Mugen Finance — Omnichain Yield Aggregation
In Decentralized Finance, liquidity has been fragmented across different chains since the genesis of on-chain financial activities.
The problem of fragmented liquidity has begun to be addressed in different ways. Let’s examine how the problem of liquidity fragmentation is being tackled across various sectors:
Augmenting Liquidity — Bridges, AMMs, and everything in between.
Omnichain Asset Transfer
LayerZero, Chainlink’s Cross-Chain Interoperability Protocol (CCIP), and some other protocols are leading the charge to defragment the liquidity available in DeFi by enabling seamless cross-chain transfers. These protocols focus on creating an omni pool that is easily accessible to users regardless of the blockchain where the original liquidity resides. Omnichain transfer protocols basically enable cross-chain movement of assets and serve as the basis for decentralized applications like Mugen Finance are built on.
Further Reading:
LayerZero Website: https://layerzero.network/
LayerZero Documentation: https://layerzero.gitbook.io/docs/
Chainlink’s Documentation: https://docs.chain.link/
Chainlink’s Cross-Chain Interoperability Protocol (CCIP) website: https://chain.link/cross-chain
slAMMS and dAMMs
Several founders are also experimenting with Automated Market Makers (AMMs) to take advantage of liquidity fragmented across various layer 1 blockchains as well as layer 2’s. Two new forms of AMMs have been introduced to tackle the fragmentation of liquidity available to AMMs. The new form of AMMs are:
Distributed automated market makers (dAMMs)
Shared Liquidity Automated Market Makers (slAMMs)
Distributed automated market makers (dAMMs)
dAMMs is a solution to the fragmentation of liquidity on AMMs built within the Layer 2 ecosystem on Ethereum. dAMMs allow different dAPPs to operate using shared virtual, all the dAPPs that share liquidity on the dAMM do not communicate in real-time or synchronously, and as such there can be discrepancies between the real liquidity available and the virtual liquidity present in the ecosystem.
Further Reading: https://medium.com/starkware/damm-decentralized-amm-59b329fb4cc3
Shared Liquidity Automated Market Makers (slAMMs)
slAMMs use a similar mechanism to dAMMs, however, in slAMMs there is synchronous, real-time communication between the nodes/dAPPs that share the liquidity available to the ecosystem.
Back to Base — Mugen Finance
While there are protocols trying to consolidate the liquidity available in the market by creating omnichain bridges or unique forms of AMMs, there is still a massive gap as there are no protocols that facilitate cross-chain, real-time, omnichain yield farming. This gap is what Mugen Finance is seeking to fill. Mugen Finance is essentially an omnichain yield aggregator. The protocol seeks to provide individuals with simple access to multiple yields from multiple chains. This is primarily done using Layer Zero's messaging protocol and native treasuries on the blockchain, currently connected via LayerZero.
Mugen Finance seeks to deliver on the promise of being a yield aggregator by adopting a two-token model. The two tokens involved in the yield farming mechanism designed by Mugen Finance are the MUGEN and xMUGEN tokens.
$MUGEN Token
$MUGEN is an ERC20 token that participants receive once they deposit any token allowed by the Mugen Finance protocol. At this time, the only whitelisted asset is the USDC. Once users deposit the USDC, they add to the liquidity owned by the protocol, also called the protocol-owned treasury(POT). Once a user deposits a whitelisted asset to the treasury, they cannot retrieve these assets and can only receive $MUGEN tokens. $MUGEN has no maximum supply, and the supply will be created to match the demands.
To receive $MUGEN tokens, visit MUGEN Finance and deposit USDC -
Once you deposit your USDC tokens and receive MUGEN, you can stake the $MUGEN tokens to receive $xMUGEN tokens.
$xMUGEN Token
MUGEN yields are generated using omnichain yield farming strategies employed by Mugen Finance and are distributed to MUGEN stakers. In addition, MUGEN stakers will possess xMUGEN tokens to depict ownership of staked MUGEN tokens.
xMUGEN is an ERC-4626 token built with similar standards to the xSushi and xMPL tokens. However, it is essential to note that xMUGEN holders do not receive their tokens as MUGEN or xMUGEN. Instead, yields are paid out as WETH in a vested manner, as represented below:
To stake your MUGEN tokens, simply visit the stake pane and deposit your MUGEN, and you will receive xMUGEN in turn.
When you unstake xMUGEN, you will receive the original MUGEN tokens you held, and the rewards over a vested timeline will be paid out as WETH.
Final Thoughts — On Mugen Finance
Omnichain yield farming is a relatively novel concept. We particularly like that rewards are paid out as WETH and that Mugen is built on arbitrum to allow users to generate yields with near-zero transaction fees. While we feel that users should be able to retrieve the original assets deposited to the protocol, we understand that this is novel and experimental, and the Mugen Finance team is taking a route they believe will ensure scalability. The protocol is still largely experimental, and you cannot retrieve the initial assets you deposit on the protocol. Still, yield rewards are paid out in WETH, which we believe makes the conditions slightly more tolerable. We encourage you to do your research and only risk what you can while taking advantage of this novel mechanism to generate WETH yields.
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