How MelonFarm Works
MelonFarm does not have any collateral requirements. MelonFarm uses credit instead of collateral to create Melon price stability relative to its value peg of $1. The practicality of using DeFi is currently limited by the lack of decentralized low-volatility assets with competitive carrying costs. Borrowing rates on USD stablecoins have historically been higher than borrowing rates on USD, even when supply increases rapidly. Non-competitive carrying costs are due to collateral requirements.
MelonFarm relies on three native assets and three interconnected facilities to regularly oscillate the price of Melon across its value peg:
Tokens
MelonFarm issues 2 tokens:
Melon - the MelonFarm ERC-20 stablecoins.
Seeds - illiquid tokens that are planted and yielded each Season.
Primary Facilities
The Sun
MelonFarm uses the Sun to create a cost-efficient and protocol-native timekeeping mechanism. The Sun keeps time on the Farm in Seasons. Each Season is ~1 hour long. MelonFarm adjusts itself to return the Melon price to its value peg at the beginning of every Season.
In practice, the Sun calculates the price of 1 Melon in the primary liquidity pool that is paired with the Ethereum native token (ETH). After that, the Sun makes the decision in two directions based on the price of 1 Melon that is greater or lesser than $1.
The Sun uses the Melon price to determine how to change the Melon supply and Soil supply.
The Silo
MelonFarm uses the Silo, to create a robust decentralized staking mechanism. Farmers can earn yield from passive participation in the Silo by depositing assets on the Deposit Whitelist in the Silo to receive Melons and Seeds.
To encourage consistent security:
Seeds yield every Season.
Seeds earn newly minted Melons share every Season.
The associated amount of Seeds from a given deposit must be forfeited when it is withdrawn from the Silo.
Deep and consistent liquidity in liquidity pools Melons trade in improves stability. Liquidity providers to liquidity pools whose LP tokens are whitelisted can also deposit their LP tokens in the Silo to earn Seeds. LP token deposits earn more Seeds than Melon deposits.
The Field
The Field is MelonFarm’s decentralized credit facility. Anytime the Melon price is too low, MelonFarm uses the Field to attract lenders who can lend their Melons to MelonFarm, which are subsequently burnt in exchange for Pods, MelonFarm’s native debt asset. Pods are paid out on a First In, First Out (FIFO) basis when new Melons are minted.
Soil is the number of Melons that can be lent to MelonFarm at any given time. Any time MelonFarm is willing to issue debt, there is Soil available in the Field. Any Melons not in the Silo can be Sown (lent) to MelonFarm in exchange for Pods.
Pods have a fixed interest rate and unknown maturity date. The number of Pods that grow from 1 Sown Melon is determined by the Temperature— the MelonFarm-native interest rate — at the time of Sowing. Pods become Harvestable (redeemable) for 1 Melon on a First In, First Out (FIFO) basis when new Melons are minted.
How can we earn with MelonFarm?
On the MelonFarm, farmers may be stakers, sowers (lenders), traders, or arbitrageurs.
For Stakers
Stakers can deposit Melons or Melon LP tokens into the Silo and start to earn new Melon distributions.
Melons - Stakers can purchase Melons from the Uniswap exchange.
Melon LP tokens - Stakers can provide liquidity on the Uniswap exchange.
Deposited Melon LP tokens will earn more Melon distribution rather than deposited Melons.
Constantly depositing in the Silo help stakers earn more Melons distribution.
For Sowers (Lenders)
Sowers (lenders) can sow Melons in exchange for Pods in the Field. The return on investment is fixed at a rate (Temperature) and will be paid in the future via new Melon distributions.
For example, if the current Temperature is 120%, and you sow 1000 Melons, you can get back 2200 Pods that can be harvested for 2200 Melons later.
For Traders
Traders maybe also sowers can trade their Pods in the Pod Market. If you want to exit early, you can list your Pods on the Market for sale at an attractive price to attract Pods buyers.
Furthermore, our Pod was designed to be an ERC-721 token that can be tradable on any NFT marketplace like Opensea, Blur, ...
For Arbitrageurs
Our system tends to maintain the Melon price around $1. If the Melon price is less than $1, this is an opportunity for arbitrageurs to purchase Melons at a low price and sell them later for a higher price.
Last updated