Hello everyone, today we attack a big piece, MultiversX took 1 year to create this new Dex and we understand why !
I am not going to represent the improvements, we are going to see further, much further, (too much further sorry ❤⚡)
#ExploreMEX2
First of all, if you don’t know most of the new features, I recommend the following threads.
@Opium_Off which summarizes all the news very well.
Ovidiu thread which makes a very good case study of the expected APR.
And ofc @the_economystic who brings us his own vision !
I’m participating in the contest launched by xExchange so I hope you won’t run away after this article and that you will think about sharing the thread on twitter, it helps me a lot ❤
Although I don’t think I’ll fit in the ‘explain it to me like I am 5’ category. But we never know, maybe an honorary award for threads that go a bit deeper ?
Table of contents
1/ The improvement strategy
2/ The EGLD/MEX symbiosis
3/ Understanding the fundamental concept of Energy
4/ Equilibrium of these new mechanisms
5/ Tokenomics, Growth and APR
6/ Its future evolution
7/ Some points that can still be improved IMO
8/ Bonus : Attention to detail
You will have understood with this summary, I will analyze things from my point of view and with my current knowledge, I can misinterpret some elements.
So I count on you to continue this discussion and improve my vision
1/ The improvement strategy
The first mention of $MEX 2.0 was in February if I’m not mistaken, “next 1–2 weeks” Beniamin said, we heard it many times, on our side, it even earned him a little nickname, “Beniasoon” ahaha
Hard to imagine that he was not sincere in announcing a date so close, impossible to know what was going on internally, but I think Elrond’s vision at that time was starting to evolve towards MultiversX, it’s a bit like me when I say my thread is coming out tomorrow and every hour I find a new improvement, a new direction to give to my thread, we think we’re close to the conclusion, in the end the list of improvements expands faster than our work speed a bit like the universe and the speed of light.
But you know what ? This is probably the best thing that could have happened to the famous $MEX 2.0
Defi is one of the most complex topics of the ecosystem when you really think about it, building a very inflationary token without it losing value? It’s impossible, unless you have a growth of TVL and users at least, as fast as inflation. Because make no mistake, if the tokens of the Ethereum and BSC DeFi have greatly appreciated during the 1st phase of the Bull Run, it’s not because their tokenomics and utility was better built than the $MEX, but because the inflow of capital was much higher than their inflation.
Nothing more.
And these had the fuel for trading and leverage as opposed to MEX, indeed 90% of DeFi tokens did not make new ATH in November 2021 and are now almost all back to pre-bull run levels despite a much higher market cap and TVL.
One word. Inflation.
So Elrond had 2 choices :
- Release a new tokenomics in 2 months that would serve as a band-aid.
- Or wait and learn from all the mistakes and good ideas of the DeFi, to be attentive to all the flaws and to rethink all the mechanisms
Elrond has always been very good at incremental improvements, but this time, it was not adapted to the problems. When you have to build a system where all the intrinsic mechanics have to act in symbiosis to work properly, building them one after the other is a huge mistake. Because with each improvement you increase the entropy of your system, the loss of energy, and the end result is Chaos. A criticism and weakness that was often made about Elrond was that the building took much longer than on other blockchains and was more centralised, less driven by the community.
On the contrary, I think that is its strength. Building what they did with the xExchange I don’t think would have been possible with outside builders. Unlike competing blockchains whose name I will not mention whose first project is a rugpull (A p t o s), and other where 50% of projects are copy cat of copy cat and fork of fork.
The Elrond community build at its own scale, together, and differently.
No interest in forking what is already done, let’s be competitive and bring innovation to each project. But I’m starting to ramble too much. In the end, MultiversX develops its own products (while leaving room for its builders) in close relation with the evolution of its technology, and if it is perhaps more closed at first sight, it is much more efficient.
(Doesn’t this remind you of someone? 🍎)
2/ The EGLD/MEX symbiosis
Unlike other DEX, MultiversX has decided to deploy its own incentive token rather than letting a third party platform do it for it and to be sustainable, this is for me almost necessary. Something we don’t think at first sight is that the rather monumental incentives Elrond put in place for his DEX necessarily drove the $EGLD down with the $MEX with the $EGLD<>$MEX farming pool. Everybody wondered at the beginning why the pools were not for example in $MEX<>$RIDE.
$MEX being purely an incentive token, it had no future other than to inexorably lose value vs $EGLD
At first I thought it was a mistake on their part, that it did not give enough importance to the $MEX and would amplify its downward trend. In fact I think it is the opposite, if $MEX would have been present in the farm pools it would have accelerated its inflation even more. Because, yes, your $MEXs farmed which you use directly to increase your bag which is used to farm, this accentuates the compounding aspect of rewards and would have made inflation even more unbridled.
So in order to protect the TVL from the DEX, rather than having the $MEX pull the $EGLD down with it, they preferred the $EGLD to feed the $MEX. Perhaps the price of the $MEX would have remained more stable in the early days, but today it might be dead and buried. But that’s just my view.
Secondly, Do you remember @Maldoju presence at xDay, he came to talk to us about themodynamics and evolution in relation to the Metaverse, many people did not understand the essence of his conference, which is the most fundamental point of everything we do here. According to the work of the physicist François Rodier, whose conclusions we both greatly appreciated, a monetary system needs two currencies to be functional, one as a store of value, the other to act as a vector of growth, a debt currency.
A monetary system, like a thermodynamic system, needs two mutually counterbalancing values to be stable and anti-fragile, which is why our current system has been sick since the end of the Bretton Woods agreements.
The Tokenomics of the $EGLD are constructed so that it is a store of value.
The $MEX, on the other hand, is constructed as an inflationary currency, promoting growth because its past spending is more valuable than its future spending.
And I think MultiversX has understood this fundamental monetary mechanism very well in view of the usefulness it wants to give to $MEX.
Used as payment on :
- xPortal,
- xSpotlight,
- xMoney,
- but also on community projects.
And all this has been verified for a year now, we have always preferred to spend our $LKMEX than our $EGLD, the circle is complete.
I promise you I’m trying not to be too biased, but for me it’s a sign that they all get it, no matter what happens to the $MEX and $EGLD prices during the Bear Market, they are designed, built, according to the laws of physics, to be assets that are sustainable in the long term.
Thank you MultiversX for making my fallen physicist soul proud of what you build ❤
3/ Understanding the fundamental concept of Energy
“Nothing is created, nothing is lost, everything is transformed”
Antoine Laurent de Lavoisier
This is the whole concept of the energy of our new $LKMEX
Contrary to the $LKMEX V1 which was especially interesting — because 25% of APR of 0 is always 0 — for the small wallets to multiply our farm, the whales were very happy to enjoy this kind of returns and this has created a rather notorious imbalance between the interests of our two bands of fish. The new utilities completely focused on the $LKMEX will solve a large part of this problem as they will be directly indexed to their locking time.
Secondly, the tokenomics goes much further in terms of redistribution of wealth through delock fees. I have seen quite a few critics denouncing this mechanism which was already restrictive in terms of lock with V1 but which is even more so with V2, but it should know that the purpose is the same.
At the current price 1 $MEX = 2.5 $LKMEX, so when you sold your $LKMEX you already had this 60% ““tax”” to unlock your 1 year locked $LKMEX !
The effect is even reduced because for 1 year it goes to 50%, 80% for 4 years of unlock and unlike today where you pay that price difference whether you have 1 month or 1 year left, now this is indexed over the remaining time, making the unlock much more interesting, and instead of paying that ““tax”” to the trading DEX or P2P buyer, now the profits will go directly to the holder, 50% in their pockets, 50% burn.
You can therefore trade your $LKMEX for $MEX with full knowledge of the facts, whereas the trading of $LKMEX was either done at random on the basis of the remaining locking time of the P2P purchased $LKMEX, or could be subject to arbitrage by the protocol in order to prioritise the sale of the $LKMEX locked for a long period of time and to keep those that could be unlocked soon. (I don’t know if this is indeed the case because it is complex to do, but surely possible, maybe another On-Chain Analysis ?)
Again, this is all built on thermodynamic principles.
Accelerating the process of energy dissipation will irreparably increase the entropy of the system by rendering 50% of that energy unusable. But unlike a standard thermodynamic system, this destruction of energy is beneficial to the whole system because it reduces the supply of $LKMEX while redistributing the part not destroyed
Once again, I congratulate MultiversX for this !
4/ Equilibrium of these new mechanisms
I have long had doubts about the success of building a stable monetary incentive system over time with the current maturity of the proposed solutions, whether in DeFi or P2E but it seems that MultiversX has made a big step in the understanding of these topics, now we need that the use to verify the theory which is a challenge perhaps even greater.
Everything will depend on the ability of the $MEX to become a liquid value exchange asset while maintaining an acceptable velocity. The faster the money flows within an ecosystem, the greater the volatility, when it’s up we all appreciate it, but when it’s in all directions, it can quickly become a problem. This is one of the reasons why some blockchains have a degen-oriented ecosystem, whether on NFT or shitcoin, because the velocity of money flows is very high.
The famous “the moon or the street” story
It is very good to have small bubbles like this one, especially in NFTs, but this must remain acceptable in order not to unbalance the whole ecosystem by causing violent crashes but the proposed utilities are numerous while favoring long term positions, whether to increase its farm, have a larger share in the governance, but also in the use of the token as a value exchange. It may well be that an acceptable balance is found allowing an organic growth of the price of $LKMEX but it is also to our dear builder to appropriate these new mechanisms to find new use always more innovative, so lets build !
5/ Tokenomics, Growth and APR
As you have seen in the community threads, the $MEX supply is going to be capped with an inflation that will drastically drop year after year. If my calculations are correct, we should arrive at a hard cap excluding burns of about 13.1 trillion $MEX about 2 times the current total supply, which in 8 years is not very much so we’re getting much closer to a release comparable to a more traditional token.
For the sake of simplicity, if we transform this into linear inflation, it gives us annual inflation to about 10%.
Now, if we consider that the average monetary inflow of a new user is equivalent to that of a user already present in the system, starting from 2 million users with a growth of 10% per year we arrive at 4 million !
Even if we imagine that 2 times less money comes in per new user, this would only mean a growth of x3 of user growth to compensate the inflation of the token !
In 8 years, It’s really not much !
So well the APR should be close to 10% too, but this is just an average, it will depend on your strategy, your boost, your long term commitment. An organic growth of all the ecosysteme while having a gamified DeFi to reward the most fervent holders and best farmer !
All this ultra sounds (money ?) very encouraging 🦇
(don’t take this too seriously)
The WP also tells us that the inflation of the token can be discussed via the gourvenance for example in case the fees are not enough to reward the liquidity provider properly. We could for example vote an MVI model (Minimal Viable Inflation) to continue the creation of tokens. Let’s not take this word as a Nemesis, a slight controlled inflation can be beneficial for a monetary system and personally I think it would be a good idea to keep a very slight inflation in order to encourage investment rather than savings,
$EGLD will already be our store of value, if we want the symbiosis to be perfect, it would be wiser not to make the $MEX deflationary, but this is debatable, monetary models are not fixed.
6/ xExchange future evolution
Now that we have talked about the present improvements, what about the future?
MultiversX gives us a glimpse of future features that may be coming to the DEX :
- Charity Lottery
- Boosted Lending Pools
- PD for Liquidity Pools
- xBridges Extension
- Community Proposals
- Strategic Funds
- Reputation System for Governance
- Limit and Range Orders
- Concentrated Liquidity
- Dual Return and Farms Alliances
If I had to express myself on the strategy to adopt, now that MultiversX has taken the time to innovate with hindsight on the foundations of its monetary system, I would say that it would be interesting to take advantage of the Bear Market to build all the bricks of features of the DEX in order to catch up as much as possible the delay taken on the DeFi Ethereum and only once all the stress tests have been able to be carried out within our system, to finally perfect its opening to the world before the next Bull Run in order to capture the money flows that will have deserved all this work.
This would maximise the impact of the opening of the Blockchain while ensuring that the features are robust.
But more than the DeFi features I’m interested in, I think MultiversX has everything to gain by making the thinking about the evolution of the Blockchain as community-based as possible. We have a great community, which I don’t think many ecosystems can boast, and an incredible pool of talent, builders, thinker and storyteller. We must not push the decentralisation of governance to its limits because governance has its own trilemma.
A derivative of Rodrick’s incompatibility in itself applied to decentralized governance :
Decentralization and openness / Adaptability and Evolutivity / Sovereignty
- Too much decentralization, your ecosystem becomes unmanageable, decisions are too slow, the decision-making power of the core community present since the beginning is diluted by opportunism coming from other ecosystems, the founders and the community lose their common sovereignty can no longer build and accompany the initial vision
- Too much Sovereignty and you limit your potential opening to the external economic flow, you move forward quickly, but alone, but if you want to go far, you need also the other ecosystems
- Too much adaptability and evolution, you are innovative, have lots of ideas, but can’t orient them in a common vision, your community breaks up and the project loses its narrative
This is my own opinion, I am not asserting anything, just what my reflections have led me to, free to dismantle this trilemma or to propose a more complete one.
There are some very interesting discussions to be had on this
I personally like very much the proposal of a governance based on reputation, of course it also brings its own problems, but I think there is a balance to be found between total decentralisation and the recognition of the most involved people, those with a macroscopic vision who can bring an added value without having to federate behind an idea and make clans around these people. I even think we should test all sorts of strategies via a governance lab, imagine problems, let the community and the team come up with solutions, see which system generates the least friction and allows the most community-based decisions possible.
About the xExchange v4.0, I think a lot of us have understood the potential of the Sovereign Shard, I’d love to talk about it but it’s far too complete a topic for this thread as it already looks like a thesis, we’re preparing a big thread about it with Philippe Martin !
7/ Some points that can still be improved IMO
Just some personal thoughts and discussions that I have exchanged and shared with many builders or holders to finish.
A fear that often comes back and the evolution of the project which as we all know now, is strongly following the footsteps of Apple, is the fear of a centralization of the building and a certain closure of the ecosystem. If Apple’s strategy is excellent on many points, it can also be seriously harmful for a blockchain on certain aspects.
The solutions and tools built over the last 2 years by the team are excellent, especially in terms of UX/UI which has hooked many people to the ecosystem. But if there is something we should be looking at, it’s access to these tools in a more permissive way for project builders and for the community without reducing the quality required.
An example of this is the Jungle Dex, which was very well received by the community in the early days, but is now too invisible. A simple switch at the top of the page to go from one to the other would be a real plus and would also allow recognition for smaller projects. Keeping the two separate as a protection for the user, but having a tab, a button to show these builders that we also need them to build and innovate.
Construction on the ecosystem is booming at the moment, either by large external actors or by actors already internal to the ecosystem such as validators and this is very good. But I personally think that we must try to break the barrier between professionals who have the capacity to launch a token in fully complient way, and the more “amateur” projects (not to see this term pejoratively) which often fall back on NFT collections because easier to launch.
We must also help these projects to structure themselves to allow everyone to evolve and above all to bring more and more builders to the ecosystem !
And last but not least, voting power was discussed as a quadratic function during the conference, at least that is what a lot understood, whereas it is presented in a linear way in the WP. I personally think that a solution similar to the Launchpad tickets would be more appropriate in order to favour the decentralisation of the governance, but the best would be to be able to test different solutions proposed by the community and the team to be sure that the governance is not controlled by only a few big players.
8/ Bonus : Attention to detail
Finally (4th time I say this, right?) I don’t know if you saw it, but in the visual of the new xExchange, we can see two projects that seem to be not put there for pure illustrative purpose, maybe further Launchpad ?
Also as a pure electromagnetic wave, I liked a lot the names given to the Dex Leagues and these references to the great names of electricity and electromagnetism (a little disappointed not to see Maxwell, for the next level perhaps?)
And with of course, we don’t forget, always this small link with our dear uncle Elon, but of course we all know that the first reference is for Nicholas Tesla !
⚡ Conclusion ⚡
If you have made it this far, congratulations to you, like electrons you don’t stop in the middle of the (electric) thread !
Thank you for reading and supporting me, despite the technicality of the thread I hope I haven’t lost you or bored you too much, all this knowledge that I clumsily try to transmit to you represents almost a decade of my nocturnal wanderings and learning, don’t take anything as truths, only as a point of view and never stop learning
I would have liked to link this thread to Entity: Growth Engine for Web3’s contest, but I definitely don’t fit in the “small thread category”, too bad, it will be for another topic !
Sources :
https://www.francois-roddier.fr/blog_en/wp-content/uploads/2017/03/Thermodynamics_of_evolution.pdf
https://rodrik.typepad.com/dani_rodriks_weblog/2007/06/the-inescapable.html
