Contributors: Mat / Riffi / Sylvia

Editing and Proofreading: Punko

Special Thanks: Thanks to the above friends for their outstanding contributions to this issue's content.

Project Overview

Mellow Protocol is a decentralized finance (DeFi) project that focuses on providing efficient and seamless liquidity solutions. Through its collaboration with Lido, Mellow has launched a staking event, allowing users to stake ETH on the Mellow platform to obtain Lido's liquidity Ethereum token, stETH, and receive additional staking rewards on the platform.

Technology

Mellow is built on the Ethereum blockchain, and its core functions are implemented through smart contracts. By integrating with Lido, users can stake ETH on the platform to receive stETH and earn additional staking points on Mellow.

Technical Architecture

• Smart Contracts: Manage liquidity pools, staking, and reward distribution.
• Liquidity Pools: Users can provide liquidity and earn rewards.
• Governance Mechanism: Community voting to determine protocol parameters and updates.

Market Analysis

1. Development of DeFi

Currently, there are many DeFi projects that provide liquidity, lending, and staking services, such as Aave and Compound. These projects have established significant positions in the DeFi space due to their strong technology and user base. However, Mellow stands out in the competitive market with its unique mechanism, especially its innovative staking rewards mechanism.

With the rapid development of DeFi, there is a growing demand for efficient and seamless liquidity solutions. Mellow has great potential to expand its user base and managed funds in this trend. Through its collaboration with Lido, Mellow offers an opportunity for staking ETH to obtain stETH and additional staking rewards, further enhancing its market competitiveness and attracting more users.

2. Latest Developments in Modular LRTs

Mellow also enables users to create modular LRT infrastructure, allowing them to choose different risk configurations based on their needs. This infrastructure allows risk managers to create LRTs with different risk/reward ratios, enabling flexible risk management and yield optimization.

Source: Mellow Medium

- Modular LRT Infrastructure

• * Provides flexible risk management and yield distribution.
  • Addresses the limitations of the current "one-size-fits-all" approach in the LRT market.
  • Offers different risk configurations and customization options for risk managers and depositors.

- Overall Advantages of LRTs

• * Provides instant liquidity.
  • Achieves compounded yields.
  • Diversifies risks.

3. Key Advantages of Mellow Protocol

• - Flexibility: Users can choose suitable LRTs based on their risk preferences.
• - Modularity: Different risk managers can issue LRTs tailored to different risk levels.
• - Transparency: Clear and open risk management and reward distribution.

Development of Mellow Protocol

1. Integration with Lido

Source: Mellow Medium

• Mellow Finance: As a member of the Lido Alliance, Mellow Finance maintains a close collaboration with Lido to support the creation of permissionless Liquid Restaking Tokens (LRT) through innovative re-staking protocols.
• Re-staking Opportunities: Driving the development of Ethereum re-staking space, providing more re-staking opportunities.
• Earning Rewards: Through its collaboration with Lido, Mellow Finance offers stETH holders the opportunity to earn LRT rewards, enhancing liquidity and utility.

2. Relationship with Symbiotic

• Launch Partner for Restaking: Symbiotic and partners such as Mellow Finance provide decentralized re-staking opportunities for stETH holders, allowing users to earn Symbiotic Points, increasing rewards and benefits.
• Decentralized Re-staking: Allows permissionless re-staking, jointly launching DeFi strategies with Lido, Symbiotic's architecture, and similar modular re-staking methods can showcase Mellow's strongest features.
• Immutable Smart Contracts: Service developers are not restricted by proprietary settings when locking in secure frameworks, slashing mechanisms, and reward logic with various operator sets. These features make it well-suited for Mellow's LRTs (Liquid Restaking Tokens), providing the necessary flexibility for a diverse risk configuration for users.
• Strategy Selection: Using Symbiotic's Mellow LRTs, combined with Mellow's automated and modular approach, users can choose suitable LRTs based on their risk preferences to enjoy liquidity and yields, without being limited to a single risk configuration.

Participation Guide

Source: Mellow Medium

1. Process

1.1 Preparation

• Prepare a compatible Ethereum wallet (such as MetaMask) and ensure there is ETH in the wallet.

1.2 Basic Participation Process

• Connect the wallet to the Mellow website.
• Navigate to the "Stake" page and select the "Stake through Lido" option.
• Enter the amount of ETH to stake, and the system will automatically transfer the ETH to Lido.
• Users will receive stETH, which can be viewed on the Mellow platform to monitor staking points and rewards.

1.3 Rewards

• 1. Users will receive stETH.
• 2. The Mellow interface displays staking point rewards.

2. Point Redemption Requirements

• No Capital Threshold: Users can re-stake ETH on Mellow and receive 1 Mellow point and Symbiotic point per wstETH per hour.
• Current Situation: Due to the full limit of Symbiotic, staking currently only earns 1.5 times Mellow points. Once the Symbiotic limit is raised, staking users will have priority in the Symbiotic queue.
• Duration of Activity: Expected to last for several months.
• Mellow Point Redemption Limit: Currently unlimited.

3. Lock-up Period and Slippage After Re-staking

• Lock-up Period: After depositing, users can apply for withdrawal immediately. From time t to t+180 days, the Curator can process the withdrawal, usually taking 24-72 hours.
• Emergency Operation: If the Curator does not process the withdrawal within t+90 days, users can use the emergency withdrawal function.
• Slippage: The slippage is very low.
• User Choice: If the execution time exceeds 180 days and the request is not processed, users can cancel and re-submit the request or create a new request.

4. Exit Mechanism

1. Access Dapp: Access Mellow and visit the Dapp. Connect your wallet to continue.
2. Dashboard: After connecting, navigate to your dashboard to view your LRT list. Select the LRT you want to withdraw.
3. LRT Details: After selecting the LRT, click on it to view its detailed information and the withdrawal pop-up window. The "Request Withdrawal" button will be inactive until you meet the necessary conditions.
4. Withdrawal Amount: Enter the amount you want to withdraw. You can also click the "Max" button to set the maximum amount you can withdraw based on the LRT balance in your wallet.
5. Request Withdrawal: After entering the withdrawal amount, the "Request Withdrawal" button will activate. Click on the button to initiate the withdrawal process. Source: WolfDAO
6. Transaction Signature: Sign the withdrawal transaction using your associated wallet.
7. Withdrawal Request: After a successful transaction, you will see the "Withdrawal Request" card in the dashboard. This card displays the LRT type, status, withdrawal amount, initiation time, and the lock-up period before you can claim the funds.
8. Lock-up Period: During the lock-up period, you will not earn any points from the withdrawn LRT. The earned points will be displayed on your dashboard.
9. Claim Withdrawal: After the lock-up period ends, the "Claim Withdrawal" button on the withdrawal request card will activate. Click on it and confirm the transaction in your wallet.
10. Withdrawal Confirmation: After a successful transaction, you will see the quantity of withdrawn LRT tokens and the claimed assets and their equivalent value in USD on the LRT page.

5.5 Differences Between Curators

Source: WolfDAO

• Risk and Return: There are no significant differences in risk and return among different Curators, only differences in the timing of joining.

Overview of Each Strategy

• Steakhouse Restaking Vaults: Aimed at leveraging the network's basic allocation and using wstETH as the underlying strategy's liquid asset.
• Restake Vault Planned by P2P.org: Aimed at maximizing re-staking opportunities. P2P.org is one of the global leaders in staking and re-staking.
• Amphor Restaked ETH (amphrETH): Protects, promotes, and monitors Restaked Networks management in the Symbiotic ecosystem.
• Re7: Focuses on providing early liquidity for various DeFi protocols, providing liquidity in DeFi since 2019, deploying capital through yield strategies and liquidity risk investments.

Source: WolfDAO

5.6 Point Updates and Mechanism

Source: Mellow Medium

Symbiotic Points Non-Dilutive + Queue Mellow Points Increased by 1.5 Times

As the Symbiotic wstETH limit has reached its maximum, new deposits into the Mellow vault will temporarily not be re-deposited into Symbiotic. This means that new deposits of ETH will not dilute Symbiotic points, and all depositors will share the same amount of Symbiotic points.

To address this issue, Mellow has introduced an automatic queue and reward mechanism. Users who deposited before the Symbiotic limit was reached will continue to receive normal Symbiotic and Mellow points, i.e., 1x + 1x. However, new depositors after the Symbiotic limit is reached will receive points after the limit is increased, but during the period when their liquidity is idle in the Mellow vault, they will retroactively receive 1.5 times Mellow points.

The final result is as follows for Mellow vault depositors:

• Users who deposited before the Symbiotic limit was reached: Receive 1x Symbiotic and 1x Mellow points, no change.
• Users who deposited after the Symbiotic limit was reached: Temporarily do not receive Symbiotic points, but receive 1.5 times Mellow points, and become the first batch of users to enter Symbiotic after the limit is lifted.

This mechanism ensures fairness and incentives in the system while minimizing negative impacts on depositors.

Risks and Potential Returns

1. Smart Contract Risks

1.1 Contract Audit Status

Mellow is built on the Ethereum blockchain and relies on smart contracts to implement core functions. Vulnerabilities in smart contracts can lead to fund theft or contract malfunctions. Currently, Mellow's audit is conducted in collaboration with ChainSecurity and Statemind.

The Mellow LRT system audit conducted from May 6, 2024, to May 27, 2024, primarily evaluated various components of the system, such as the treasury, various strategy and module contracts, and oracles. The Mellow LRT system allows users to securely deploy and manage liquidity reward tokens (LRT), providing robust access control and strategic asset management.

1. Main Findings

• Total Number of Identified Issues: 25 issues identified in the codebase.

• Severity Breakdown:

• * Medium Severity: 4 issues (all fixed)

  • Informational Severity: 21 issues (15 fixed, 6 confirmed)

2. Specific Issues and Recommendations

• Incorrect Rounding in Deposit Calculation: Identified rounding calculation issues affecting the minting of LP tokens. It is recommended to adjust the rounding method to prevent discrepancies.
• Outdated Price Data in ChainlinkOracle: Price updates are not frequent enough, potentially leading to the use of outdated data. It is recommended to set unique update intervals for each price feed.
• Potential Blocking of Withdrawal Processing: Identified an issue where the treasury's zero balance for certain tokens could block the withdrawal process. It is recommended to adjust the validation logic to better handle zero balances.
• Unauthorized Deposit Trigger: Identified that anyone could trigger the deposit of treasury assets, bypassing the expected restrictions. It is recommended to ensure that only authorized roles can initiate such operations.

1.2 Deployment Details

The audit report also includes deployment details of various contracts related to the treasury and strategies on the Ethereum blockchain, providing contract addresses for verification.

1.3 Evaluation and Recommendations

The audit demonstrates a robust system with strong mechanisms for managing digital assets through LRT. While several issues need to be addressed to ensure the safety and efficiency of operations, most identified issues have been resolved during the audit, showing the project team's commitment to maintaining high security and operational standards. The remaining confirmed issues indicate areas for future improvement, but they do not seem to immediately impact basic operations severely.

The audit indicates that while there is room for improvement, the system's foundation is solid, and with ongoing monitoring and updates, Mellow LRT can effectively serve its established purpose in the DeFi ecosystem.

2. Market Volatility

• ETH-Related Volatility: Price fluctuations in the cryptocurrency market, especially significant fluctuations in ETH prices, can affect user investment returns. This applies even to holding stETH, as the value of stETH is pegged to ETH.
• Systemic Risks: As a DeFi project, Mellow faces systemic risks within the entire decentralized finance industry and its ecosystem, such as liquidity depletion due to large-scale sell-offs or hacking events.

3. Compliance and Security

• Emphasis on smart contract security, with audits conducted in collaboration with ChainSecurity and Statemind.
• Regulatory Uncertainty: Regulatory clarity in the DeFi space is still lacking, and the positions and regulations of regulatory authorities in various countries may significantly impact Mellow. The uncertainty of these regulations may pose challenges to the project's development and operations, such as fund freezing, fines, or business restrictions.
• Future plans to introduce dynamic rebalancing functionality to optimize risk-adjusted returns and reduce potential losses caused by market volatility.

Smart contract security issues are one of the main risks faced by DeFi projects. Despite Mellow's contract audit collaboration with ChainSecurity and Statemind, potential vulnerabilities still exist that could lead to fund loss or system attacks. Therefore, regular security audits and contract updates are necessary.

4. Potential Returns

1. Reward Mechanism: By staking ETH on the Mellow platform, users can not only receive stETH provided by Lido but also additional staking point rewards from Mellow. These point reward mechanisms are highly attractive and can provide users with higher Annual Percentage Yield (APY).
2. Innovative Point System: Mellow's innovative staking point reward mechanism is a key factor in attracting more users. Especially in collaboration with Lido, users can earn dual benefits by staking ETH—stETH and additional staking point rewards, a feature not present in other DeFi projects.
3. Market Trends: While there are many DeFi projects on the market offering liquidity, lending, and staking services, such as Aave and Compound, Mellow's unique mechanisms give it a competitive edge in the market. In favorable market conditions, Mellow has the potential to grow its user base and manage a significant amount of funds.
4. High Annual Percentage Yield (APY): Leveraging its collaboration with Lido and its proprietary staking point system, users have the opportunity to earn a high APY. This high return rate is highly attractive to investors seeking to maximize their returns.

Conclusion

Overall, Mellow Protocol, with its technical advantages in the DeFi space and innovative reward mechanisms, is poised to stand out in the increasingly competitive market, attracting more users and funds. The protocol's collaboration with Lido and its unique staking point reward mechanism offer users a higher APY, enhancing its investment appeal. However, users must also be mindful of and address potential risks, including smart contract vulnerabilities, market volatility, and systemic risks in the DeFi industry.

Through careful risk management and a deep understanding of the Mellow platform's mechanisms, users can effectively leverage the investment opportunities provided by the platform to achieve substantial investment returns. Based on this, the development prospects of Mellow Protocol are promising, but continuous optimization and improvement in security and sustainability are still necessary.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。