Developed by Mento Labs, the Mento Protocol leverages Web3 technology to create a more transparent and decentralized alternative to conventional stablecoins like USDT, DAI, and USDC, which are often pegged to the US dollar. By offering multi-currency stable assets not limited to the USD, the Mento Protocol aims to build a more equitable and fair financial landscape, especially for emerging markets that need access to stable digital currencies without reliance on the USD so that non-US citizens can protect their savings against the depreciation of local currency.

What is the Mento Protocol?

Mento is a transparent and decentralized EVM protocol on the Celo blockchain that enables users to build, operate, and launch stable currencies that track the value of fiat currency, such as stablecoins. Mento aims to push the adoption of digital currency in real-world assets worldwide. Mento is currently live on the Celo blockchain, supporting various stablecoins, including the Celo Dollar (cUSD), Euro (cEUR), Brazilian Real (cReal), CFA Franc (eXOF), Celo Kenyan Shilling (cKES), and Puso (PUSO). All Mento assets are fully collateralized with a diversified portfolio of exogenous crypto assets.

Mento Protocol Background’s

Mento Protocol is a product of Mento Lab, founded in 2022 in Germany. The protocol addresses the need for stable and accessible financial tools. As a private service, Mento Lab raises $10 million in funding from notable investors and ventures such as Hashkey Capital, Richard Parsons, Verda Ventures, w3.fund, and Flori Ventures. These leaders bring expertise in blockchain, finance, and technology. Here’s the leadership structure at Mento Labs:

• Markus Franke: Co-Founder, Chief Executive Officer & Managing Director.
• Bogdan Dumitru: Co-Founder, Managing Director & Chief Technology Officer.
• Roman Croessmann: Co-Founder, Chief Research Officer & Managing Director.
• Max Jahn and Luuk Weber: Advisor.

Core Concepts of Mento Protocol

The Mento Protocol revolves around several core concepts that support its functionality as a decentralized platform for stable assets. These concepts are:

Stability

Mento allows users to create stablecoins pegged on fiat currency, goods, or other reference prices. To make stablecoins stable, Mento provides a stability mechanism so users can adjust the supply of stable assets in response to changes in demand by allowing users to use or exchange reserve crypto assets. This mechanism allows users to increase supply by sending one reference unit worth of a reserve asset to the reserve and receiving one stable asset in exchange.

Exchange mechanism to keep assets stable

Reserve

Mento Reserve is a portfolio of crypto assets that support the Mento protocol. This mento reserve helps users to keep the digital assets stable by utilizing it. The reserve asset selection is done by Celo governance. Reserve assets must be freely traded and settled 24/7 on liquid markets and should be based on an open-source protocol. If assets are Celo native, then they will be held in reserve smart contracts, but the non-Celo will be held in licensed custodians in a country that is not blacklisted.

Asset exchanges

This mechanism allows to exchange assets with the Mento Reserve and serves two roles in the protocol. First is in service of the stability, and second is the distribution mechanism. The whole asset exchange mechanism involves three components: brokers, exchange providers and BiPoolManager. The broker manages Treasury functions, orchestrates exchanges, and enforces trading limits, relying on exchange providers for pricing and swaps. The BiPoolManager, as the initial exchange provider, generalizes the virtual AMM pools from Mento v1.

Oracles

Mento uses Oracle on Celo for Mento protocol. On blockchain, Oracle adds off-chain information on chain in smart contracts. In the Mento Protocol, Oracles are used for exchange rates from centralized exchanges to enable the creation and exchange of stable-value assets. This setup ensures stable and accurate pricing for Mento’s asset exchanges, relying on off-chain client programs to source real-time data from external exchanges.

On-Chain Circuit Breaker

A circuit breaker is used by TradFi as a protective mechanism that temporarily pauses or limits exchange activities during abnormal events, like drastic price fluctuations or liquidity issues. The Mento uses off-chain Oracle clients to provide the exchange rate for different currencies, such as USD, BRL and EUR. So if anything happens with this predefined mechanism, Mento will halt the exchange.

Stablecoin Factory

Launching stablecoin is required, enginnering knowledge, but thanks to the Mento stablecoin factory, that makes it easy. Stablecoin Factory works as no-code tool kits that enable users to launch new assets in a permissionless and decentralized manner. Just by running the Satblecoin Factory mechanism of a smart contract and required parameters, anyone can create digital assets. After selection of parameters and deployment, the Stablecoin Factory sets up several key components to support its function:

• ERC-20 Token Contract: This establishes the stablecoin’s fundamental structure, including supply management and token standards for interoperability.
• Vault Factory: This contract handles borrower interactions, allowing users to deposit collateral in exchange for stablecoins.
• Stability Pool: The Stability Pool serves as a safeguard for the stablecoin, funding liquidations if necessary.

Governance on Mento Protocol

Until June 2024, the Mento Protocol operated under Celo’s governance, meaning any modifications to the protocol required extensive review and approval through Celo’s governance process. This led to longer times for even minor updates.

However, Mento has since transitioned to a fully autonomous governance model, becoming an independent, decentralized protocol. Now, Mento Protocol has its own governance framework, designed to ensure that decisions are both efficient and representative of the community’s diverse perspectives. To support this, Mento introduced several governance components.

• Emission Contract: A contract that emits MENTO tokens from its initial 40% allocation at a predefined schedule.
• Governance Executor: Executing queued proposals that have passed governance voting.
• Governance Factory: A contract that deployed the entire governance system.
• Governor: It allows users to vote on proposals with a minimum of 10,000 veMENTO tokens.
• MENTO Token: The Mento governance token is the system’s core token.
• veMENTO Locking: Locking MENTO in exchange for veMENTO, which grants governance power.

What is the Mento Stable Asset?

The main goal of Mento Stable Asset is to work as a pegged currency for stablecoin to protect from market volatility that is common in the cryptocurrency market. Some of its properties include:

• By using it, users can pay a gas fee in stablecoin, eliminating the need for a native token to transfer crypto. Also, the transaction fees on Celo are extremely low, significantly reducing the cost barrier for users.
• Mento stablecoin provides a decentralized structure that is different from centralized stablecoins such as USDC and USDT.
• Because stablecoin can represent any fiat currency, it offers an effective forex trading mechanism.
• If any stablecoins did not meet user requirements, then they can create their own as requirements.
• The FiatConnect API integration in Mento Protocol boosts interoperability by enabling seamless fiat on- and off-ramps for Mento stable assets.
• Integration with transaction routers can boost liquidity, accessibility, and usability, making Mento’s stablecoins more user-friendly and versatile for cross-chain transactions.
• Mento stablecoins are integrated into popular end-user-facing wallets, including Opera’s MiniPay and Valora.

What is the MENTO Token?

MENTO is a native token on the Ethereum chain of the Mento Protocol that empowers governance on the platform. The MENTO token allows stakeholders to engage actively in the platform’s development and decision-making processes. Other than the MENTO token, the platform has the veMENTO token (vote-escrowed MENTO), a governance-focused, locked version of the token that is inspired by Curve Finance. The veMENTO token holder shows long-term confidence in protocol by locking their token for one week to four years, and for commitment, protocol rewards the holders.

The total supply of MENTO tokens is one billion; a notable 45% of the initial token supply allocation is designated to the Mento Community Treasury.

Mento Roadmap

The Mento Protocol’s roadmap includes major upcoming upgrades and plans designed to make stable asset management more efficient, accessible, and scalable. Here are key areas Mento has recently completed or is actively working on to enhance its protocol:

• Deployment of the Stablecoin Factory: Making Mento to facilitate the easy creation and launch of new stablecoins. Completed in Q2 2024.
• Launch of the MENTO token: Enhancing the platform’s governance model, enabling token holders to vote on key proposals. Completed in Q2 2024.
• Initiation of Mento Governance: Completed with MENTO token launch. The platform will transition to a decentralized governance framework.
• Integration and Partnership Enhancements: Plan to partner with other Tradefi or protocols to provide more users access.
• FX Trading and Hedging Functionalities: Planning to support both individuals and businesses in managing exposure to currency volatility.

Conclusion

Mento offers a complete toolkit that allows creators to launch cost-effective and scalable stablecoins. It aims to support not only USD but also other fiat-pegged stable assets. By stabilizing the value of digital assets, these stablecoins support critical financial services like remittances, mobile payments, cross-border payments, and decentralized finance applications (savings, lending, and borrowing) that require predictable values.