Melonport Update (Q1 2018)
Dear Melon supporters, users, developers, and broader community,
It’s been almost one year since our token sale in February 2017 where we set out to reinvent one of the biggest industries of modern day society — the asset management industry.
It is estimated that there are globally US$84.9 trillion assets under management. The management of digital assets is relatively new, but extends beyond simply the market capitalisation of digital currencies and will potentially evolve into a multi-trillion dollar industry in the coming years. This, along with the merging of traditional and digital asset markets, is what we are anticipating at Melonport and we have been working countless long days to turn Melon’s tremendous potential into reality.
What is the Melon Protocol?
Since 2016 we have seen the emergence of asset managers actively investing in cryptocurrencies as a new asset class. These crypto investors are facing one common problem: They need to rely on the current infrastructure to set up investment strategies in this new paradigm of investing. The reality is that investing in tokens is not the same as investing in stocks, bonds, commodities, or other ‘traditional assets’. The old model does not accommodate for the needs of this new asset class.
The Melon protocol is an alternative to the old paradigm. It is an asset management tool for anyone seeking to set up and manage an investment fund for digital assets. Running a hedge fund used to require immense operational and monetary costs. You need a fund custodian, a bank that holds your and your investors’ assets, and a fund administrator to take care of all the internal accounting (handling new investors, processing withdrawals from existing clients, calculating the management and performance fees for the investment manager, evaluating the net asset value of the portfolio, etc.). The Melon protocol replaces a majority of the tasks performed by the fund custodian and fund administrator with smart contracts, thus, automating the processes, making them more efficient, less prone to human error and reducing the barriers to entry by radically reducing the costs.
This blog is intended to give you an overview of our progress and an update from our team, but also to address some of the most commonly asked questions from the community.
- Latest Developments
- Melon Token Utility
- Upcoming Mainnet Release
1. Latest Developments
Melon funds have changed quite a bit since its initial vision set out one year ago. Since we first launched our project, we have undergone two external audits of the Melon protocol smart contracts.
The first was from two of the best smart contract security experts Martin Swende together with Nick Johnson, who helped us greatly improve the protocol, as we described in an article by Travis Jacobs that can be found on our blog here.
In particular, this audit helped us redesign our price feed and asset registrar contract so that it can now scale to an infinite amount of assets that can be updated on it.
Our fund structures can hold approximately 90 assets at a time using the existing Ethereum blockchain. On Melon chain, a blockchain specifically for the purpose of Melon asset management, we expect this number to increase significantly.
A notable change in the most recent release is that we opened up subscriptions and redemptions from only Melon tokens to allow for using a blockchain’s native currency as well as any additional ERC20 asset which we call “quote asset”.
DEFINING THE QUOTE ASSET
The quote asset can be freely selected by the Manager. The quote asset is an ERC20 compliant asset which has a price feed which delivers prices quoted in the same quote asset. This means if the quote asset is MKR (Maker), then the prices would be quoted in MKR, e.g. MKR 0.12 per Bitcoin. But it would also mean that you now can invest in any asset that has its value from MKR. Pretty cool heh?
The quote asset is also used to benchmark the fund, meaning on fund level the price of your shares will be quoted in this quote asset. The quote asset is also used to determine the performance fees of the manager. To limit the possible ways value can be extracted from a Melon fund, the manager can’t just directly pay out performance fees, rather their value is converted on smart-contract level to an equivalent amount of fund shares of the manager’s own fund. To pay out these converted shares the manager would then just redeem the shares just like any other investor in the fund would as well by redeeming it using one of the possible redemption options from below.
Concretely this means:
Possibilities for subscription
- Native currency sent directly to the fund; MLN on Melon chain and ETH on Ethereum
- ERC20 version of native currency. This will likely be the identical to native currency on Melon chain. On Ethereum we will use WETH from DappHub
- Quote asset, ERC20 token ideally with low volatility to benchmark the fund against. On Ethereum initially this will be MLN. On Melon chain this is likely going to be the Dai stablecoin
Possibilities for redemption
- Fund shares are sent directly to the fund. Assuming there is a sufficient amount of quote asset tokens held by the fund then shares sent directly to the fund would automatically be exchanged, at market price, into the quote asset and payout to the investor
- ERC20 version of native currency as in subscription. See above for details
- Quote asset as in subscription. See above for details
- In case the Manager does not have a sufficient amount of blockchain native currency and/or quote asset tokens in the fund the Investors always also can redeem a slice of ownership. This means if the investor owns half of the total amount of fund shares, then the investor can redeem directly half of all the underlying assets the fund holds
- We even allow for an emergency redeem function should for some reason one of the assets of a fund be non-functional anymore, then the fund manager can select the payout of above redemption method to be restricted to only a subset of all assets owed to him by the fund. The subset would be all the assets the funds owns minus the non-functional ones
Thus, the quote asset should have a low volatility. A good candidate for the quote asset is DAI from the Maker community/Dai foundation. As Dai is built with the virtues of true decentralisation it aligns well with the tenets of Melonport.
Having a more open, generic way to subscribe/redeem is also in line with our tenet of openness. We want to build a tool that first and foremost is useful! Opening up the subscription and redemption process to more assets will lower the barriers of other ecosystem players using the Melon protocol.
Energy Web Foundation — Where subscriptions in Melon funds could happen by directly using their native currency which is used to operate the Energy Web blockchain, but also any other currency native on this chain. Fund managers could then trade energy basing their choices on the latest available meteorological data. These managers would know before other market participants when and where certain meteorological conditions (wind strength, solar radiation…) would affect generation profiles of wind turbines or solar panels. In that scenario, energy traders could then buy energy from locations with high energy production (lower prices) and sell it to loads in areas where the prices are higher.
Kyber Network — One of Kyber Networks Reserve Managers could manage Reserve Pools in the context of a Melon fund where subscription/redemption is restricted to Kyber Network Crystals and the fund performance is quoted in KNC.
Akropolis — They could integrate their solution with our protocol to power their decentralised pension funds. Pension funds that are transparent; Where people can have more certainty and control over the resources they decide to invest into their future.
DAOs/Decentralised Foundations — An inherent characteristic of DAOs (decentralised autonomous organisations) is that they often have crypto currency reserves that they would like to allocate to a specific purpose. In their nature DAOs are often similar to decentralised foundations. Melon funds are an ideal candidate to manage such crypto currency reserves in a way that is beneficial to the DAOs/Foundation purpose.
Casper/Staking — Melon funds can also be used for sharing rewards in staking schemes (e.g. for Ethereum PoS) where investors can invest staking token to a Melon fund manager which handles all the staking/uptime of the computers.
General purpose optimisation schemes — In fact Melon can be used for any kind of purpose which involves the custody of third party funds but also for any kind of optimisation scheme with uncertain outcome.
A great blog post about latest frontend development by Jenna Zenk can be found here
2. Melon Token Utility
There are three primary utility values of the Melon token:
- Voting rights for governance
- Incentivisation of ongoing development,
- Paying of gas/transaction fees on the Melon chain
We believe that the core value of any open-source project lies in its maintainers. We have assembled a world-class community and we would like to incentivise them and new members as we move forward.
Until we deploy the final version of Melon on the Melon chain we will use Melon tokens to incentivize development.
The unissued Melon holdings are intended to be issued to the public in form of
- Hackathon Prize money
- Fund Management competitions
- Bug bounties
However, this list might change over time due to regulatory changes or changes in development requirements.
We have allocated this as a large rewards pool dedicated to educational purposes, driving usage, maximizing network effects, and encouraging freelance development by creating bug bounties among many other things.
Once Melon is deployed in its entirety we can use the Melon token to incentive the continuous development of the main parts of Melon in a way that does not require a central authority! The same way Bitcoin organises its own security (by issuing block authoring rewards) in a completely decentralised way.
Modules, in particular, Compliance, Risk Management, Asset Registrars, Price Feeds and Exchange Adapters will be incentivised by Melon tokens created through inflation. The payout amount will be largely determined by how usefulness, measured by how many times they are used in the Melon ecosystem and how trusted they are. Trust is measured by total Assets under Management of Melon funds using them.
Protocol upgrades and Chain upgrades will also be incentivised by Melon tokens created through inflation. We aim to have only one canonical version of the Melon protocol. Thus, whenever a new version is added the old one will eventually (after a grace period) be rendered unusable. The same goes for chain upgrades however for their updates will be effective immediately. Whether or not to upgrade the protocol or the chain is determined by a democratically elected Technical Council. The technical council is elected by the Melon token holders. The technical council in return votes on whether or not to upgrade the Protocol or the Chain but also has the ability to set certain chain parameters, such as Melon token inflation amount per year (in each case less than 10% of the total intial MLN supply of 1.25 million tokens) and distribution logic. One MLN token will equate to one vote.
The direct economic use value for the Melon token is that it will be needed to pay for gas on the Melon chain. This is similar to how Ether is used to pay transaction costs on Ethereum. But also other services like staking in the Melon ecosystem to vouch for accurate and ongoing operations, for example, of a price feed.
Incentivizing development is important to us. As Melonport AG, the private company behind the Melon project, is eventually supposed to hand over any special privileges it has over the shaping of the future of the protocol to you, the community.
Melonport AG has its name from the combination of Melon and port. Melon as in ‘destined to be’ (in Ancient Greek) and port as in ‘portal’. As we said from the beginning, Melonport AG is intended to be a two year project with the sole purpose of being a portal to Melon.
Melonport AG is one of the very few companies to never accept any VC money. We are thus in the fortunate position to not have to make Melonport AG into a for-profit entity. We are and have been determined to build the best tool possible for you, the community, and for the people that contributed to and believed in our effort. A tool that is decentralised, free from data collection, free from addictive feedback loops, open-source and free from any commission. Stepping down as Melonport AG is a recognition of human nature in that we understand that if we remain in a position of power for too long sooner or later we risk to be corrupted by it as have been so many before us.
3. Upcoming Mainnet Release
Planned dates for upcoming mainnet release are as following:
Friday, Jan 26th: We announced the start of the Melon Manager Competition 2018 on Kovan incl. MLN 550(approx $100k) as prize money
Wednesday, Jan 31st : Start of competition with a duration of 2 weeks
From Wednesday Jan 31st to Monday, Feb 12th: Protocol Dev team to fix issues of last protocol audit, Deja-vu audit
Monday, Feb 12th to Feb 19th: Protocol Dev team to do last internal audit, improves documentation, while frontend team incorporates 0.7.0 changes
Monday, Feb 19th: Deployment of a live Melon fund which has funds in it — whoever can hack funds will not be made legally liable from Melonport for doing so. This is the equivalent of a live bug bounty program.
Once this has passed we will deploy a first live version of Melon on the mainnet. The reason for going live one year ahead of schedule is that we want to work in the spirit of fail early. A live version will give us valuable insights that we wouldn’t obtain otherwise of what needs to be improved on the most.
However, even though we are deploying on the mainnet we see it still as a highly experimental and insecure version. We see the final version of Melon being deployed on the Melon chain. The final version will be able to provide us with many important features such as
- Increased security
- Increased efficiency
- Increased scalability
- Blockchain interconnectivity
- Web assembly virtual machine to run Smart contract on
- And many custom features just for Melon chain.
This first live version will be limited in the following ways.
- Limited amount that can be invested
- Only fund manager can invest in fund
- We will shut down the version, all funds and cancel all open orders after two weeks or earlier. To work on the things that did not work properly and to further improve Melon.
For security reason, the governance of the initial version will be fully controlled by Melonport AG.
Thanks for reading and feel free to comment or reach out to us if you have questions or thoughts about the project.
Until next time.
NB: Since publication of this blog — some planning elements have changed. Melon chain will no longer be researched or built by Melonport AG. Instead the R&D around this will be completed by Trinkler Software AG. Trinkler Software AG may one day endeavor to propose building Melon chain to the maintainers of Melon. Melonport AG itself plans to complete Melon protocol for the purpose of Ethereum deployment including governance before commencing the wind-down of the company in Feb 2019.