Kepler Protocol — The Solution To Increase AMM Assets Utilization to 100%
What is Kepler Protocol?
From the summer of 2020 to now, the boom in yield farming has not yet completely dissipated. We believe that the reason why “yield farming” can be the protagonist of the blockchain world for a long time is that it significantly improves the utilization efficiency of assets in AMM DEX such as Uniswap. It’s very easy to understand with the below chart.
We call the ratio of the daily transaction volume to the daily liquidity in Uniswap as the “Liquidity Utilization Rate”. From November 7, 2020 to November 13, 2020, Uniswap’s liquidity, transaction volume and liquidity utilization rates respectively are (data source: Uniswap InFo)
It can be seen that Uniswap’s liquidity utilization rate is around 7%. In addition, we further explored the asset utilization performance of ETH and stablecoins. We believe that ETH and stablecoins are the most important assets in this round of yield farming boom. The amount of ETH and stablecoins attracted by a DeFi project can roughly reflect its popularity and trustworthiness in the market. Among them, DAI is the most popular stable currency asset.
From November 7, 2020 to November 13, 2020, the Liquidity, Transaction Volume and Liquidity Utilization rate of DAI-ETH in Uniswap are respectively (data source: Uniswap InFo )
From here, we can see that the liquidity utilization rate of more valuable stablecoin assets in Uniswap is even lower, only about 5% to 6%.
In the blockchain world, that is almost unacceptable but the emergence of yield farming has improved this situation to a certain extent. Uniswap created the UNI-V2 token. After the user provides liquidity in Uniswap, the user will obtain the corresponding UNI-V2 token and put the UNI-V2 token into various “farms” on the market. Users can get not only Uniswap’s LP income, but also rewards from the farm. In this way, the utilization rate of user assets has been improved. Uniswap’s liquidity continues to grow and new farms has gained traffic and attention. Everyone benfits！
Then, projects such as Yearn and Harvest appeared. They aim to maximize the efficiency of user assets through complex strategies and then millions of assets will flowed into them. But most UNI-V2 can’t find support in yearn and Harvest, especially those precious ETH and stablecoin liquidity.
Here are two questions:
- After liquidity enters a SWAP like Uniswap, can it still be invested in projects like yearn and Harvest to earn income at the same time?
- What is the highest liquidity utilization rate of a SWAP?
MoonSwap gave its own answer through the Kepler Protocol:
- 100%, even more than 100%.
We won’t count LP Token’s yield farming as a segment of its asset utilization rate, as we all know that the liquidity mining rewards are in essence a subsidy where the liquidity is not truly used. I will write an independent article to make my opinion clear on this going forward.
MoonSwap is an AMM DEX running on Conflux and regards Conflux as a Layer 2 solution to Ethereum. It provides high-speed and 0 Gas trading experience for Ethereum assets holders. MoonSwap has been in stable operation for more than two months, helping users save a total of 1 million USD in GAS. After providing liquidity on MoonSwap, users can get cToken on Layer 2 and enjoy the high-speed and 0 Gas trading. Meanwhile, the assets staked on Layer 1 will be invested into projects like yearn and Harvest, or Compound and Aave.
This is the product design of the Kepler protocol, which can raise the liquidity utilization rate to higher than 100%.
What is mToken?
First of all, we need to understand how MoonSwap and ShuttleFlow, the cross-chain asset protocol MoonSwap relies on, work. MoonSwap runs on the Conflux underlying network, supporting the high-speed and 0 Gas trading of ERC 777 assets. ShuttleFlow comes into play when users want to convert their ERC20 assets into ERC777.
When ERC20 assets are transferred cross-chain to Conflux, they are transferred to an Ethereum address assigned by the Cross-Chain Alliance. The original ERC20 assets will be sent into the multi-signature contract in the custody of the Cross-Chain Alliance via ShuttleFlow. The Conflux address corresponding to the Ethereum address assigned by the Cross-Chain Alliance will receive the ERC777 cToken minted according to the ERC20 tokens at a ratio of 1:1.
When withdrawing ERC777 assets out of Conflux, users need to fill in the recipient address of the ERC20 tokens and the ERC777 cToken will be burnt by ShuttleFlow. The corresponding amount of ERC20 assets will be sent to the recipient address from the multi-signature contract in the Cross-Chain Alliance’s custody via ShuttleFlow.
The Kepler protocol will call the Layer 1 assets in the multi-signature contract in the Cross-Chain Alliance’s custody, which cannot be realized in the original system.
Once the ERC20 assets leave the multi-signature contract of the Cross-Chain Alliance, the corresponding ERC777 cToken will be burnt immediately.
Hence, we launched mToken.
cToken can be swapped into mToken through the Kepler protocol and the mToken will be sent into user’s Conflux address. mToken is an ERC777 asset, which can enjoy the high-speed and 0 Gas trading experience provided by MoonSwap. Meanwhile, the ERC20 assets in the multi-signature contract of the Cross-Chain Alliance originally, will be sent into the Kepler protocol, and the Kepler protocol will send the assets into projects such as yearn and Harvest, or Compound and Aave.
How Kepler protocol works?
MoonSwap takes full advantage of the composability of DeFi protocols and MoonSwap’s connectivity between Layer 1 and Layer 2 assets. The Kepler Protocol cluster can maximize the utilization rate of the liquidity that users invest in MoonSwap.
Users migrate Ethereum native assets to cross-chain assets — cToken through the ShutteFlow asset cross-chain protocol. And cTOken generates interest-bearing assets mToken through Kepler Protocol. mToken can be transferred in MoonSwap with a high-speed and 0 Gas trading experience.
Users who put mToken into the MoonSwap liquidity mining pool become the LP of MoonSwap. They are able to obtain transaction fee rewards;
The MLP corresponding to mToken can be staked to MoonSwap’s liquidity mining pool to gain mining rewards.
The original cToken will enter the Kepler Protocol. Through the ShuttleFlow asset cross-chain protocol, the ERC20 assets originally in the custody of the Cross-chain Alliance multi-signature contract will also enter the Kepler Protocol when tToken is burned. Meanwhile, the ERC20 assets will be invested in Ethereum-based asset management protocols such as Yeam, Harvest, Compound and Aave. The rewards gained will be returned to the MoonSwap ecosystem in the form of mToken and distributed to all users who hold mToken.
mToken can be exchanged back to cToken at any time, and the whole process will be fully executed by contracts.
In addition, as a native asset of Conflux, CFX is also an interest-bearing asset. mCFX will be invested in the asset management protocol on the Conflux to generate gains.
The biggest charm of blockchain lies in its permissionless nature and the composability of DeFi. In theory, we could bridge the Kepler protocol with other asset management protocols on Ethereum in a permissionless manner. But what’s more exciting, we would make the whole procedure safer and smoother if we could realize in-depth collaboration with other asset management protocols on Ethereum. We are already in communication with the Harvest team and successfully won their support. We hope that we can also partner with other projects such as yearn, Compound, Aave, to maximize users’ liquidity utilization rate in collaboration.
· MoonSwap: https://moonswap.fi/