It has been an exhilarating and fulfilling 3 months since Mercurial went live on Mainnet! We have been hard at work researching and developing a series of new systems that will be ready to go live in the coming months, and we are very excited to share them with you.
As mentioned, Mercurial’s main goal is to build innovative AMM infrastructure on Solana that maximizes capital utilization and efficiency for stable assets while ensuring that value accrual flows to MER holders.
We are building several key systems towards these goals, including DeFi’s first institutional market-making vaults and market-making vaults with dynamic capital allocation and fees:
- Stable Pools For Depegged Pairs
- Institutional Market Making Vaults
- Dynamic Vaults To Maximize Capital Utilization
In addition, we will be working on MER Staking, which will allow MER holders to stake and accrue rewards both from the systems above and new projects we are working on.
In this post, we will be sharing more about these systems, the problems they aim to solve, as well as a high-level overview of how they work on a technical level.
1/ Stable Pools for DePegged Pairs
Stable pools maintain high levels of capital efficiency based on the key assumption that the assets in the pool remain pegged in value. However, for assets like LP tokens (3Pool_LP) or staking tokens (stSOL), their price drifts from the peg due to value accrual.
So to maintain pools that maintain high capital efficiency over the long term, we are building specific swap pools to cater for Depegged Token Pairs.
To create a swap pool between depegged token pairs, we will be caching the price of the tokens in regular intervals, based on on-chain price oracles. These oracles will be utilized to retrieve and update the token prices in the pool.
For example, the LP token price can be calculated from the virtual price in the base pools they belong in, while staking tokens (stSOL, aUSD, yDAI …) price can be calculated from total_token_value / total_lp_supply.
We expect to roll these out in end-September, starting with staked SOL and with more to follow!
2/ Institutional Market-Making Vaults With Credit Lending
To generate secure, guaranteed, and long-term yield for users who prefer more robust returns, we are creating a new protocol called institutional market-making vaults, which will serve both perform market-making for returns, but also dynamically lends liquidity to credible institutional partners for guaranteed yield.
Similar to a swap pool, LP providers can deposit liquidity and earn swap fees with the following key differences, with the difference being that whitelisted institutional borrowers can borrow assets in the pool. Since the borrowed funds are not accessible on-chain, users will need to apply for withdrawal, and the funds will be withdrawn after the next epoch.
3/ Dynamic Market-Making Vaults To Maximize Capital Utilization
As mentioned in our litepaper at launch, there are 2 major issues in AMMs today — firstly, the vast majority of funds in the pool are not utilized since most of the assets are not needed for swaps at any given point in time. In addition, fees are static, resulting in wasted fee opportunities for LPs when the market demand is high.
With dynamic vaults, we introduce 2 major innovations to the usual AMM model — dynamic vaults and dynamic fees.
- Dynamic Vaults: Instead of having pooled assets sit idle in liquidity pools, we will lend the assets to the best secure lending platforms.
- Dynamic fees improve the profit potential of LPs while also compensating them for the IL risk in volatile environments. This protects LPs which encourages more participation from them. This leads to lower slippage and therefore increased trading volume, resulting in more fees in aggregate for the system.
We expect to roll out the first version of dynamic vaults in late-Q4. Dynamic fees to be implemented in the first quarter of 2022, given Solana's relative lack of data and higher complexity in modeling an effective model.
MER Staking Pool!
In what is likely the most requested feature by users, we will be opening up a MER staking pool for MER hodlers to stake their MER and get rewards for staking. A portion of the returns from our swap pool, institutional vault,s and dynamic vaults will be used to buy back MER and re-invested into the staking pool. Over time, the value of LP token will be increased by MER. Those who deposited MER in the staking program will get more MER when they claim back, a perfect reward for MER hodlers!
MER Together!
Here’s a quick table summary of our product roadmap for Q4.
We are building a series of innovative infrastructure for stables and figuring out creative ways of accruing value back to MER holders. We cannot wait to roll these out in the coming months!
