Enzyme Finance (MLN)

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Enzyme Finance
TypeBlockchain software for asset management
Total supplyTotal Supply: 749,400 MLN according to CoinMarketCap.com, however, on the Melon Port website it says: A maximum of 1,250,000 MLN will be created before the final version of the Melon protocol is deployed to the live network. Following the live deployment, a fixed amount of new token will be created periodically and be distributed towards the most widely used Modules of the Melon protocol. This incentivises maintenance and development of the Melon protocol even after its final version is deployed to the live network.

Enzyme is an asset management platform, built on Ethereum and Polygon, that allows individuals and groups to create custom investment structures known as Vaults.

Basics

  • Fka Melon. Rebranded due to similarities with BNY Melon (18-12-2020).
  • Founded in 2016, Melonport AG is building Melon, a blockchain software for asset management.
  • Melonport is the private company building the open-source Melon Protocol. The Melon protocol is a blockchain protocol for digital asset management built on the Ethereum platform. It enables participants to set up, manage and invest in digital asset management strategies in an open, competitive and decentralised manner.

 History

"My last career move before forming Melon was to try and launch my own hedge fund, and this was a complete disaster. I was completely going into this opportunity with starry eyes and dollar signs and thinking finally, I can launch my own business. I had a seed investor who's willing to give me $20 million to get started, which was really small compared to what I had been managing previously in my two previous jobs. But I was thinking, this is my baby, and I can grow it and I can really make something out of it. It turned out to be a complete disaster.

I was completely unprepared for the high barriers to entry and asset management for a starting emerging manager. I was completely unprepared for the high cost, not just money, but also the time required to set up a fund, research, all the different service providers, etc. I was also very spoiled: when we were in the larger institutions, we just had people doing stuff for us all the time, which you just take for granted. I closed the fund after a year, and was pretty depressed and upset about how bad it had gone. The next thing was basically Melon, how to make it better."

 She went to some Bitcoin meetings which led to new connections: 

"All of a sudden, they were like, let us help you make some introductions. You can mentor some people in Zurich, who are working on some cool startups, and they'll teach you about the tech and maybe you can teach them a little bit about business and companies and finance because a lot of them are trying to set up their companies but don't know anything about that topic. 

From there, I started mentoring a bunch of people and one of them ended up becoming my co-founder Reto Trinkler, we cofounded Melonport together at the end of summer 2016, and that was basically the start. We did our token sale in February 2017. It was a small token sale, it was before the bubble. But I think the bubble basically started right after that. When we did our token sale, Ethereum was at $11 when we did it."

Audits & Exploits

Bugs/Exploits

  • From Blockthreat (25-5-2023):

"Enzyme Finance patched a privilege check vulnerability thanks to a responsible disclosure by rootrescue."

"Enzyme Gas Station Network implementation vulnerability disclosed, $400k bounty to be paid."

"Enzyme Finance patched a critical price oracle manipulation vulnerability after it was responsibly disclosed by setuid0 using Immunefi platform."

Governance 

Admin Keys

  • From their FAQ (2-6-2021):

"In terms of upgradability, there are no admin keys or backdoors. Vaults are version-specific and can only be upgraded from one version of the protocol to the next if Vault Managers opt in and signal an upgrade. Depositors have an opportunity to opt out if they do not like the new upgrade parameters being signalled. More on how upgrades work here."

  • More on how the overall protocol admin keys are handled by the Avantgarde Core and Enzyme Council DAO can be read in their docs (12-2020).

DAO

"As planned, after delivering v1.0 of the Melon protocol in February 2019, Melonport AG handed over the maintenance and governance of the Melon protocol to the Melon council.

And further on:

"The Melon Council is a DAO that governs the protocol and is responsible for its future maintenance. All decisions made by the Melon Council are consultable in real time on the Melon Council aragonOS interface .
The Melon Council DAO operations are powered by aragonOS. A customized Aragon DAO for the Melon Council was deployed and is able to natively interact with the Melon protocol.

In practice, the Melon Council is responsible for the following:

  • Protocol upgrades
  • Resource allocation
  • Networks parameters

The Melon Council (MC) is comprised of the MTC (Melon Technical Council) and of the MEB (Melon Exposed Businesses) representatives.

Melon Technical Council (MTC)

The MTC is the subset of the Melon Council that is responsible for providing technical expertise in various domains, and help the network make informed decisions.

The initial MTC members were appointed by the former Melonport team, and from there, new MTC members can be voted in by the Melon Council.

Melon Exposed Businesses (MEB) Representatives

The Melon governance model is also a user-centric model. It provides users with the ability to be represented, voice their needs and to take part in the decision-making process of the network.

Users of the network that can prove a certain % of AUM on the network have MEB rights, and can elect the MEB representatives who will sit on the Council and represent users.

Current members

Janos Berghorn; Investor @ KR1

Matthew Di Ferrante; Founder @ ZK Labs & Security at Ethereum Foundation

Fabian Gompf; VP @ Parity Technologies

Will Harborne; CEO @ DeversiFi

Martin Lundfall; Formal Verification Researcher @ Ethereum Foundation & DappHub

Nick Munoz-McDonald; Smart Contract Auditor & Researcher @ G0 Group

Zahreddine Touag; Co-Founder & Head of Trading @ Woorton

Jenna Zenk; CTO @ Avantgarde Finance"

  • More can be read about there governance over here.
  • From their docs (1-2021):

"Neither the Enzyme Council nor the token holders can impact the smart contract code used by a fund manager. The fund manager must take a voluntary action in order to upgrade to new versions of the code, and the fund’s investors are free to instantly redeem their shares if they are not happy with the version of the code being used. The fund manager is never forced to use a new version of the code they may or may not feel comfortable with. Users take full responsibility to upgrade from code that may contain security vulnerabilities."

Treasury

Token

Launch

Token allocation

"MLN is Enzyme’s Ethereum-based, ERC-20 utility token. The distribution breakdown of the initial supply of 1.25 million is as follows:

  1. 40% to investors who participated in a public token sale
  2. 8% to Melonport AG, 14.7% to developer incentives
  3. 12% to the founders, advisors, and partners of the project
  4. 25.3% was unallocated and subsequently burned

The Enzyme Council can mint up to 300,600 MLN tokens each year to pay developers to work on Enzyme. Some organizations and individuals that have received MLN tokens as incentives include: Avantgarde Finance, Exponent, Theo.eth, and Atlantis DAO."

  • From Messari (6-6-2018):

"Melonport completed a token sale in Feb. 2017 raising a total of CHF 2.5 million in under 10 minutes. A total of 1.25 million of Melon (MLN) tokens were created with 40% of supply (599,400 MLN) distributed to token sale participants. An additional 40% of supply (500,000 MLN) will be distributed through an ongoing token sale which requires users to contribute ETH and use the Melon platform in return for MLN. The team plans to use this year-long process to increase engagement and finalize platform features like governance. Melonport AG received 8% of supply (100,000 MLN), and founders, advisors, and partners received 12% (150,000 MLN). Tokens for both groups are not tradeable for two years."

Utility

"Unlike most DeFi tokens, MLN is not a governance token. Enzyme is governed by the Enzyme Council, which was established by Melonport AG, the founding company behind the protocol.

The MLN used to pay for fees are subsequently burned by the Enzyme Council. Additionally, fees not paid in MLN will later be converted to MLN by the Enzyme Council and then burned. MLN burns by the Enzyme Council are tracked by a subgraph, which shows that ~382,565 MLN have been burned to date."

  • "Our usage token is called Melon token [MLN] and is a core component of the Melon project. It is designed to enjoy a “usage right” to the Melon protocol. To use the Melon protocol one has to use MLN token. This “usage fee” will most likely be imposed on trading."
  • Some fees got removed (29-10-2020), for more info, check below at Upgrades.
  • From the website (2-6-2021):

"MLN is used to pay for various functions throughout the vault creation process and investment lifecycle. There is currently a proposal in front of the Enzyme Council to substantially change the token economic model. You can read more about it here."

Token Details

"The MLN token model is unique for an Ethereum-based protocol token because it creates a direct link between the usage of the protocol and the value of the token. Here, we will explain how this is the case.

The MLN token is used as “asset management gas”. The asset management gas is collected on three functions in the protocol: setting-up a fund; investing in a fund and; claiming any fees (rewards). Notably, the protocol does not charge fees on trading or redemptions in order to keep barriers to entry low.

The asset management gas paid on a specific function is calculated by using the number of Ethereum gas units consumed in that function multiplied by the asset management gas price. The fees are collected in ETH and transferred to the Melon Engine Smart-Contract which then purchases MLN tokens at a premium and burns them. Crucially, this buy and burn model directly links the usage of the network to the value of the token.

Another aspect of the token model is that the protocol inflates by a fixed amount of 300,600 MLN tokens per year. This inflation pool can be used to fund future maintenance and development.The Melon Council DAO (see below) can decide to allocate these tokens towards developer talent if they deem the overall value of their proposal to outweigh the dilution effect. Otherwise, the Melon Council DAO can burn the un-spent tokens at the end of the year. Importantly, this model was designed to look after MLN token-holders and future maintainers and developers once Melonport AG was dissolved. Users are represented through the Melon Council. More information on our token can be found in the Melonomics series 1,2 and 3 blog posts with Melonomics 2 being the most crucial one to understand.

In summary though, the essential point to grasp is that the MLN token model directly links the usage of the Melon network to the value of the token."

Tech

How it works

  • From this "deep dive" (24-6-2019) it intends to bring;
  1. "Decentralized infrastructure: Melon works through a completely decentralized framework. All the data of the client, for example, smart contracts, assets, and records are saved on a decentralized blockchain network. It does not just offer unwavering quality for the capacity of data yet, in addition, lessens the risk of custody.
  2. Decentralized execution: The convention likewise offers a decentralized type of execution through the Ethereum Virtual Machine (EVM). Smart contracts are circulated over various Ethereum systems to give better productivity and security to the assets.
  3. Blockchain coding: MLN’s one of a kind blockchain coding makes it a secure token for exchanges. It evacuates the danger of fake tokens and gives better security against extortion.
  4. Evacuates third parties: Clients can set aside both time and money for putting resources into a support stock investment. Also, there is no necessity of a third-party endorsement from an attorney or guide."

The front end of Melon works on the IPFS framework, which further uses a portion of the more interesting technologies which are as of now part of the general blockchain ecosystem. The back end of the Melon protocol has its very own domain chain, which is associated with Polkadot.

Managers select from a customizable set of smart-contracts on Ethereum, which empower them to set up a technology-operated-and-regulated investment fund (TROIF) which mirrors a customary one. The distinction — automation of guidelines and procedures which tie the manager by means of smart contract by secure blockchain technology administration. Hence investors have the possibility to invest in TROIFs without expecting to put their trust in the manager’s promise, controllers, or central parties to guarantee the security of their assets. The guidelines of the reserve are clear for everybody to see. With Melon, to set up a fund should be possible by spending roughly $25 paid to the Ethereum network."

  • From their FAQ (2-6-2021):

"Enzyme enables Depositors to interact with Vaults in a way which is non-custodial and requires minimal trust between parties. Vault Managers can be bound to performing certain actions or forbidden from others. Furthermore, live accounting is available for both performance and fees which is provable with on-chain data using the Enzyme subgraph. The subgraph also enables us to retrieve other useful reporting data (e.g. trade history or deposits/withdrawals) and make them transparently available to users. Policies such as fees or behaviours around investments can be quickly configured and imposed at a Vault level. Vaults can delegate trading and other Vault functions to third-party addresses.

At the moment, the protocol is transitioning towards an AUM based fee which is expected to be implemented in Q3 2021. The fee will be 25bps on Assets Under Management and will directly align interest between users of the network and the value of MLN token which primarily incentivizes development, maintenance and security of the network."

Fees

Upgrades

"With Enzyme’s Sulu upgrade, certain Vault settings are changeable even after the Vault is created. If a Vault’s settings are changed, depositors in the Vault have 7 days to withdraw their assets before the change is implemented."

"Enzyme funds are now fully upgradeable through a process that allows managers to opt-in to the latest release, while providing investors a window during which to opt-out. The technical approach involves transplanting the “soul” of the fund (ownership, asset holdings, and shares) into a new shell (release configuration). Avantgarde has deployed Enzyme contracts to main-net & control has been handed over to the Technical Council who are verifying the main-net state of the contracts."

"Enzyme (eg, Melon v2) live. 150 assets, lending enabled, provide liquidity, synthetics."

  • From their blog (29-10-2020):

"Last month, the Melon technical council (MTC) published its initial feedback on the proposal. Generally they were in agreement with the main talking points of MIP7, including:

  1. The removal of the set-up fee
  2. The removal of fees on investments
  3. Addition of a recurring and fixed fee on AUM (used to buy and burn MLN tokens)
  4. Reducing maximum inflation as the protocol matures"

Staking

Liquidity Mining

Scaling

  • From their FAQ (2-6-2021):

"Medium term, our team is actively researching various L2 options and will announce our plans in that field when we are ready."

Different Implementations

Interoperability

Other Details 

Oracle Method

  • Price feed sources are listed in their docs (30-5-2021).

Their Other Projects

Roadmap

"The Enzyme roadmap is currently working towards two main objectives:

  1. Expanding the protocol through new integrations and supporting new assets
  2. Various front-end improvements that bring greater customization and accessibility.

In the near future, Enzyme plans to integrate new DeFi protocols such as Notional Finance, PoolTogether, and Balancer. As for assets, Enzyme is working on a V5 protocol upgrade to support a greater variety of assets, including NFTs, real estate, pre-ICO, and venture deals. V5 also plans to introduce automatic support for Uniswap or Balance pool assets.

As for customization and accessibility, Enzyme has both front-end and backend improvements planned. Front-end changes may include a public API and an analytics dashboard to better monitor statistics related to Enzyme. In the V5 upgrade, Enzyme will continue building out third-party developer tooling that will make it easier for external projects to build on top of Enzyme."

Usage

"From its height of nearly ~$234 million in AUM to a current AUM of ~$62 million, Enzyme has taken a hit during the crypto bear market, though in ETH terms the protocol has outperformed the wider market decline.

The largest Vault by AUM is the USF Fund 1 Vault. This private Vault is Unslashed Finance’s insurance collateral for Unslashed Protocol that holds positions in stETH and ETH. As of Dec. 9, 2022, the Vault has an AUM of ~$22.9 million. Nexus Mutual’s Treasury Yield Vault lends ETH using Maple Finance."

  • As of 2-6-2021 there are 547 vaults with 1388 deposits totalling a $37.75M AUM.
  • According to their explorer, it has $2.396.264 assets managed and 409 funds (26-11-2020).

Projects that use or built on it

"Melon integrates Synthetix: Melon approved the proposal (MFP#4) made by Simone Conti and Emiliano Bonassi for the integration of Synths within the Melon Protocol. The full proposal you can find here. Good news is Rari Capital moving to the Melon Protocol: Rari Capital will migrate its liquidity to its own fund on the Melon (soon to be rebranded!) Protocol in the coming weeks following the release of Melon v2."

Pros and Cons

Pros

Cons

"It’s model replicated the traditional index fund model — there is a selected fund manager, while investors can buy fund shares, but cannot participate in fund management process at all. The manager is not required to have skin in the game in any form. The project didn’t get a lot of traction (only $243k in assets according to defipulse.com) despite good funding and time advantage (it was initiated before the majority of Defi projects). Probably, it is an indicator of the inefficiency of such a model."

Competition

"Enzyme’s main competitor on the active management side is dHedge. dHedge operates similarly to Enzyme, with its “Pools” products resembling Enzyme’s Vaults. Although dHedge only has $12.2 million in TVL, it is outpacing Enzyme in L2 rollup deployments. In addition to deploying on Ethereum and Polygon, dHedge has deployed to Optimism. Another main difference with dHedge is its integration with Toros Finance, a passive asset management protocol built on top of dHedge. However, Enzyme’s SDK enables a Toros-like passive asset management protocol to be built on top of Enzyme.

Enzyme finds much larger competitors on the side of passive asset management. Most notable is Yearn, one of DeFi’s largest protocols. As of writing, Yearn has nearly $388 million in TVL, which is approximately 6.25x larger than Enzyme’s TVL. Whereas Enzyme relies on humans to make investment decisions, Yearn uses automated smart contracts to seek out the best opportunities. Other notable passive asset management protocols include Index Coop and Set Protocol. Currently, passive active management eclipses active asset management by both TVL and market cap, but the total addressable market should be large enough for both approaches to coexist."

Team, Funding, Partners

  • There are currently (2-2020) two independent teams working on Melon or building things on top of Melon;
  • Midas Technology; "is a Swiss-based company that works on the development of Ash. Ash is an investment mobile app for retail investors that gamifies investing, built on the Melon protocol.

The Ash team made the first ever Melon Funding Proposal (MFP #1) , that was reviewed and accepted by the Melon Council in April 2019."

  • Avantgarde Finance; "The Avantgarde Finance team (former Melonport team) proposed MFP #2 , which was accepted by the Melon Council in September 2019. With a 3 years roadmap, Avantgarde Finance plans to address the existing painpoints for the Melon ecosystem, while making sure Melon stays ahead of the curve. Avantgarde Finance provides cutting-edge blockchain-based professional financial tools. The Avantgarde vision is to create a better everyday experience for aspiring asset managers and their investors by giving them easy access to a new financial infrastructure using Melon and other supporting DeFi technologies."
  • Mona El Isa, CEO, “Former star-trader at Goldman Sachs, promoted to Vice President by the age of 26 and made the “top 30 under 30” list in Trader Magazine in 2008 and Forbes Magazine in 2011 after profitably trading the 2008 and 2011 crashes. Moved to Geneva-based macro fund Jabre Capital in 2011, before deciding in 2014 that the future of finance lay in blockchain technology. She studied Economics & Statistics at the University College London.”
  • Trinkler, Reto; Chairman/CTO, “Blockchain developer with background in mathematics from ETH Zurich. He started developing Ethereum smart contracts immediately after their launch in 2015. He worked as a smart-contract developer at Brainbot Technologies (which is building the high-speed Raiden Network) and is host of Zurich's Blockchain Hacklab. Before this Reto developed a profitable trading algorithm for sport betting exchanges in C++.”
  • Hallam, George; Head of Business Development, “George joined Ethereum as Business & Partnership Director in Mid 2014. He quickly established himself as a key communicator, moving to the role of Head of External Relations where he successfully advocated the Ethereum platform to the world and coordinated the Ethereum Foundation’s yearly developer conferences in London and Shanghai. During his 2 years at the Ethereum Foundation, George grew a strong appreciation and understanding of the Ethereum community and the ecosystem it inhabits.”
  • Gavin, Wood; Technical Advisor
  • Jehan Chu; Strategic Advisor
  • Nick Munoz-McDonald (Melon Technical Council)

Partners

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