Architecture

Architecture Overview

Mystic has been forked and built upon the foundational architecture of Aave v3, a decentralized, non-custodial liquidity protocol. We have then built a novel isolated vault system on top of it, which allows for more flexible and controlled asset management while retaining the core security and functionalities that have made Aave a trusted name in decentralized finance (DeFi). And to adjust for RWAs, we have made a series of compliance-minded choices that prioritize readiness for these assets. Let's look into all of this in further detail.

Forking Aave v3 - Core Pools

Core pools are all of Mystic's non-isolated pools. They are made up of blue-chip assets exclusively and share risk and liquidity with each other. Do mind, this means that supplying / borrowing to a core pool means gaining exposure to the core pools market at large. These core pools are the base layer of Mystic and work exactly like Aave 3, with all its introductions in capital efficiency and gas optimization. Some things to consider in core pools include:

• Isolation Mode: Allows assets with higher risk profiles to be safely used as collateral in isolated lending environments.

• eMode (Efficient Mode): Enhances borrowing power for assets with correlated price movements.

• Supply and Borrow Caps: Limits supply/borrow for better risk management in a specific asset.

Our protocol leverages these innovations while adding an additional layer of modularity through our very own isolated vault system, which allows for more customized risk management.

Isolated Vaults

The isolated vault system enables the creation of wrappers around a set of liquidity pools, which effectively isolates them from whatever happens elsewhere on the protocol. The pools within a specific vault all share supply-side liquidity, which helps solve RWA's fragmented liquidity problem, as tokens with the same underlying asset can now share liquidity.

This architecture provides several benefits, and is ideal for RWAs at large. For one, vault creators/curators can define which pools to include in a specific vault, thus being able to adjust their composition to specific risk profiles. These curators can also adjust vault-specific parameters based on the underlying pools, which enables them to be responsive to market volatility or other unexpected circumstances. In addition to all this, this architecture eliminates cross-pool exposure and improves capital efficiency for all markets. For now, only Mystic can create vaults. A system is being studied wherein other whitelisted entities will be able to create vaults as well.

Having an isolated vaults system in place enables much better risk and liquidity management whilst also not compromising on the features that have made Aave v3 so powerful.

RWA Readiness

Since our main objective is to better support Security Tokens and RWAs, we've had to make a series of changes to the protocol which put compliance first. They have been:

• KYC implementation - KYC access is set at the pool-level in Mystic, and pools can be either permissionless, semi-permissioned or fully permissioned. Read more here.

• Custodian integration - Mystic is fully integrated with a custodian, which enables us to store assets both in our pools or with a custodian whenever compliance mandates it. Read more here.