[Investment] MELD: The Banking Stack for DeFi
1. Abstract
MELD is a decentralized, non-custodial lending protocol built on the Cardano blockchain. MELD enables borrowers to collateralize Cardano-native assets in the MELD Smart Contract to take out a fiat loan or secure a line of credit. Lenders who provide fiat liquidity receive 1) MELD Token rewards, 2) interest returns paid by borrowers, and 3) protocol fees from native liquidity pools called MELD Vaults. MELD aims to provide a safe, transparent, and trustless lending platform to provide access to decentralized financial (DeFi) instruments to the bottom 97% of the world’s population.
2. Value Proposition
Total Value Locked (TVL) serves as a valuable set of data that reflects the demand for DeFi products. Based on the database of DeFi Llama, a leading DeFi statistics platform, TVL across blockchains has surpassed $270 billion as of November 2021, which accounts for nearly 10% of the total market capitalization of all cryptocurrencies. As thoroughly explained in this post by a41 Ventures, viable DeFi products, especially lending platforms, are essential for the development of the blockchain ecosystem.
Lending platforms provide benefits to both the borrowers and the lenders. From the borrowers’ perspective, there are 3 main advantages of taking out crypto-backed loans: 1) self-repaying loans based on governance token rewards, 2) maintaining your crypto position while having access to cash, and 3) increasing your earning potential through leverage. From the lenders’ perspective, earning passive income in interests paid by borrowers comes as an attractive option. Ultimately, lending platforms create the multiplier effect, fueling liquidity and usability of assets within blockchains. The majority of blockchains that support smart contracts each have a dominant lending platform. Notable examples include Compound on Ethereum, Venus on BSC, and Anchor Protocol on Terra. Needless to say, such platforms have made significant contributions to their native blockchains by empowering their ecosystems as effective financial infrastructures.
Since the Alonzo Hard Fork in September 2021, Cardano has enabled deployments of smart contracts. Although most contracts that have been deployed are currently frozen in a time-lock due to the unique design of Cardano, developers across the globe are ready to launch thousands of dapps native to the Cardano blockchain. By leveraging the cost-effectiveness offered by the proof-of-stake consensus and the security of Cardano’s unique scripting language, MELD aims to build a user-friendly lending platform that will greatly accelerate the growth of the Cardano ecosystem.
3. MELD
MELD is the first trustless, noncustodial lending platform to be built on Cardano that will allow users to borrow fiat by collateralizing Cardano-native assets.
Services
- Crypto-backed Loan: MELD offers instant loans in which users deposit cryptocurrencies as collateral to take out a loan in fiat (USD/EUR). Once the user completes the deposit, the MELD Protocol creates a collateralized debt position (CDP), which is registered on the blockchain, securing immutability and transparency. The wire transfer of the fiat is automatically processed by the MELD protocol. MELD issues a loan at the LTV ratio of 50%. In a situation in which the market price of the collateral falls, causing the LTV to reach 85%, the MELD Protocol initiates the liquidation process. Fiat equivalent to 105% of the initial collateral is secured, and the remaining collateral is returned to the borrower.
- Genius Loan: Genius Loan is a self-repaying loan in which the collateral is deposited into liquidity pools on MELD to capture trading fees that cover the interest due. MELD offers impermanent loss protection to borrowers by leveraging the MELD Staking Pools.
- Crypto-backed Line of Credit (CBCL): A feature in which a user may spend up to 50% of the collateral value using the MELD Card. The key advantage of CBCL is that users are only required to pay the interest on the actual amount of fiat they spend.
- MELDed Assets: The MELD Protocol will enable users to create wrapped assets called MELDed Assets. MELD aims to wrap currencies from the real world and other blockchains into Cardano-native assets, enabling DeFi protocols built on Cardano to get exposure to popular assets that are normally unavailable on the Cardano blockchain. MELD will initially support BTC, ETH, BNB, USD, and EUR by allowing users to mint MELDed assets by sending the corresponding asset to the MELD DAO.
Products
- MELD Card: A card for spending crypto-backed loans or the CBCL. Users may spend fiat wherever VISA or MasterCard is accepted.
- MELDapp: A user-friendly application for lending, borrowing, managing CDP, and creating MELDed assets. The MELDapp will be available on iOS and AOS for mobile users, and Chrome for PC users.
MELD DAO
MELD DAO is the governance body of MELD in which the MELD Improvement Proposals (MIPs) are submitted and voted on by users. The MELD DAO will go through 3 stages to achieve complete decentralization.
1) The early-stage period in which no voting is done to fix potential bugs on the platform.
2) The semi-decentralized period in which the team is still in control of the project, but off-chain proposals and votes can be held using governance tools.
3) The completely-decentralized period where anyone with 0.01% of $MELD delegated to their address may submit a proposal that causes a change on the MELD Protocol upon quorum. Each proposal must receive 50% of all governance votes to be enforced. To prevent malicious governance activities, if the initial proposer’s voting power drops below 0.01% of total governance votes, the proposal may be canceled.
4. Competitors
Dominant crypto-backed fiat liquidity provider platforms exist in the market, notable ones being BlockFi, Nexo, and Celsius. However, MELD maintains a competitive edge with its highly decentralized structure. See the chart below for detailed comparisons.
5. Tokenomics
MELD Token
MELD is the governance token of the MELD Platform. Designed to capture the value of the platform, MELD comes with multiple utilities including protocol governance, incentivization, fee reductions, and protocol insurance. With a fixed total supply of 4 billion, a deflationary mechanism in form of buybacks exists to promote healthy market dynamics. Instead of the traditional “buy-back & burn” method, MELD LABS has designed a unique mechanism in which the purchased MELD tokens are sent to the AMM. The LP tokens received for supplying liquidity get burnt, forcing MELD tokens to be locked in the liquidity pool.
MELD tokens will be distributed as follows:
MELD ISPO
To promote a fair launch, MELD has applied a unique initial token distribution mechanism called the Initial Stake Pool Offering (ISPO). Users who delegate ADA to the public MELD stake pool will be rewarded with MELD tokens, while MELD LABS keeps the staking rewards generated in the pool. The MELD ISPO has been successfully completed with over 570 million ADA (equivalent to $1.34 trillion as of November 2021) being staked.
6. Partners
MELD has partnered with top projects building on Cardano and Polygon to source liquidity upon launch, wrap assets from other blockchains, and host a private token sale.
7. Conclusion
Fast and cost-effective and layer 1 blockchains, namely Solana, BSC, Polygon, and Terra, have shown remarkable growth in 2021 as “DeFi-optimized” blockchains. With the successful implementation of the Alonzo Upgrade, the arrival of thousands of dapps native to the Cardano blockchain is imminent. As the first DeFi platform on Cardano to provide users with 1) access to fiat while maintaining their crypto positions, 2) a bridge to migrate assets to Cardano, and 3) liquidity pools to lend assets for passive income, we believe that MELD will serve as the most effective and viable lending infrastructure that will profoundly enhance the Cardano ecosystem.
Disclaimer
The content of this post is for informational purposes only. Nothing contained in this post should be construed as investment advice. Terabyte accepts no liability with the regard to the user’s reliance on this content. Investment involves risk.
