Melonomics Part 3: Counting Melons

Recently, we have talked about inflation, the Melon Engine, announced our buy-and-burn model and it’s been ages since we provided an update on the unissued MLN tokens. At this point, you must be wondering: how many MLN exist? What can we expect on the future of the MLN total supply?

Good news, Melonomics 3 is here to bring clarity on these subjects.

Remaining Olympiad Tokens

As planned in February 2017, Melonport AG had the right to issue the remaining 500,600 Melon tokens to the public before February 2019. We decided to issue the remaining tokens to users testing the protocol through the Melon Olympiad.

We completed 2 rounds of the Melon Olympiad, Paros and Naxos. For the purpose of those 2 rounds we minted 252,600 MLN tokens. Out of these 252,600 MLN tokens, 183,212 MLN tokens were distributed to the users testing the protocol.

In other words:

  • There are 69,388 MLN tokens remaining out of the 252,600 that were minted over the summer.
  • Melonport AG has the right to issue 248,000 additional MLN tokens.

What will happen to those tokens?

Key takeaway #1: If time permits by February 2019, Melonport AG may run a third round of the Olympiad using the 69,388 MLN tokens already minted that haven’t been distributed yet.

Key takeaway #2: Melonport AG has decided to burn the 248,000 MLN tokens that are yet to be issued.

Inflation curve

At the time of writing, there are 1,002,000 MLN tokens in circulation (ie. total supply excluding the 248,000 non minted tokens mentioned above).

We refer here to inflation as the growth in the supply of MLN tokens, or future MLN tokens issuances.

In February 2017, Melonport AG committed to a maximum yearly inflation rate of 50% on the MLN token. The purpose of the inflation on the MLN token is to fund future development and maintenance. Details on the inflation were promised during phase 3.

The Melonport AG team has now decided on the issuance model of MLN. Each year 300,600 MLN tokens will be issued. Because the issuance of MLN is in a fixed amount each year, the inflation rate actually decreases every year, making MLN a disinflationary token (ie. the inflation rate decreases over time).

You can see the projected inflation over years here.

Key takeaway #3: MLN is a disinflationary token. Each year, a fixed amount of 300,600 MLN tokens will be minted.

Melon Engine: buy-and-burn model

In Melonomics 2, we introduced the Melon Engine and its buy-and-burn mechanism. We have now implemented a first version of the Melon Engine; you can have a look over the contract here.

Melon Engine Mechanics

Amgu payable functions

When a user interacts with an amgu (asset management gas unit) payable function on the Melon protocol, she pays asset management gas in ETH to the Melon network. The total asset management gas paid is equal to:

Number of amgu consumed * amgu price

The initial amgu price will be set in MLN terms by Melonport AG before deployment in February. It will then be in the hands of the Melon Council to adjust the amgu price when necessary. According to our modeling, the Melon gas price (amgu price) should not need frequent adjustment. The 2 scenarios where we can expect an adjustment would be:

  • Overnight spike in network usage
  • Extreme volatility on MLN/USD

The Melon gas price should always be kept at levels at which it makes the Melon protocol competitive compared to other asset management alternatives. At the same time, the cost incurred must be sufficient to incentivize maintainers and developers who are compensated in MLN tokens.

We are still in the process of finalizing the set of functions that are amgu payable. As it stands, the following functions are amgu payable: setupFund, requestInvestment, executeRequest and claimFees . Note that trading functions are not amgu payable.

Melon Engine mechanics

The ETH paid for amgu fees by users is then sent to the Melon Engine. The Melon Engine contract is a unidirectional liquidity contract that sells ETH and buys MLN at the engine price. The engine price includes a premium over the ETH/MLN market price (market price is retrieved through Kyber network). As soon as the Melon Engine buys MLN, it burns it.

Selling MLN at a premium to the Melon Engine is a privilege reserved to Melon funds (ie. only Melon funds will be able to call the function sellAndBurnMln() on the Melon Engine contract).

The premium schedule provided by the Melon Engine is as follows:

  • Ether in the Melon Engine < 1 ETH, premium = 0%
  • 1≤ Ether in the Melon Engine < 5, premium = 5%
  • 5 ≤ Ether in the Melon Engine < 10, premium = 10%
  • Ether in the Melon Engine ≥ 10, premium = 15%

Key takeaway #4: The net inflation of the MLN token is the difference between 300,600 (yearly fixed inflation) and the number of MLN tokens burnt in the previous year.

Key takeaway #5: The Melon gas price (asset management gas price) is not expected to require frequent adjustments because of natural market adjustments.

If you would like to play around with numbers, we uploaded a simple simulation playground, where you can tweak variables and see the effect of the inflation combined with the burn effect of the Melon Engine. Head over here, download the file and have fun.

We hope Melonomics 3 answers the questions around total supply and projected inflation. If you have more questions, please join our Telegram channel, we’ll be happy to answer.

We invite you to provide constructive feedback and comments. Please especially reach out to us if you think we’ve made a mistake in our thinking or simply want to provide feedback. This model is subject to further research and therefore will most likely evolve over time.

TL;DR

Key takeaway #1: If time permits by February 2019, Melonport AG may run a third round of the Olympiad using the 69,388 MLN tokens minted that haven’t been distributed yet.

Key takeaway #2: Melonport AG has decided to burn the 248,000 MLN tokens that are yet to be issued.

Key takeaway #3: MLN is a disinflationary token. Each year, a fixed amount of 300,600 MLN tokens will be minted.

Key takeaway #4: The net inflation of the MLN token is the difference between 300,600 (yearly inflation) and the number of MLN tokens burnt in the previous year.

Key takeaway #5: The Melon gas price (asset management gas price) is not expected to require frequent adjustments because of natural market adjustments.