Meld Report
Overview
Meld is a decentralized protocol for users to take out fiat loans collateralized by their crypto assets. The deposited collateral is used for yield farming until the loan is paid back. Meld is based on the Cardano blockchain and the primary innovation is the decentralization of the fiat side of the loans. This project is still in development with MELD wallet coming in Q4 2021 and Meld Yield Vaults coming in Q1 2022.
3 Key Highlights
- Users can take out crypto-backed fiat loans to avoid a taxable event
- Built on the Cardano blockchain
- Fully decentralized, including fiat component
Value-add
Why is ecosystem valuable?
Individuals may have significant crypto holdings, but need fiat for a life event like buying a house or getting married. Businesses may be primarily transacting in crypto, but need fiat to pay bills. For both individuals and businesses, fiat loans can help them avoid or delay selling crypto and triggering a taxable event.
Objectives
Objective 1: Build a strong treasury to defend against margin calls
Objective 2: Always keep LTV above 100%
Objective 3: Create products that help the community
Systematic Risks & Constraints
- Regulatory risks around crypto lending and crypto/fiat transfers
Potential Solution
- Significant decentralization, but this may be impractical to implement with the fiat component
- Proactive regulatory compliance
- Incorporate outside the US
Token High-Level Summary
Token Summary
MELD is a native token of the Cardano ecosystem.
Ecosystem
- ETH, renBTC, and BNB will be the initial assets, through wrapping on the Cardano blockchain and using Polygon/BSC. More ERC20 and BEP20 tokens will be added later on
Market Design
Design of the environment in which the tokens and users exist in
1. Thickness of Market
- MELD will start by building a strong community of stakeholders through the Initial Stake Pool Offerings (ISPO) and a referral program
- Strategic partnerships with other crypto/blockchain platforms that will integrate MELD as a financial product, giving access to a larger userbase
- Influencer and content marketing to bring in users
2. Reduce Congestion
- MELD is building on Cardano, which will allow for low cost and fast transactions
3. Safety
- The MELD team has plans to get third-party audits
4. Ease of Use
- approvals are instant with no credit check required
- personal and business loans are available worldwide
Mechanism Design
Rules of the game that people have to follow
Governance
1. Decision Making
Stage 1- Early Days
- The Meld core team will have complete control over the project, there will be no voting on decisions
Stage 2- Semi-Decentralization
- The team is still in control, but takes input from the community through a forum or Snapshot vote
Stage 3- Complete Decentralization
- All voting is done on-chain
- Anyone with at least 0.01% of the total MELD token supply can create a proposal
2. Implementation
Stage 1 and 2
- The MELD team implements all changes to the protocol
Stage 3
- Proposals are executable code created by the proposer, which then becomes implemented following acceptance and a two-day timelock
3. Resolution mechanisms
- If someone withdraws their votes after creating a proposal, then anyone can cancel the proposal to prevent someone from making a malicious proposal then withdrawing their votes
- The MELD staking pool acts as an insurance pool to cover any undercollateralized loan liquidations and counteract impermanent loss in the MELD Vaults
Market Structure
1. Bargaining Protocol/Pricing Model
Crypto-backed Loan
- Users deposit crypto into a MELD smart contract
- After an automated KYC/AML confirmation, fiat funds are wire-transferred
- Loans are issued with a LTV ratio of 50%
- If LTV reaches 65% or stays over 50% for 3 days the user gets a margin call
- If LTV reaches 85% the collateral is converted to stablecoins with a 5% fee
Genius Loan
- This is a crypto-backed loan where users only pay interest, not principle
- The loan is self-repaying through a portion of the yield the collateral earns
- Interest rate will be higher than normal loans
Crypto-Backed Line of Credit
- Users can get a MELD debit card connected to a crypto-backed credit line
- They can use the credit line as needed, up to 50% of the value of their collateral
- Margin call and liquidation rules are the same as normal crypto-backed loans
MELD Vaults
- Vaults are the liquidity pools that crypto deposits are stored in
- They are single sided MELD/Token pools so any token can be swapped with another by going through MELD
- Earns yield from external DEX aggregators/routers
- Has impermanent loss protection funded by MELD stakers
Fee Structure
- 0.2% for wrapped assets in each transactional direction
- 3% margin on loan interest rates
- 0.2% fee on swaps (0.15% to LPs and 0.05% to protocol)
2. Community information
- MELD will be creating its own oracles run by the MELD DAO to determine asset pricing for liquidation, bridging between blockchain and fiat accounts, and mTOKEN wrapping/unwrapping
3. Idiosyncratic Risks
- A 50% of all governance quorum is a high bar, so voters apathy may hinder the ability for the protocol to evolve as needed
- MELD tokens have a fixed supply, but the protocol must mint MELD tokens equivalent to the value of deposited funds. This could result in exceeding the supply cap as this minting is not accounted for in the token distribution
Incentives
1. Voting Protocol (after moving into complete decentralization phase)
- There is a three-day voting period that requires a majority in favor and a 50% of all governance votes quorum
- Governance is done through voting power (VP) determined by the number of MELD tokens staked (T) and a multiplier (M) determined by the duration they are staked for in weeks (D)
- VP = T x M
- M = 1 + 0.1 x D^(2/3)
2. Allocation mechanism
Initial Stake Pool Offering (ISPO)
- Users delegate ADA to MELD stake pools for any duration they choose and will earn MELD as a reward
- If the ISPO fills ten Cardano staking pools with 64 million ADA each then 200 million additional MELD tokens will be taken from the private sale and used as staking pool rewards
- The MELD token rewards will be airdropped within five minutes of the MELD token launch
- 100% pool- MELD receives 99% of ADA block rewards and participants get ~2 MELD per ADA staked for the full period
- 50/50 pool- MELD gets 50% of the ADA block rewards and participants get the other half, along with ~1 MELD per ADA staked for the full period
Usage Rewards
- Both fiat lenders and borrowers earn MELD as a reward for participating (800 million MELD tokens are allocated for this)
Profit Allocation
- 40% of Vault returns go to MELD stakers, 20% to the DAO treasury, and 40% to other functions (products/treasury/development/operations)
- 20% (not sure which section this comes from) go towards buying back MELD, depositing it in a AMM vault for liquidity, then burning the LP tokens
Token Design
Rules of the game that tokens have to follow
Token Policy
1. Monetary Policy
2. Token Valuation
- At this early stage in the project, staking profit is difficult to predict as it depends on volume, impermanent loss, and liquidation risk management execution
- Comparables:
- Nexo: $1.5 bil FDMC
- Yield: $137 mil FDMC
- Celsius: $3.7 bil FDMC
- These comparable services are centralized though, so MELD could see higher demand
Financial Incentives
1. Platform Activities
- users who hold a certain amount of MELD tokens will get a 25% discount on transactions
- MELD staking earns fees and provides an insurance pool to backstop the protocol
2. Financial Returns
- MELD stakers earn 40% of protocol fees, but take a haircut when loans are undercollateralized after liquidation or a vault needs compensation for impermanent loss
Token Architecture
Useful for non ERC-20 tokens. And how financial products are structured.
1. Token structure
- MELD will be a Cardano native token
- deposited cryptocurrency collateral will be locked in smart contracts and mTOKENS will be issued to represent those holdings on Cardano
2. Token distribution
Conclusion
MELD provides a valuable service for enabling fiat loans and avoiding taxable events. It is well equipped to displace the current companies offering this by creating a decentralized version.