Overview

MelonFarm faces the fundamental limitation that it cannot fix the Melon price at its value peg, but instead must encourage widespread participation in peg maintenance through protocol-native financial incentives. Stability is a function of how regularly the price of a Melon oscillates across its peg and the magnitude of price deviations from it.

MelonFarm has four direct peg maintenance tools available:

1. Increase the Melon supply;

2. Change the Soil supply; and

3. Change the Temperature.

At the beginning of every Season, MelonFarm evaluates its position (i.e., price and debt level) and current state (i.e., direction and acceleration) concerning ideal equilibrium, and dynamically adjusts the Melon supply, Soil supply, and Temperature to move closer to the ideal equilibrium.

Ideal Equilibrium

MelonFarm is in ideal equilibrium when the Melon price and the MelonFarm debt level are both stable at their optimal levels. In practice, this requires that three conditions are met:

1. The price of Melon is regularly oscillating around the peg;

2. The MelonFarm debt level is optimal; and

3. Demand for Soil is steady.

In order to return to ideal equilibrium, MelonFarm affects the supply of and demand for Melons in response to the Melon price, the MelonFarm debt level and changing demand for Soil. It does so by adjusting the Melon supply, Soil supply and Temperature.

Melon supply increases primarily affect the Melon price. Soil supply impacts the Melon supply and the debt level. Temperature changes primarily affect demand for Soil.

In order to make the proper adjustments, MelonFarm reassesses the states of both the Melon and Soil markets at the beginning of each Season.

In practice, maintaining ideal equilibrium is impossible. Deviations from ideal equilibrium are normal and expected. As MelonFarm grows, the durations and magnitudes of deviations are expected to decrease.

Decentralized Price Oracle

MelonFarm's core objective is to oscillate the price of Melon above and below its dollar peg. To do this, MelonFarm must be able to reliably measure the price of a dollar on-chain without trusting a centralized third-party to provide it. A robust, decentralized stablecoin requires a tamper-proof, manipulation-resistant and decentralized price oracle.

Melon-ETH liquidity pool

Ether is the most decentralized, censorship resistant and liquid asset on the Ethereum ecosystem. Read why we believe in Ethereum here. MelonFarm leverages the ETH/USD Chainlink data feed and the Melon:ETH Uniswap pools for calculating deltaSupply in the Melon:ETH pool.

Debt Level

The Pod Rate represents the MelonFarm debt level relative to the Melon supply. The Pod Rate is often used as a proxy for MelonFarm’s health. If the Melon supply is 1000 and there are 2000 Pods in the Line, the Pod Rate is 200%.

$$PodRate=\frac{PodLine}{MelonSupply}$$

MelonFarm defines a handful of Pod Rate ranges that it uses as an input to determine how to change the Temperature:

• Excessively low debt: Pod Rate < 5%

• Reasonably low debt: 5% ≤ Pod Rate < 15%

• Optimal level of debt: Pod Rate = 15%

• Reasonably high debt: 15% < Pod Rate ≤ 25%

• Excessively high debt: Pod Rate > 25%

Melon Supply

At the beginning of each Season, MelonFarm increases the Melon supply by minting amount based on the delta supply. Essentially, MelonFarm will mint the number of Melons that need to be sold in the Melon-ETH liquidity pool to return the Melon price to a dollar. In case there are new Melons are minted:

$$MelonsMinted=DeltaSupply*MGR$$

Melon Supply Growth Rate (MGR) is the percentage of delta supply that will be minted. This rate is fixed at 61.8% and can not be changed.

Treasury, Silo Depositors, and Pod Holders, receive 10/54/36 of new Melon mints each. If there are no Pods need to redeemed, Silo Depositors receive 90% of new Melon mints.

Treasury is a multi-sig wallet that holds funds and will be used for development, marketing, partnerships, cross-chain liquidity, etc... in the future.