Partnership Deep Dive - Maladex

Partnership Deep Dive - Maladex

Francesco Ponziani

Francesco Ponziani

MELD Ambassador

September 15, 2022

MELD has seen explosive engagement over the last year with its ISPO launch through to its vision of banking the 2 billion individuals currently unbanked and the plethora of services it aims to offer them. However, navigating such a technically complex and political landscape brings challenges. To help with this, MELD has been cultivating strategic partners in order to facilitate its vision and unify the ecosystem.

Here I break down some of these incredibly exciting partnerships. 

Since the financial crash of 2008, people have been hungry for a fairer, more inclusive system that is transparent and rewarding. The legacy financial system as a whole is archaic, corrupt, and self-serving and has been for centuries. Worse still, these systems only serve half of the world's population. As we navigate into the first quarter of the 21st century, with the advent of technological breakthroughs such as the internet and subsequent blockchain, we as a whole have the opportunity to reset the standards of the global financial operating systems in order to better serve humanity. 

A huge aspect of economic freedom is having access to financial services and in recent years, Decentralized Finance (DeFi) has exploded in both its services and usage. The major appeal and the key philosophy of DeFi is disintermediation - financial services provided to anyone in the world with internet access without the need of an intermediary third party to profit from any said transaction or service. DeFi, at its core, aims to provide the same services of the current financial system, only cheaper, faster, more inclusive and more secure.   

According to DefiLlama, the total value locked (TVL) in Decentralized Finance (DeFi) protocols on 1st Dec 2021 totaled $182 billion, a clean 10x since January 2021, which clearly illustrates the growing and insatiable demand for a resetting of the global financial sector.

DeFi isn't without its risks, however. The industry is relatively young, and although the goals and tech of DeFi are groundbreaking and admirable, the path to achieving them comes with much hard work and time. Currently, some risks associated with DeFi include:

  • Smart Contract Vulnerability - If a flaw is present in the code of a smart contract dealing with any of the financial services offered by the DeFi protocol, funds could be at risk. Such flaws have been seen where hackers were able to exploit vulnerabilities in code to steal vast amounts of funds from a protocol. Such exploits, although devastating, tend to result in tougher and more robust code being written, which ultimately serves to evolve blockchain to higher standards.
  • User Error - With DeFi, users are in charge of their own financial portfolios. They are in essence their own bank and security. Funds have been mistakenly lost forever if sent to the wrong address, or if an individual computer is hacked. Early DeFi environments such as those on Ethereum have served as a lesson learned in how to strengthen security and mitigate user error risk in future blockchain development. These include whitelist addresses, hard-wallet integration and address recognition detection.
  • No Insurance - Crypto assets are not insured by any state. Some protocols are developing risk management strategies and exploring compensation strategies for market volatility and loss of asset value.  
  • Regulation - Particular assets may severely lose value or even become worthless if specific government regulation negatively affects them. Regulatory integration with blockchain is essential if we are to see mass adoption, however until there is a defined and set regulatory standard, crypto as an industry continues to be turbulent in nature. 
  • Impermanent Loss - In order for anyone to swap one crypto asset for another on an AMM-based decentralized exchange (DEX), a pool of liquidity of the two assets needs to be available so that asset swaps can be done cheaply and efficiently. Individuals can provide liquidity to a DEX by depositing two paired assets at a $value ratio of 50/50. By providing this liquidity you are rewarded with a share of the transaction fees. Impermanent loss arises when the market value of one asset pair, provided as liquidity, outperforms the value of the other. The net $value difference between the two assets within a liquidity pool, affects the ratios of initial deposit of 50/50. So for example, if ADA and MELD are $1 and you provide 100 ADA and 100 MELD to a liquidity pool, the total $value is $200 at a 50/50 ratio. If the market price of ADA was to drop to $0.5 and MELD remained at $1, then the initial 50/50 ratio would change. When you withdraw your assets at these changed ratios, an impermanent loss is realized as the total value will be less than the total value of the assets had you held them outside the pool. An impermanent loss calculator can be found here.   

Maladex

The majority of the issues facing DeFi and the blockchain industry as a whole, in part, are outside the remit of technological solutions and depend on governing bodies and politicians. Problems that can be resolved by technology are being addressed, and are continuously being improved upon by the evolving nature of blockchain. As blockchains become more sophisticated, so too can the projects being developed on them. One such project is Maladex, built on Cardano.  

Maladex is a research-driven project that aims to provide a comprehensive trading platform and serves as a novel decentralized financial institution. Maladex includes features such as;

  • Programmable swaps
  • Active investing and trading strategies - A comprehensive platform for individuals to trade and invest, connecting investors to a wide range of products. 
  • Investment opportunities through synthetics, derivatives, and crypto indexes. 
  • Portfolio management and risk mitigation tools
  • Education platform

Maladex aims to provide an incredibly comprehensive decentralized and democratic investment platform that will provide everyone with the tools previously available only to professional traders. Being research driven and built upon Cardano’s blockchain technology, Maladex strives to leverage every inch of capital efficiency for the benefit of its users. Risk management, investment compensation, and dynamic and adaptable hedging encompass what Maladex is building. Maladex’s platform will enable users to access an array of tailored and customisable financial services including index funds, options, synthetics, and on-chain hedge funds - all built within a supportive environment to help improve the skills of the investor. 

A key aspect Maladex strives to solve is to minimise impermanent loss associated with DeFi liquidity provision to the point of it being negligible.  As stated in Maladex’s whitepaper P42, the components of where impermanent loss comes from are broken down into:

  • a shift in the initial ratio of tokens 
  • long time exposure allowing for significant shifts with high losses to occur
  • lack of compensation to a market-maker for taking on the risk of potential losses
  • lack of utilization of external liquidity sources to rebalance internal value shift
  • inability to express the desired source and target liquidity pool asset ratios

“…by addressing the above issues, one can eliminate completely the effect of impermanent loss. This is achieved by using sophisticated modeling to assess the perceived asset value and price dynamics, converging to desired assets ratios, the ability to start from the preferred liquidity pool asset ratios, and dynamic market maker reward scaling for providing liquidity in the market stress conditions, leading to a market net neutral position.”

The whitepaper continues to break down each point in a comprehensive manner, but the key takeaway is that it will eliminate impermanent loss via asset ratio management, arbitrage, and dynamic risk compensation. When trading it's impossible to have no impermanent loss, but Maladex say it can be solved to the point it is negligible. 

Another key pursuit for Maladex is capital efficiency, a ratio of expenditure to revenue, an element that, if refined to its maximum potential, will profit the end user through every service offered. More details regarding this can be found here

Maladex’s risk management research plays a crucial role so that any losses from volatility and/or bad projects are minimized for users of the protocol. Strategies are being developed, such as token scoring, to ensure only a high degree of quality projects are available on the platform. Dynamic platform fees, based on risk from volatility, act as a form of compensation. In the extreme case of projects going to zero, something known as fuses can automatically rebalance your portfolio by using oracle data, minimizing loss and reducing overall portfolio risk. All these combined strategies help keep a managed portfolio within the confines of healthy financial appreciation. 

MELD x Maladex

MELD and Maladex share deep core values in that both teams want to bring economic freedom that is cheap, flexible, and accessible to everyone. This aligned vision compliments each project and will continue strengthening the collaboration and pursuits each project ventures into.

MELD is a decentralized non-custodial banking protocol where you will be able to securely lend & borrow both crypto and fiat currencies. Built specifically on Cardano, MELD will offer a series of refined financial instruments, allowing DeFi to be used in a way like never before! MELD’s Akamon two-way multi-chain bridge will allow users to access their assets in multiple ecosystems in order to provide liquidity and benefit from all the services offered by the MELD protocol. 

MELD will facilitate lending products such as negative interest loans, where borrowers pay back less than the original loan and their famed ‘Genius Loan’ where the yielded earnings from the deposited collateral cover the principal. In essence a self-repaying loan! Loans can also be taken out as FIAT currency, something that has never been done before which is all made possible by the technological advancement and capital efficiencies of the Cardano blockchain.

To begin with, the MELD x Maladex partnership will ensure that each protocol’s token is integrated into each platform. MELD will add liquidity on Maladex’s platform to ensure smooth and efficient trading of assets and Maladex’s MAL token will be provided to MELD’s credit market so that people can borrow MAL against their crypto. An ongoing element of support and research-driven collaboration will ensure that the services offered by both platforms will be tailored and benefit the users. The Maladex team will also be offering ongoing expertise and support to the Akamon bridge, helping ensure security is to the highest possible standards.

Combining the financial services of Maladex’s decentralized trading platform and the decentralized cheap and accessible crypto-to-crypto and crypto-to-fiat loans with wrapped asset and bridging solutions offered by MELD, will unleash a formidable and interoperable financial force, a force that will bring millions of people prosperity, a force that traditional institutions will not be able to ignore.

Disclaimer

The opinions shared within this article are those solely of the MELD Ambassador. Note that the content within should not be considered financial, legal, or tax advice. Neither the author nor MELD Labs PTE Ltd. are financial, legal or tax advisors. None of this content should be used to make any form of financial, tax, or legal decisions. Do your own research and consult professionals as needed for official policies, restrictions, and requirements in your jurisdiction.

If you believe in the MELD vision, want to support this initiative, and want to help promote the future of finance then we want you to join the MELD Ambassador Program!

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