Debt: 615.38 MOET_23├── Health Factor: $480 / $615.38 = 0.78 < 1.0 ⚠️_23└── Status: Liquidatable_23_23Liquidator Action:_23├── Liquidator has: 200 MOET_23├── Repays: 200 MOET of Alice's debt_23└── Goal: Profit from liquidation bonus_23_23Collateral Seizure (Simplified Formula):_23├── Formula: CollateralSeized = (DebtRepaid × (1 + Bonus)) / PriceCollateral_23├── Calculation: (200 × 1.05) / $0.60 = 350 FLOW_23├── Liquidator receives: 350 FLOW worth $210_23└── Profit: $210 - $200 = $10 (5% return)_23_23Result:_23├── Liquidator profit incentivizes MOET buying pressure_23├── Ensures MOET remains valuable for liquidation participation_23├── Creates natural demand floor for MOET_23└── Helps maintain peg during market stress
Key Principle: Liquidations create buying pressure for MOET, as liquidators need MOET to participate in profitable liquidations.
Arbitrage Opportunities
If MOET trades away from $1, arbitrage opportunities arise:
MOET Trading Above $1 (e.g., $1.05):
_10Arbitrage Strategy:_101. Deposit $1,625 of FLOW collateral_102. Borrow 1,000 MOET (valued at $1,000)_103. Sell 1,000 MOET for: $1,050 (at $1.05 market price)_104. Profit: $1,050 - $1,000 = $50_105. Result: Increased MOET supply pushes price down toward $1
MOET Trading Below $1 (e.g., $0.95):
_10Arbitrage Strategy:_101. Buy 1,000 MOET for: $950 (at $0.95 market price)_102. Repay $1,000 MOET debt (valued at $1,000)_103. Saved: $1,000 - $950 = $50 on repayment_104. Withdraw collateral (now unlocked)_105. Result: Increased MOET demand pushes price up toward $1
Key Principle: Market participants profit from deviations, naturally stabilizing MOET around $1.
MOET as Unit of Account
All prices in FCM are denominated in MOET, creating a consistent pricing framework:
Price Quotes
_10Collateral Prices (in MOET):_10├── FLOW/MOET: 1.0 (1 FLOW = 1 MOET)_10├── stFLOW/MOET: 1.05 (liquid staking premium)_10├── USDC/MOET: 1.0 (stablecoin parity)_10├── wBTC/MOET: 65,000 (Bitcoin price in USD)_10└── wETH/MOET: 3,500 (Ethereum price in USD)
This MOET-denominated pricing simplifies multi-collateral calculations:
Health Factor with Multiple Collateral Types:
_14Alice's Position:_14├── Collateral:_14│ ├── 500 FLOW @ 1.0 MOET = 500 MOET value × 0.8 CF = 400 effective_14│ ├── 100 stFLOW @ 1.05 MOET = 105 MOET value × 0.85 CF = 89.25 effective_14│ └── 1,000 USDC @ 1.0 MOET = 1,000 MOET value × 0.9 CF = 900 effective_14├── Total Effective Collateral: 400 + 89.25 + 900 = 1,389.25 MOET_14├── Debt: 1,068.65 MOET_14└── Health Factor: 1,389.25 / 1,068.65 = 1.30 ✓_14_14Calculation Benefits:_14├── No currency conversion needed_14├── All values in common denomination (MOET)_14├── Simplified real-time health monitoring_14└── Efficient on-chain computation
Key Principle: MOET as unit of account eliminates complex cross-currency calculations, enabling efficient multi-collateral lending.
Interest Accrual on MOET Debt
MOET debt grows over time through interest, using a scaled balance system:
Scaled Balance System
Instead of updating every position's debt continuously, the protocol uses interest indices:
_15Interest Index Growth:_15├── Initial Index (I₀): 1.0_15├── After 1 year @ 10% APY: I₁ = 1.1_15├── After 2 years @ 10% APY: I₂ = 1.21_15└── After 3 years @ 10% APY: I₃ = 1.331_15_15User's Debt Calculation:_15├── Scaled Balance: 1,000 MOET (stored once)_15├── Current Index: 1.1 (after 1 year)_15└── True Balance: 1,000 × 1.1 = 1,100 MOET_15_15Benefits:_15├── Gas Efficient: Only update global index, not individual balances_15├── Automatic Compounding: Interest compounds continuously_15└── Accurate: Precise interest calculation at any time
Interest Rate Model
Interest rates adjust based on utilization to balance supply and demand:
_13Utilization Rate = Total MOET Borrowed / Total MOET Available_13_13Interest Rate Curve:_13├── 0-80% utilization: 2-8% APY (cheap borrowing)_13├── 80-90% utilization: 8-20% APY (balanced)_13└── 90-100% utilization: 20-50%+ APY (expensive, discourages borrowing)_13_13Example:_13├── Total MOET Deposits: 100,000 MOET_13├── Total MOET Borrowed: 85,000 MOET_13├── Utilization: 85%_13├── Current Interest Rate: ~15% APY_13└── Borrowers pay: 15% APY on debt
Key Principle: Utilization-based rates create self-balancing markets without manual intervention.
Summary: Key Concepts for Analysts
Understanding MOET requires grasping these core principles:
-
MOET is Protocol Debt: Every MOET represents borrowed value, not a separate reserve-backed asset
-
Mint-and-Burn Model: Supply dynamically adjusts with borrowing activity (mint on borrow, burn on repay)
-
Over-Collateralization: Typical 162.5% backing provides substantial safety margin
-
Automated Capital Flows: DeFi Actions enable MOET to move seamlessly between ALP and FYV for yield generation
-
Unit of Account: MOET-denominated pricing simplifies multi-collateral calculations
-
Liquidation Creates Demand: Profitable liquidations incentivize MOET accumulation
-
Arbitrage Maintains Peg: Deviations from $1 create profit opportunities that naturally stabilize price
-
Utilization-Driven Rates: Interest rates automatically adjust to balance borrowing demand
These concepts form the foundation for understanding MOET's role in FCM's capital-efficient yield generation system.
Next Steps
- Tokenomics: Deep dive into supply dynamics, minting mechanics, and economic models
- System Integration: Learn how MOET connects ALP, FYV, and FCM components
- Stability Mechanisms: Understand risk management, oracles, and safety measures