C. Existing Problems

Usually, governance Token holders are expected to manage the economic parameters of their system (such as setting fees), to optimize the protocol for maximum benefits. However, in practice, on-chain governance has always been a difficult and contentious topic, due to issues like low voter turnout, potential misalignment of incentives, and power concentration in the hands of a few:

1. Current platforms typically require individual borrowers to have significantly over-collateralized assets, in addition to charging a stability fee.

2. This leads to inefficient capital utilization, as borrowers often maintain a higher collateral ratio than the minimum level in practice.

3. Existing platforms require over-collateralization because their liquidation mechanisms only apply to under-collateralized positions. Both collateral auctions and fixed-price auctions are inefficient by design and need improvement. Finally, due to the absence of direct arbitrage cycles, crypto-backed stablecoins often cannot be redeemed at face value nor guaranteed to maintain a hard peg.

4. These systems lack any issuance or redemption mechanisms, preventing arbitrageurs from making guaranteed profits by purchasing newly minted stablecoins or selling them back to the protocol when the price deviates from the peg. Instead, these systems rely on a less effective soft peg mechanism, which stabilizes the exchange rate by making loans more or less attractive through variable fees. As a result, crypto-backed stablecoins typically exhibit higher price volatility compared to fiat-backed stablecoins.

Despite the availability of various products, bonds have not received much attention. A bond is defined as a "fixed-income instrument representing an investor's loan to a borrower." Essentially, bondholders are creditors of the issuer. Some bond details include:

● When the loan principal is due

● Terms of the variable or fixed (most common) interest paid by the borrower

● Although bonds are widely discussed in the traditional financial system, they are not as popular in the DeFi space. This is the goal Mortonn Finance aims to achieve.