Decentralized Exchanges:

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INTRO TO MUX: What is MUX Protocol?

The MUX Protocol is the next generation of decentralized exchanges in that it connects with and utilizes multiple decentralized exchanges even across chains.

This enhanced aggregation operability allows traders to access more liquidity and leverage, thus enhancing trading options.

Upon the V3 upgrade, MUX Protocol will aggregate trading across the following chains and L2s:

• ARB Arbitrum (Ethereum layer 2)
• BNB Chain (Binance smart chain)
• OP Optimism (Ethereum Layer 2)
• AVAX Avalanche (Avalanche Network)
• FTM Fantom (Fantom Network)

That means you can access liquidity from decentralized exchanges on any of these chains while trading on just one. It does the aggregation for you.

Currently, MUX Protocol V2 focuses on a GMX liquidity core.

Regardless, the MUX Protocol boasts:

• 100X Leverage
• Zero price impact
• Self-Custody
• Optimized Trading Costs
• Intelligent Order Routing
• Unique Staking and Liquidity Opportunities

You can receive a minimum 2.5% trading fee reduction on MUX protocol using promo code: SAVE10. Activate now!

MUX Protocol Deep Dive: How does MUX Protocol Work?

Leverage trading in DeFi is growing, but it’s facing challenges like scattered liquidity, lack of native cross-chain utilization, and vastly different pricing mechanisms. To address this, the MUX protocol introduced the MUX Leveraged Trading Aggregator.

Key Mechanisms:

Liquidity Routing: When traders open positions, the Aggregator compares prices across protocols and recommends one with suitable liquidity depth. It also evaluates the composite cost, which includes explicit and implicit costs, selecting the route that minimizes cost.

Position Container: The Aggregator manages contracts holding traders’ positions, isolating risks, and ensuring safety. When a trader opens a position, a new position container is created.

Leverage Boosting: The Aggregator can supply additional margin, raising the leverage and lowering Maintenance Margin (MM) requirements. This extra margin comes from the MUX Universal Liquidity Pool. When a position is opened, the Aggregator charges a minimal fee.

Cross-Chain Liquidity and Aggregation: The Aggregator leverages the Universal Liquidity mechanism from the MUX protocol to aggregate liquidity from different protocols and chains, improving the trading experience.

For example, a user opening a $100M position might have this distributed across various protocols (e.g., $50M on A, $30M on B, and $20M on C). The Aggregator collaborates with underlying leveraged trading protocols to guarantee accurate pricing and can absorb pricing differences within a specific range.

The MUX protocol is supported by three fundamental mechanisms: Universal Liquidity, Multi-Asset Pool, and Dark Oracle.

Universal Liquidity aims to address the issue of fragmented liquidity across different chains. It uses a broker module to calculate available network liquidity to fill a trade order. This ensures higher capital efficiency without moving pooled assets. An example scenario shows that a trader placing a long charge on one network can utilize ETH from different networks, thus leveraging the total universal liquidity.

The Multi-Asset Pool serves as a fully collateralized counterparty to traders. Composed of stablecoins and blue-chip assets, the pool reserves required assets for open positions and held positions against traders in the opposite direction. This mechanism ensures that the pool can always cover traders’ profits, eliminating counterparty risks. The pool’s net exposure remains delta-neutral for long positions but can incur USD-denominated losses for short positions.

The Dark Oracle mechanism provides accurate and stable pricing by aggregating price feeds from multiple exchanges. This private price oracle, which doesn’t publicly display asset prices, helps prevent front-running and nearly eliminates toxic arbitrage, enabling zero-price impact trading. It is deployed on the MUX protocol’s server to maintain privacy.

How does the Universal Liquidity Pool work?

The Universal Liquidity Pool on MUX holds a diversified portfolio of assets. These pooled assets are used in margin trading, allowing the protocol to earn fees. Users can contribute liquidity by purchasing MUXLP tokens with permissible assets.

Buy/Sell MUXLP

Users can buy or sell MUXLP tokens across all networks with accepted assets. Orders require a pending time of 18 minutes before execution. This wait time serves to:

1. Prevent possible arbitrage harmful to liquidity providers.
2. Allow accurate calculation of universal liquidity across multiple networks.

MUXLP Staking

Once purchased, users can stake their MUXLP tokens to earn protocol income and MUX rewards.

MUXLP Pool Portfolio

The MUXLP pool comprises blue-chip assets and stablecoins, each with a targeted weight. Fee adjustments are made based on the importance of the asset in the pool.

 

MUXLP Profits & Risks:

Protocol-Owned Liquidity (POL)

MUX employs the POL mechanism to avoid relying solely on liquidity providers, aiming to become self-sufficient. The MUXLP pool is formed from two sources: Liquidity Providers and POL. 30% of the protocol’s income goes to POL, creating the foundation of the MUXLP pool. The proportion of POL in total liquidity is known as the Protocol Owned Ratio (POR).

Understanding MUX Protocol Tokenomics

The MUX protocol’s tokenomics revolves around four primary tokens: MCB, MUX, veMUX, and MUXLP.

MCB: The Main Token

MCB is the primary token in the MUX protocol. Users can lock their MCB tokens to obtain veMUX, which grants them access to protocol income and MUX rewards.

Supply and Locked-Staking

The total supply cap of MCB tokens is set at 4,803,144, with 3,803,144 currently in circulation and another 1,000,000 reserved for future MUX vesting. MUX tokens can be vested into MCB over a period of 1 year. This supply cap will remain the same unless a governance proposal for its increase is initiated and passed. Any such change will come into effect after a 14-day time lock.

Users can lock their MCB (and MUX) tokens to obtain veMUX. The lock period can range from 2 weeks to 4 years. The number of veMUX tokens received is time-weighted, which means longer lock times yield more distributed veMUX.

MCB on Different Chains

MCB tokens are available on the Arbitrum, BNB Chain, and Ethereum networks. Since all staking activities and rewards distributions happen on Arbitrum, bridging your MCB tokens to Arbitrum is recommended.

MUX: The Reward Token

MUX tokens serve as the protocol’s non-transferable reward tokens. Users can earn MUX by holding veMUX or staking MUXLP.

Utility and Supply of MUX

MUX tokens have two primary utilities: they can be staked to obtain veMUX or be vested into MCB. The supply cap for MUX is currently at 1,000,000, with a daily emission rate of 1,000. The supply of MUX will decrease if they are vested into MCB over a year-long process. Like MCB, any changes to the MUX supply cap would require a governance proposal and a 14-day time lock.

MUX can also be vested into MCB tokens over a year through Quota or Capacity channels. The Quota channel allows for MUX vesting based on veMUX, while the Capacity channel allows vesting based on the users’ staked MUXLP tokens.

MUX tokens are non-transferable and can only be accessed on the Arbitrum network.

veMUX: The Governance Token

veMUX is the governance token of the protocol. Holding more veMUX gives users more voting power on protocol governance. veMUX is obtained by locking MCB and MUX. Users holding veMUX are entitled to protocol income and MUX rewards. veMUX tokens are minted when users lock MCB and MUX and will be burnt as the lock time decreases.

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

MUXLP: The Liquidity Provider Token

MUXLP stands for the protocol’s liquidity provider token. Users can purchase these tokens with assets allowed by the pool. Users can stake MUXLP to earn protocol income and MUX rewards upon purchase.

There is no supply cap for MUXLP tokens. These tokens are minted when buy orders are filled and are burnt when sold. MUXLP tokens can be bought on Arbitrum, BNB Chain, Avalanche, and Fantom networks, but staking and reward distribution are only available on Arbitrum.

MUX Tokenomics Examples:

MCB: The Principal Token

Consider that Alice is an investor, and she buys some MCB tokens, which are the primary tokens of the MUX protocol. Alice locks her MCB tokens, and in return, she receives veMUX. These veMUX tokens entitle her to earn income from the protocol and receive MUX rewards.

The total supply of MCB is capped at 4,803,144. 3,803,144 tokens are circulated, while 1,000,000 tokens are set aside for future MUX vesting. Alice decides to vest her MUX tokens into MCB over a year, which means that she will lock up her MUX tokens, and over the course of one year, these will gradually convert into MCB tokens.

When Alice locks her MCB for a month, she gets 0.020548 veMUX in return. This increases her stake in the protocol and allows her to gain more rewards over time.

MUX: The Reward Token

Bob, another user, earns MUX tokens as a reward by holding onto his veMUX tokens. He decides to stake his MUX tokens, meaning he locks them up for a certain period, and in return, he obtains veMUX tokens.

Bob can also choose to vest his MUX tokens into MCB over a year, similar to what Alice did. As with MCB, the supply cap of MUX tokens is also governed by the users and requires a governance proposal to change. If Bob decides he wants to increase the supply cap of MUX, he can initiate a proposal, and if it passes, the change will take effect after a 14-day time lock.

veMUX: The Governance Token

Charlie, another participant in the network, locks his MCB and MUX tokens, which mints veMUX tokens. These veMUX tokens give Charlie a say in the protocol’s governance proportional to his stake. The more veMUX tokens Charlie has, the greater his voting power in the protocol. Additionally, holding veMUX tokens allows Charlie to earn income from the protocol and receive MUX rewards. When the lock time on Charlie’s MCB and MUX tokens ends, his veMUX tokens are burnt.

MUXLP: The Liquidity Provider Token

Diana decides to provide liquidity to the protocol. She purchases MUXLP tokens, the protocol’s liquidity provider tokens, with the assets allowed by the pool. After buying the tokens, she stakes them to earn income from the protocol and MUX rewards. The number of MUXLP tokens is not capped, meaning more tokens are minted whenever there’s a buy order, and tokens are burnt when sold.

Diana can buy MUXLP tokens on Arbitrum, BNB Chain, Avalanche, and Fantom networks. However, she must note that staking and reward distribution for MUXLP tokens are only available on the Arbitrum network.

In summary, the MUX protocol offers various ways for users like Alice, Bob, Charlie, and Diana to interact with its system and earn rewards by staking or providing liquidity, thereby creating a robust tokenomic ecosystem.

Incentives system for MUX Protocol:

 

Please note:

• POR stands for Protocol Occupancy Rate which is calculated based on the protocol’s specific formula.
• veRate is the MCB and MUX staking ratio which is calculated as the total supply of veMUX divided by the sum of the circulating supplies of MCB and MUX.
• An epoch is a period of time used in the MUX protocol, which starts and ends every Thursday (UTC).

This system provides incentives for both holders of veMUX (who get a share of the protocol’s income and MUX rewards) and MUXLP stakers (who also receive part of the protocol’s income and MUX rewards).

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Mux Protocol Fee Structure

Position Fee

The MUX protocol charges position fees when traders open and close positions. The position fee is fixed at 0.08%.

 

Collected position fees are shared between external MUXLP stakers, veMUX holders and POL.

Funding Payments

Funding payments, considered as borrowing fees from positions, are charged every 8 hours. Long and short positions funding are calculated separately.

 

fundingFeeRate = max{utilization × limitRate, baseRate}

For example:

• ETH utilization = global long ETH position / ETH in pool
• Short utilization = global short position / Stablecoins in pool

Liquidation Fee

The maintenance margin (MM) on the MUX protocol is 0.5%, and the liquidation fee is 0.1%. Therefore, 0.1% (if it exists) margin will be collected as the fee when a position is liquidated. The remaining margin after liquidation will return to traders.

Spread

The spreads under different markets are as follows:

 

For the case where a trader’s position routes to a third-party underlying leveraged trading protocol through the MUX aggregator, the fee structure may change according to the third-party protocol’s fee structure. It’s recommended to review the specific documentation of the third-party protocol for detailed information.

MUX Protocol Trading Fees Example:

Assume a trader wants to open a long position for 10 ETH when the price of ETH is $2,000. Additionally, let’s assume the trader holds this position for 24 hours before closing it.

Position Fee

• Open Position Fee: 0.08% × $2,000 × 10 = $16
• Close Position Fee: Assume the ETH price hasn’t changed. The closing fee would be the same, i.e., 0.08% × $2,000 × 10 = $16

So, the total position fee for opening and closing the position would be $16 (opening fee) + $16 (closing fee) = $32.

Funding Payments

Assume for this example that the utilization of ETH is 50%. Therefore, the funding fee rate will be max{utilization × limitRate, baseRate}.

Since the limitRate for long positions in ETH is 40%, and the baseRate is 8%, the funding fee rate is calculated as max{50% x 40%, 8%} = 20%.

Since funding payments are charged every 8 hours, and the position was held for 24 hours, there will be three funding payments.

Each funding payment would be 20% / (365 days * 3 times per day) * $2,000 * 10 ETH = $10.96.

So, the total funding payment for the 24 hours would be $10.96 * 3 = $32.88.

Liquidation Fee

In this example, the position wasn’t liquidated, so no liquidation fee applies.

Spread

In this example, we assumed the price remained constant and no additional trading activity was made, so no spread was incurred.

Thus, the total fees the trader would have paid in this scenario are:

• Position Fee: $32
• Funding Payments: $32.88

For a total of $64.88.

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Understanding Liquidation in MUX Protocol

When trading on the MUX protocol, understanding the liquidation rules is paramount, especially for those trading against the MUX native pool (MUXLP pool). If a trader’s position goes through the MUX aggregator and lands on a third-party leveraged trading protocol, the liquidation rules can change, and thus it is recommended to review the respective protocol documentation.

Liquidation Under MUXLP Pool

At its core, the MUX protocol mandates a minimum margin a trader needs to maintain to keep a position open, termed the Maintenance Margin. This margin acts as a safety net and if a trader’s margin dips below this level, their position gets liquidated. The likelihood of this happening increases as the position leverage goes up.

The calculation for the Maintenance Margin (MM) is:

MM = IndexPrice * Position Value * MMR%

Where:

• IndexPrice is the current market price of the asset.
• Position Value is the total value of the assets in the position.
• MMR% is the Maintenance Margin Rate, which stands at 0.5% on the MUX protocol.

Next, we have the Maintenance Leverage, which refers to the maximum effective leverage that a trader’s position can reach. If the position leverage breaches this limit, it results in a liquidation.

The Maintenance Leverage is calculated as:

Maintenance Leverage = 1 / MMR%

MMR% = 0.5%

Maintenance Leverage = 1 / MMR%

Lastly, it’s essential to understand that a liquidation fee of 0.1% is levied by the MUX protocol. This fee is deducted from the margin when a position is liquidated. After the fee deduction, the remaining margin is returned to the traders.

Liquidation fee = 0.1% of the margin

In summary, in the MUX protocol, a trader’s position can be liquidated if the margin in the position goes below the required Maintenance Margin or if the position’s leverage exceeds the Maintenance Leverage. Upon liquidation, a fee of 0.1% is charged, and the remaining margin is returned to the trader.

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MUX Protocol Governance Overview

At present, the MUX protocol relies on a combination of forum proposals and community discussions for its governance process. Proposed changes to the protocol are publicly deliberated on the forum, and the developers then implement these proposals based on collective opinion. The developers are committed to transparency, notifying the community through various channels before executing any modifications. Aside from an urgent pause of the protocol to thwart security threats, all protocol changes come into effect only after a 48-hour timelock, giving community members ample time to respond.

Once the protocol becomes self-sufficient, a voting process involving veMUX will be incorporated into the governance proceedings. This will begin when the community reaches a rough consensus on a proposal.

The move towards decentralized protocol governance will be gradual, dictated by development priorities. The primary focus at the launch of the protocol is ensuring top-notch performance and rapid adaptation to the fluctuating market conditions. Having the developers lead the governance helps expedite constant improvements, laying a strong foundation for the protocol. As the protocol matures, garners a wide user base, and consistently offers optimized trading experiences, the focus will shift towards increasing decentralization. Voting will be gradually added to the governance process, first for major protocol updates and eventually for comprehensive modifications. In the later stages, the role of veMUX holders in governance will be enhanced to foster a more trust-minimized system.

MUX Protocol Governance Scope

Currently, the MUX DAO multi-signature feature governs the MUX protocol smart contracts, encompassing general operation, maintenance, and emergency actions.

The governance model identifies two types of permissions: those requiring a timelock and those that do not. Most general operation actions need a 48-hour timelock. Maintenance actions, which do not affect the protocol’s core features, do not need a timelock. Emergency actions that address potential security threats or severe damage to Liquidity Providers (LPs) and traders can be enacted immediately and do not require a timelock.

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MUX Protocol Hacks and Exploits Log

There have been no successful hacks of the MUX Protocol to date. However, there was a potential exploit discovered in January 2022 that could have led to a loss of funds. The exploit was patched by the MUX team before any funds were lost.

The exploit involved a reentrancy attack on the MUX staking contract. A reentrancy attack is a type of exploit where a contract calls another contract, and then the second contract calls back to the first contract before the first contract has finished executing. This can allow the attacker to call the first contract multiple times, which can lead to a loss of funds.

The MUX team patched the exploit by adding a check to the staking contract that prevents it from being called recursively. This means that the exploit can no longer be used to steal funds from the MUX staking contract.

The MUX team has a strong security team that is constantly monitoring the protocol for potential vulnerabilities. They have also conducted several security audits of the MUX code, which have helped to identify and fix any potential security issues.

As a result of these measures, the MUX Protocol is considered to be a very secure protocol. There have been no successful hacks of the protocol to date, and the MUX team is constantly working to improve the security of the protocol.

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Final Thoughts on MUX Protocol

In conclusion, MUX Protocol offers a robust, user-friendly, and powerful platform for high-leverage trading. Its combination of features – from market selection, order types, and leverage options, to detailed risk management tools – makes it an appealing choice for traders looking for a decentralized platform to navigate the dynamic world of cryptocurrency trading. As the protocol continues to evolve and add more markets, it shows promise in providing increasingly efficient and flexible trading solutions for its users.

We personally look forward to experimenting with and sharing V3 and V4 updates as they rollout. Stay tuned!