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MantisSwap: A new AMM on Polygon's zkEVM.

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A project with ambitious goals built on Polygon.

Original author: Shiro

Original translation: Kxp, BlockBeats

Polygon zkEVM is a new innovation in the Polygon ecosystem. zk scaling will be the next big topic after Optimistic Rollup (Arbitrum, Optimism, etc.). However, there are currently not many protocols being developed on zkEVM.

Polygon zkEVM mainnet test version was launched less than a month ago (March 27th). The first protocol developed on it may become one of the most promising protocols on Layer2.

Polygon is a mature scaling solution (ranked second in TVL) with many partners and projects being developed on it. zkEVM is a new project by the Polygon team and may gradually become their primary focus. Vitalik Buterin also symbolically executed the first mainnet transaction.

Today we're going to talk about MantisSwap. Mantis is an ambitious project built on Polygon and is about to launch on Polygon zkEVM.

Introduction

MantisSwap is a decentralized automated market maker developed by Mantissa Finance, which enables efficient and secure trading of anchored assets on Polygon. It was launched on Polygon on March 20th, so we can participate in it very early.

Mantis allows for one-way liquidity provision, which is a good way to avoid impermanent loss for liquidity providers. It is an AMM that is anchored to assets, and you can trade stablecoins with low slippage under its protection mechanism.

Problem and Solution

Introduced by Bancor and widely adopted by Uniswap, AMM has facilitated the explosive growth of DeFi in the past few years, but it is not perfect. Mantissa has developed MantisSwap to address the issues with existing AMMs.

MantisSwap solves issues such as liquidity, impermanent loss, and volatility risks involving decoupling events.

Technology

Like other unilateral AMMs, Mantis uses the concept of Asset Liability Management (ALM) to maintain the accounts of each token, recording assets and liabilities. This design achieves unilateral liquidity provision.

Unilateral liquidity provision eliminates impermanent loss, but is replaced by what they call inventory risk. Inventory risk arises when the total liabilities of the protocol exceed the total assets in the system.

This type of risk can be calculated and prevented through their inventory risk factors. The following image is one of their risk mitigation mechanisms:

We can see through USDC recently that even fully supported stablecoins can experience decoupling events triggered by market panic. This is why risk mitigation mechanisms and LP capital protection are crucial for catalyzing growth in this field.

For decoupling events, Mantis has two solutions to mitigate risks: net liquidity ratio and risk tolerance variables. Among them, the net liquidity ratio can reflect the health status of the protocol. Under normal circumstances, Mantis' net liquidity ratio will be close to 1.

The decoupling of tokens may lead to a decrease in the net liquidity ratio, which could result in significant losses for LPs. Their slippage curve design protects against excessively low net liquidity ratios, thereby safeguarding liquidity providers. LP losses can be offset through transaction fees and other incentives.

The risk tolerance variable is determined for each token in the pool. The protocol determines the amount of risk it is willing to take on for each token in the event of token decoupling, and prevents the liquidity ratio of volatile tokens from exceeding a certain threshold.

If the token exceeds the risk threshold, the circuit breaker will be triggered to stop the exchange of the token. For example, by increasing this risk-tolerant circuit breaker above the slippage curve, losses caused by UST crashes can be prevented.

Tokenomics

MNT is the governance token of MantisSwap, with the following main advantages:

· Can increase APR to earn additional rewards.

· Incentives for bribery rewards for participating in voting (coming soon) · Future governance is used to vote on protocol decisions.

Users can earn MNT by depositing stablecoins and pegged assets on MantisSwap and receiving liquidity mining rewards. These rewards can be increased by holding veMNT, and you can also earn MNT by participating in the MantisSwap public beta testing.