MUX: Leveraged Trading with Universal Liquidity
0xE43A
August 1st, 2022

Hey everyone, we are back! đź‘‹

Founded in 2019, MCDEX has been one of the vanguards to explore leveraged trading in DeFi. From V1 to V3, MCDEX has been continuously innovating on AMM with leverage trading, capital efficiency optimization and seamless trading experiences.

Last year, we launched the V3 protocol, which accomplished several key milestones like reaching $7.2B cumulative trading volume and attracted more than 5000 users. However, we have also identified room for improvement along the way. The learnings we accumulated from V3 guided us to build a more trader-friendly, efficient and self-sustainable DEX. After months of building, designing and fine-tuning, we are thrilled to announce the launch of MCDEX V4, the MUX Protocol! Also, we are happy to announce that MCDEX will be rebranded as MUX.

TL;DR

  • Traders can use the MUX protocol to trade with zero price impact, up to 100x leverage, zero spread on blue-chip assets and no counterparty risks.
  • Liquidity on MUX will be multiplexed between margin trading and third-party DEX mining to achieve high utilization of pooled assets.
  • MUX unifies liquidity depths across deployed networks, thus becoming the first multi-chain native trading protocol.
  • Upon genesis, the protocol will be deployed on Arbitrum, BNB Chain, Avalanche and Fantom.
  • The upgraded tokenomics leverages the veToken model and brings in protocol income sharing. veMUX holders and MUXLP stakers can earn protocol fees and third-party DEX mining rewards.

Liquidity Multiplexing

So what is multiplexing?

The word "multiplexing" (abbreviated as muxing) is a telecommunication term, and it means combining various signals into one composite signal through a shared medium, aiming to share valuable resources. Using the same concept, MUX dymacially shares liquidity across multiple utilization routes, including on-platform margin trading and third-party DEX mining, seeking to significantly increase the utilization rate.

MUX will allocate pooled liquidity for margin trading and third-party DEX mining across networks to maximize yield. The protocol will preferentially reserve liquidity for traders and earn fees while using idle assets for third-party DEXes mining to generate additional yield; when the margin trading demand increases, the MUX broker will channel the liquidity back from DEXes and reserve for traders.

During the multiplexing process, the assets used for trading and mining can overlap, and the protocol restricts the overlapping proportion with a cap which is currently set at 80%. These restrictions help to ensure that the pooled assets can fully cover traders’ potential profits.

Universal Liquidity

Liquidity pools on trading protocols are usually fragmented from chain to chain, leading to inconsistent liquidity depths. For the same protocol, its liquidity might be over-sufficient on one network and insufficient on another.

MUX unifies liquidity across networks by using a broker module, which is a bot that monitors total liquidity and the liquidity reserved for margin trading. After a trader places an order, the broker will calculate the available liquidity across deployed networks and fill the order if it can meet the position size. The universal liquidity mechanism offers higher capital efficiency on all deployed networks without moving pooled assets around.

Supported by universal liquidity, the MUX protocol is born to be multi-chain native in terms of user experience and deployment complexity. As a result, the protocol will be able to expand to more ecosystems in the future much more efficiently.

Optimized DEX Trading

Self-custodial and highly transparent, margin trading on DEXes is supposed to be ideal for crypto traders. However, too many on-chain nuances can make the trading experience unsatisfying, like high price impact for large positions, low capital efficiency and counterparty risks from standard AMM-based protocols. In order to mitigate these known issues, the MUX protocol implements several unique mechanisms to optimize trading experience.

Multi-Asset Pool

The MUXLP pool, which is the counterparty of traders, is always fully collateralized with a portfolio of blue-chip assets and stablecoins. When traders open leveraged positions, the pool will reserve required assets until the position is closed; meanwhile, the pool will hold positions against traders in the opposite direction. If a trader's position is in profit, upon closure, the trader can withdraw the collateral and profits from the reserved assets. If the trader's position is at a loss, upon closure, traders will pay for the losses with the collateral.

For risk management, long and short positions under each market will have open interest caps. Since the caps won't exceed pooled liquidity capacity, the pool is always capable of paying for the trader's profits; therefore, the traders don't have counterparty risks.

Dark Oracle

MUX uses a dark oracle that aggregates price feeds from multiple sources to ensure pricing accuracy and stability. A dark oracle is a private price oracle which does not publicly display the prices of assets. The primary purpose of a dark oracle is to prevent front-running. In addition, the dark oracle eliminates nearly all room for toxic arbitrage, further enabling zero price impact trading. When traders place orders, the MUX broker module will obtain prices from the dark oracle and fill the orders with zero price impact.

MUX protocol deploys the dark oracle on the Multiplexing Layer.

Improved Tokenomics

MUX protocol’s tokenomics involves four tokens: MCB, MUX, veMUX and MUXLP.

MCB

MCB is the protocol’s main token. Users can lock MCB to receive veMUX which entitles them to protocol income and MUX rewards.

Supply

MCB token supply cap: 4,803,144

  • 3,803,144 MCB tokens are from the current circulation.
  • 1,000,000 MCB tokens are reserved for future MUX vesting.
    • Users can vest MUX tokens into MCB over 1 year. Please check the MUX section for more details.

The supply cap won’t change unless a governance proposal for increasing the cap is initiated and passed. If the supply cap is voted to increase, the change should take effect after a 14-day time lock.

Before the launch of the MUX protocol, MCB was the governance token for MCDEX V3 and V2 protocols. For historical supply and tokenomics information, please check MCDEX V3 docs

MUX

MUX is the protocol’s non-transferable reward token. Users can earn MUX through holding veMUX or staking MUXLP. MUX tokens can be utilized in two different options: stake MUX to obtain veMUX, or vest MUX into MCB.

The current supply cap for MUX is 1,000,000, and the daily emission is 1,000. The supply of MUX tokens will decrease if they are vested into MCB; the vesting process will take one year. The MUX supply won’t increase unless a related governance proposal is initiated and passed. If the supply cap is voted to increase, the change should take effect after a 14-day time lock.

veMUX

veMUX is the protocol governance token. Users can obtain veMUX from locking MCB and/or MUX. Holding veMUX will grant users a portion of the protocol income (protocol fees and third-party DEX mining rewards) and MUX rewards. veMUX tokens are minted when users lock MCB and/or MUX and will be burnt as the lock time decreases.

veMUX tokens are non-transferable and only available on Arbitrum.

MUXLP

MUXLP is the protocol’s liquidity provider token, which users can buy with assets allowed by the pool portfolio. After buying the tokens, users can stake them to earn a portion of the protocol income (protocol fees and third-party DEX mining rewards) and MUX rewards.

Supply

There is no supply cap for MUXLP tokens. MUXLP tokens are minted when buy orders are filled, and burnt when sold.

Real Profit Sharing

MUX protocol income derives from multiple sources: trading fees, funding payments, third-party DEX mining rewards and liquidation penalties. The profits will be shared between veMUX holders, liquidity providers and protocol-owned liquidity.

Income Allocation

  • Total Protocol Income Ă— 50% Ă— POR: Allocate for veMUX holders (in ETH)
    • POR is the rate of Protocol-Owned Liquidity
  • Total Protocol Income Ă— 50% Ă— (1 - POR): Allocate for MUXLP stakers (in ETH)
  • Total Protocol Income Ă— 50%: Purchase MUXLP and add as protocol-owned liquidity

For more details, please check the tokenomics section on the MUX Docs

Self-Sustainable Growth

Sufficient liquidity is crucial for trading protocols, as deeper pools can support higher open interest. However, acquiring and maintaining liquidity can be costly and unstable if solely reliant on liquidity providers (LP). In DeFi, the primary approach for obtaining liquidity is liquidity mining, which is unsustainable; once the APR declines, the “rented” liquidity will begin to drain; meanwhile, the reward token inflation raises selling pressure.

Instead of “renting” all liquidity from external sources, the MUX protocol implements the protocol-owned liquidity (POL) mechanism. The MUXLP pool consists of liquidity from two sources, LP and POL. Upon genesis, the protocol purchased MUXLP tokens for POL with funds raised from previous rounds; also, 50% of protocol income will go to POL. POL is the base of the MUXLP pool and will grow sustainably with cumulative trading volume.

What’s Next?

With MUX up and running, we’ll pay close attention to its performance and make continuous improvements. We look forward to progressively bringing the protocol into a self-sustainable state and offering the best trading experiences.

More programs including referral and mining programs are on the way, stay tuned! If you are interested in learning more about the project, please check out the links below.

Homepage: https://mux.network

App: https://app.mux.network

Docs: https://docs.mux.network

Discord: https://discord.com/invite/bd88NrzN3N

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