Swapping non-ERC20 to ERC20 (e.g. BTC and wBTC) is not something new, but has been done by many existing projects in the Ethereum Defi ecosystem. The Muse Finance is bringing more value than just a wrapping service. For the sake of clarity, the rest of this document will explain the Muse ecosystem in the particular case of ADA stakeholders.
The diagram below illustrates the ecosystem of the Muse Finance, in which stakeholders could maximize their profits from their crypto assets.
In the diagram, the ADA stakeholders firstly join the Muse ecosystem by depositing their ADA using the Muse Wrap product. ADA stakeholders will get an equivalent amount of mADA (tbc), a wrapped token of ADA generated by Muse Wrap. Stakeholders could always get back their ADA by burning mADA at any time and receive the amount of ADA as the exact amount of burnt mADA.
Since the depositing and burning are processed automatically, in a decentralized manner, stakeholders do not need to worry about their assets.
The deposited ADA is staked to the Cardano network to receive staking rewards. These rewards are distributed to mADA holders in accordance with the amount of mADA in their balances. mADA holders could check the amount of staking rewards, and claim their rewards at any time. The rewards are distributed in mADA. So mADA holders are not bothered with swapping their rewards again. Hence, getting staking rewards while still being able to participate in the Defi world is the first benefit of mADA holders in the Muse ecosystem.
mADA holders could use their mADA to become liquidity providers of the Muse Swap, which is an AMM-based decentralized exchange (DEX) similar to Uniswap or Sushiswap. Similar to other DEXes, liquidity providers enjoy the yield farming profits from their assets deposited in the pools (and also suffer the risks). Still, they are able to enjoy the staking rewards proportional to the amount of mADA they added to the pool liquidity. In other words, being a liquidity provider, mADA holders do not give away their staking rewards, but have a chance to earn more income for each unit of their crypto assets. This is counted as the second benefit of mADA holders within the Muse ecosystem.
Furthermore, by adding liquidity to Muse Swap, mADA holders receive some LP tokens corresponding to the amount of mADA added to the pool. Notice that different swapping pools will issue different kinds of LP tokens. They are named differently. For example, the swapping pool between mADA and USDT will issue mADAUSDT token. mADA and USDT are the two component tokens of mADAUSDT. Similarly, the swapping pool between mADA and ETH will issue mADAETH, so on and so forth.
At any time, an LP token could be redeemed to equivalent amounts of its component tokens (e.g., mADAUSDT is redeemed to mADA and USDT). The redeeming follows predefined formulas managed by the pool smart contract. Thus the intrinsic value of LP tokens is transparent to the community.
The transparency of LP tokens’s value is the base line so that it could be used as a collateral in a lending platform, say Muse Lending. Using LP tokens as collateral in Muse Lending, LP token holders could borrow other crypto assets without losing the staking rewards as well as the swapping commission bonus counted for their LP tokens. This is the third benefit of mADA holders.
Using this feature, aggressive holders could boost their profits given a fixed amount of assets. They could collateralize their LP tokens (say mADAUSDT) to borrow mADA and USDT. Then they use these borrowed assets to add liquidity to the swapping pool to earn more swapping commission bonus so on and so forth. Still, they have to be aware of the risk of liquidation when the crypto prices are highly volatile.
The above mentioned benefits are what an ADA holder could achieve by joining the Muse ecosystem. However, the potential of the Muse ecosystem is not limited to those things.
The special design and the tight integration allow the Muse Swap to employ the spare part of its total liquidity as a lending source at the Muse Lending. This luckily does not impact the swapping commission of liquidity providers. The lending interest is distributed fairly to all liquidity providers as an extra bonus to their contribution to the Muse ecosystem.
The lending process is controlled automatically by the Muse Swap smart contract thanks to the decentralized Muse Lending protocols. This is to ensure that the lending activities will not impact the normal operation of swapping pools. Whenever there is a signal of lacking liquidity, the Muse Swap contract would cancel the lending and get back the liquidity to secure the swapping operations.
The lending process is not one-way. The algorithms inside the Muse Swap contract constantly monitor swapping pools’ health. When certain criteria are met, they suggest that more liquidity should be added to particular pools to minimize the slippage 1 . The Muse Swap contract uses different assets as collateral to borrow required assets from the Muse Lending to secure the swapping pool.
Thanks to this two-way auto lending process, LP stakeholders are benefited indirectly, say extra lending benefit and reduced risk of impermanent loss.
The integration between Muse Swap and Muse Lending could leverage stakeholder activities. Muse Lending supports leverage yield farming, in which stakeholders collateralize their assets (e.g., mADA, USDT) and ask Muse Lending to add liquidity to Muse Swap on their behalf. The amount of added liquidity could be higher than the collateral.
Moreover, Muse Lending enables its users to do margin trade on Muse Swap in the similar way. In the margin trade mode, a user opens an account within Muse Lending. He then deposits his crypto assets to borrow more tokens to start trading. The collateralized assets and borrowed assets are locked and managed Muse Lending. Muse Lending will do the trades on behalf of users.
Thanks to these uniqueness features, stakeholders could earn more profit per each unit of their crypto assets.
In short, by wrapping ADA to mADA, stakeholders could have following benefits at the same time:
● Staking rewards for each mADA (calculated and distributed via Muse Wrap)
● Swapping commission rewards (yield farming) for providing liquidity to Muse Swap
● Lending interests for providing liquidity to Muse Lending
● Margin trading
● Leverage yield farming