Vault
Introduction
The Vault is responsible for sourcing and managing interchangeable tokens (ERC-20) within the ecosystem. It determines the exchange rate based on the demand and supply of tokens deposited by users through the AMS, and is responsible for minting and burning MECA. Acting as an integrated liquidity pool, the Vault implements the AMS according to specific equations during the Deposit and Withdraw processes carried out by users. It oversees all funds raised through activities that can be represented as minting or selling MECA, and serves as a hub to allow other services within the ecosystem to utilize these funds as liquidity. Through this operation, the Vault manages funds, accumulates profits, and redistributes its value back into MECA.
How it works?
Collecting
Users can perform deposits and withdrawals in the Vault, allowing them to deposit assets permitted by the Vault and mint MECA or exchange MECA for other desired assets through burning. This process can be understood as depositing tokens into the Vault and receiving LP tokens, or purchasing MECA through tokens listed on the exchange, which allows the use of MECA as a reserve currency. Also, users may expect to generate profits from the ecosystem by staking MECA in the Farm. Considering these points, it can also be understood as purchasing bonds.
Vault manages the funds raised in this way, and is responsible for maintaining an appropriate ratio between tokens currently being processed, taking into account the liquidity in use and the liquidity required for each service. Therefore, all tokens listed on Vault will have an exchange rate with MECA. This exchange rate is an equation for implementing the AMS mentioned earlier, where the exchange rate is determined by taking into account whether some tokens are being paid into the Vault more than necessary, or whether they are insufficient and need to be raised.
Balancing
When a particular token is deposited unnecessarily into the Vault, the exchange rate for that token continues to rise. Conversely, if a specific token is lacking within the Vault, the exchange rate decreases. In other words, for tokens where there is no demand for deposit, disincentives as penalties come into play, gradually reducing the amount of MECA that can be obtained.
Moreover, as services within each ecosystem utilize the liquidity allocated from the Vault to generate fees through activities like trading or lending, the holdings in the Vault may increase, leading to an increase in the exchange rate. In such cases, as the protocol grows and generates more revenue, the exchange rate of MECA naturally rises along with its value. Therefore, users need to capture and leverage arbitrage trading opportunities to minimize trading losses in the Vault.
In addition, each service uses the liquidity allocated from Vault and notifies Vault whether this liquidity is sufficient or insufficient. This process naturally leads to changes in the proportions of liquidity tokens within the Vault as per market movements, resulting in different exchange rates of MECA for each token. With each occurrence of market movement, arbitrage trading opportunities mediated by MECA continue to arise. Vault ensures that the appropriate proportion of tokens in the Vault is balanced through arbitrage transactions mediated by MECA with an exchange rate determined according to the demand for tokens due to market movements.
Provisioning
The exchange rate, determined by the quantity of MECA circulating through each token listed in the Vault via minting and burning, is internally estimated by a value called Weight within the Vault. In other words, it is assumed that for a specific token, there are tokens with a quantity and value corresponding to the quantity of MECA minted and distributed. Therefore, based on this Weight value, the liquidity available for exchange between different specific two tokens in the pair is proportionally supplied by comparing the weights of each token for each service.
For instance, if a specific service liquidity requests for the ETH-DAI pair, with a supply of 10,000 DAI and a weight of 5,000, and 1,000 ETH with a weight of 2,000, then ETH can use liquidity equivalent to 2000/5000 of 10,000 DAI based on its weight. Thus, in the ETH-DAI pair, 4,000 DAI can be allocated for 1,000 ETH.
However, if more specific tokens are artificially paid in to increase the weight value, the amount of MECA tokens minted according to the payment amount decreases according to the exchange rate, and as a result, the weight value gradually reaches a certain level, so the weight value does not increase beyond a certain amount. Therefore, tokens with abnormal liquidity through indiscriminate deposits in this way quickly reach the end of the weight limit, so the liquidity that can be used does not change significantly, but liquidity that is deemed unnecessary in the Vault is allowed to be used for all other tokens. Also, the tokens can be released externally so that the appropriate ratio can be adjusted again.
Additionally, if a token is deposited excessively beyond a certain threshold, the Vault encourages its removal through the exchange rate. As the exchange rate changes, the mint of MECA decreases with continued unnecessary deposits, but the quantity of tokens that can be redeemed through MECA burning increases. Therefore, this provides another opportunity by allowing someone to obtain a greater quantity of a specific token by burning fewer MECA tokens, thus offering another opportunity.
Risks
Decrease Asset Value
Regardless of the supply and demand of Vault or services within the ecosystem, losses may occur if the value of specific or all deposited assets is devalued in the external market. Because the Vault is a unified liquidity pool, the value of MECA tokens is correlated with the Total value locked, which is the total value of all tokens deposited in the Vault. If the value of one specific asset among the assets handled in the Vault declines in the external market, the loss rate can be reduced because it is supported by the value of other tokens in the Vault to a certain level, but losses may occur.
MECA holders should be aware of the opportunity for earnings from all tokens listed in the Vault but should also be care the associated risks with fluctuations in the value of multiple tokens. Moreover, during a bear market, where the value of all assets typically declines, trading skills and market awareness become crucial. In such bear markets, the direct impact on the protocol arises from the evaluation of dollar value from external markets, regardless of changes in the quantities of tokens deposited within the Vault, highlighting the need for MECA traders or holders to be more vigilant about market movements.
Impermanent Loss
Vault에서는 IL이 존재하지 않지만 다른 유형의 손실이 발생할 수 있습니다. 기본적으로 MECA를 구매하는 메커니즘이기 때문에 MECA의 환률 등락에 따른 보유가치의 손실이 발생할 수 있습니다.
Conceptual Tokens
One aspect requiring attention during trading is the type of asset being traded. In the case of rebase tokens, where the balance of the asset continuously changes, the Vault cannot ascertain whether the token contract is malicious or not. Consequently, for all rebase tokens, incentives and penalties may act based on the changing balances. This necessitates consideration of the fluctuating token balances for each trade, implying that the quantity of MECA or assets obtained during deposit or withdrawal may vary significantly from expectations based on the rebased state of the token balance at the time of the transaction.
What’s the difference?
vs Liquidity Pool
It's possible to deposit a single token as single liquidity, rather than a pair, in the Vault. This is possible because users are essentially purchasing MECA through tokens allowed by the Vault. Therefore, users no longer need to prepare pairs in a 50:50 ratio for liquidity provision. Consequently, users are relieved from the need to swap to match deposit ratios or to ponder over complex calculations, enhancing usability.
Additionally, even in concentrated liquidity pools, there's no need to consider price ranges or monitor and analyze price movements. By depositing the desired amount of a token, algorithms operate liquidity optimally in the market, continually rebasing according to price movements. This liberates users from unnecessary concerns, allowing them to become LPs with a single, simple transaction.