Killing Two Birds with One Stone: A Quick Guide to the Merlin Chain Liquidity Protocol

Original author: Amber, Merlin Chain

As the Bitcoin Layer2 narrative is fully unfolded, the relatively "static" Bitcoin ecosystem has gradually become active, and the importance of liquidity has become increasingly prominent. In order to meet the urgent needs of a large number of traders for Bitcoin interest and promote efficient liquidity allocation, many liquidity pledge protocols in the Bitcoin ecosystem have emerged in this context. The leading Layer2 Merlin Chain in the Bitcoin ecosystem, together with emerging pledge protocols such as Solv Protocol, Avalon Finance and StakeStone, introduced the concept of interest-bearing Bitcoin and combined it with the traditional liquidity pledge concept, providing investors in the Bitcoin ecosystem with a new investment experience. This article will introduce the core mechanisms and pledge gameplay of Solv Protocol, StakeStone and Avalon Finance, as well as how to cooperate with each other to "kill two birds with one stone" driven by the Merlin ecosystem.

Solv Protocol

Project Overview

Solv Protocol is a full-chain basic income protocol exclusive to the Bitcoin ecosystem, which can be benchmarked against the Ethereum ecosystem re-staking protocol Lido. By converting idle basic assets into interest-bearing assets and promoting cross-protocol and cross-ecological free combinations, a more efficient liquidity allocation method can be created.

SovBTC is the first full-chain Bitcoin interest-bearing asset issued by Solv Protocol. It is essentially an ERC-20 token with considerable liquidity, which can create safe basic income for the idle assets in the user's wallet through staking. SolvBTC has been launched on Arbitrum, BNB and Merlin Chain.

Currently, Solv Protocol TVL has exceeded 200 million US dollars, with a total number of users exceeding 55,000, and has generated 7.03 million US dollars in income for users.

Team and Financing

Team Background

The Solv team brings together senior professionals from various backgrounds, including experts from traditional financial institutions such as Goldman Sachs and JPMorgan Chase, product managers from Binance and OKX, and other influential celebrities in the cryptocurrency field. In addition to the Solv Protocol itself, the team also created the SFT (Semi-Fungible Token) token standard ERC-3525 and attracted more than 100 teams to build new products based on this standard.

Financing

Investors of Solv Protocol include well-known institutions such as Binance Labs, NOMURA Group, Mirana, and Blockchain Capital. The last round of financing raised a total of US$14 million.

Core Mechanism

Solv Protocol provides strategy-based native income streams for mainstream assets such as BTC, ETH, and stablecoins with four core modules: distributed asset management structure, DAO-based coin selection mechanism, non-custodial asset operation process, and strictly monitored risk management framework.

1. Distributed asset management structure: Solv's structure supports the entire asset life cycle, including creation, issuance, redemption and risk control. The asset management framework consists of a trading strategy library, a built-in Safe Guardian, a price oracle, and a token driven by a liquidity strategy.

・Trading Strategy Vaults: Used to store funds and LP assets and perform asset allocation. Since its core design concept is to eliminate counterparty risk while ensuring the efficiency of liquidity pool operations, Solv pre-defines the types of transactions allowed in the contract to exclude any behavior that may involve the abuse of funds.

・Built-in Safe Guardian: An independent operating mechanism is set up according to different Vault trading strategies, and only wallets within a specified range are allowed to multi-sign. When a user operates through multi-signature, checkTransaction will be called to check whether it complies with the franchise rules.

・Price Oracle: Acts as a bridge between Solv and other DeFi protocols, mainly used to retrieve and calculate net asset value, set achievable prices for DeFi protocols, and perform operations such as lending and trading.

・Liquidity strategy driven tokens (vault LP tokens): Liquidity strategy driven tokens only convert pledged assets into liquid, tradable assets, similar to the ERC-20 standard, to ensure maximum composability and practicality within the DeFi ecosystem. Therefore, vault LP tokens such as SolvUSD and SolvBTC can be integrated and interacted with other DeFi components (such as money markets, DEXs, LPD-driven stablecoins, etc.)

2. DAO-based coin selection mechanism: The stable risk-return of SolvBTC, SolvETH and SolvUSD requires a high-quality basic portfolio, so Solv chose to have the decentralized autonomous community Solv DAO perform the asset selection process. Currently, Solv DAO operates under the supervision of the Advisory Council and will transition to the user-funded SOLV governance model after the end of Solv TGE.

3. Non-custodial asset operation process: Solv provides investors with on-chain asset autonomy and establishes a trustless standard through smart contracts to reduce the risk of malicious behavior. Smart contract upgrades need to be jointly controlled with Solv partners through multi-signature addresses and TimeLock mechanisms.

4. Strictly monitored risk management framework: Solv sets a predefined stop loss threshold for each strategy. In addition, Solv will introduce a 24-hour monitoring system to track portfolio delta in the future. Once there is a deviation or a market, the system will automatically take action.

Code Audit

The Solv code audit has been performed by well-known security companies such as Quantstamp, Certik, Slowmist, Salus, and SecBit, and the audit report is publicly available.

How SolvBTC can kill two birds with one stone

SolvBTC will become the Merlin Chain Liquidity Strategy Token (LST), which users can mint by staking M-BTC at a 1:1 ratio and cannot be redeemed before June. After the lock-up period, it can be redeemed back to M-BTC at a 1:1 ratio. Since M-BTC can be redeemed back to BTC at a 1:1 ratio at any time after the Merlin Seal staking ends, staking for SolvBTC can essentially achieve risk-free returns on the currency basis.

The source of SolvBTC income is a combination of multiple neutral trading strategies, including Perp DEX market-making income, Funding Rates neutral escape strategy, etc., which ensures stable income while minimizing the impact of market price fluctuations on income.

Since the Merlin ecosystem is still in its early stages of development, the currently staked BTC will be locked in the Vault to avoid the risk of depegging until redemption is open in June. During the lock-up period, users can obtain Solv points and can obtain multiple staking returns through a series of DeFi free combinations in Merlin Eco. The following is a simple SolvBTC exchange process:

SolvBTC:M-BTC = 1:1

Step0: Cross-chain Layer1 BTC to Merlin Chain, and then exchange it for MBTC on MerlinSwap, with a small discount.

Step1: Deposit MBTC into Solv to obtain a stable return on Merlin POS Staking.

Step 2: In addition, Solv staking will also receive points airdrops, but Solv officials have not yet given specific rules and token airdrop ratios

DeFi protocol Lego module

Since it is essentially an ERC-20 token, SolvBTC can be used as an important module of "Lego blocks" and combined with other DeFi protocols at will.

Step 3: Solv points system is only related to staking and minting, that is, SolvBTC ownership has no impact on staking points, so users can obtain more benefits through other types of DeFi protocols connected to Solv

According to the Merlin Chain application panorama officially released by Solv Protocol, Solv has cooperated with MerlinSwap, bitSmiley, Surf Protocol, Mage Finance, AvalonFinance and other top DeFi products on Merlin Chain. The guide to killing two birds with one stone is as follows:

・MerlinSwap (DEX): MerlinSwap will launch SolvBTC-M-BTC trading pairs for traders to trade freely. MerlinSwap is a DEX launched by the iZUMi Finance team in cooperation with MerlinChain. It is committed to creating a convenient and fast DeFi interactive experience for the Bitcoin ecosystem by leveraging the stability of the Bitcoin ecosystem and the interoperability of Merlin EVM. As of the end of March, MerlinSwap TVL has exceeded 100 million US dollars, and the highest daily transaction amount has reached 70 million US dollars. It is the largest DEX in the Merlin ecosystem and even the Bitcoin ecosystem.

・bitSmiley (StableCoin): Pledge SolvBTC to mint bitUSD (stablecoin). bitSmiley is a Bitcoin native stablecoin protocol that allows users to over-collateralize native BTC on the Bitcoin network to mint stablecoin bitUSD. In addition, bitSmiley has also launched lending and derivatives protocols to reshape the BTCFi ecosystem. bitSmiley was selected as a high-quality project in the Bitcoin hackathon jointly organized by ABCDE and OKX Ventures in November last year, and received investment from ABCDE and OKX Ventures at the end of the year.

・Surf Protocol (Perp DEX): Pledge SolvBTC to open a position. Surf Protocol is a perpetual contract DEX on Bitcoin Layer2. It was previously selected for the seventh season of the Binance Labs MVB Accelerator Program. The Surf Protocol testnet ended on March 26, with a total of 30,000 wallet addresses participating in the testnet, with a total transaction amount of US$250 million, and the mainnet will be launched soon.

・Mage Finance Avalon Finance (Lending Protocol): Pledge SolvBTC for lending

・Mage Finance is the first Bitcoin lending infrastructure built on Merlin Chain.

・Avalon is a DeFi platform on Bitcoin Layer2, which has been launched on Merlin Chain.

・MerlinStarter UniCross (LaunchPad): SolvBTC can be used as a certificate of participation in future IDO

・Merlin Starter is the first Launchpad platform of Merlin Eco, which aims to incubate Merlin Eco native projects and provide asset support for promising projects.

・UniCross is a cross-chain BTC inscription casting platform on the Layer2 network. It allows users to cast Layer1 BRC-20 tokens on Layer2, and can also choose to pay with multi-chain assets such as BRC-20, BTC and ETH. The stTokens obtained by users can be used for trading on the UniCross market, or exchanged for ERC-20 tokens on L2.

・Map Protocol Camelot Protocol (Layer3): Serves as Layer3 bridge assets

・Map Protocol is a peer-to-peer Bitcoin Layer2 focused on cross-chain interoperability, built on ZK and light clients.

・Camelot Protocol is a Bitcoin Layer3 protocol designed for DePIN built on Merlin Chain, aiming to decentralize AI training using blockchain technology. Camelot is committed to building a scalable L3 DePIN platform on Merlin Chain, enabling organizations and individuals around the world to contribute computing resources to a shared pool.

In addition, Solv also launched a points system on April 5, allowing users to earn points by minting SolvBTC. The larger the amount of pledge, the more points you can get (single wallet operation is recommended), and Solv points can be used to exchange for SOLV token airdrops. The points system will last for three months until the end of the lock-up period in June.

StakeStone

Project Overview

StakeStone is a full-chain liquidity infrastructure dedicated to providing native staking income and liquidity for Layer2 networks. StakeStone itself has high scalability, supports various staking pools on multiple chains, and is compatible with Restaking. In addition, StakeStone has also established a multi-chain liquidity market based on its native LST $STONE, providing token holders with a wider range of application scenarios and income opportunities.

According to official information, StakeStone has conducted in-depth cooperation with Layer2 networks such as Merlin Chain, BNB, Manta, and Scroll.

Financing

In March this year, Binance Labs and OKX Ventures successively announced their investment in StakeStone, and the specific amount and other financing were not disclosed.

Core Mechanism

The core mechanism of StakeStone consists of four parts: StakeStone Vault, Minter, Strategy Pool and OPAP (Optimizing Portfolio and Allocation Proposal)

・StakeStone Vault: acts as a capital buffer pool, responsible for managing deposits, withdrawals and settlement functions. The ETH staked in the pool is stored in the contract until a new settlement occurs, and then deployed to the underlying strategy pool.

・Minter: Responsible for the minting and destruction of STONE. The existence of Minter allows the minting of STONE to operate independently from the underlying assets, that is, the circulation of STONE tokens can be adjusted, making the tokens more stable.

・Strategy Pool: The StakeStone strategy pool adopts an OPAP-driven whitelist mechanism, which is highly compatible with multiple assets. At the same time, asset risks will be isolated in a single strategy channel to prevent high correlation risks

・OPAP: The first decentralized solution for optimizing liquidity fixed investment yields, allowing the portfolio and allocation optimization of STONE's underlying assets, thereby optimizing the allocation of interest-bearing assets and spot-on returns. Any changes in funds at StakeStone need to be presented in the form of proposals, and STONE holders will decide whether to execute them through on-chain voting.

StakeStone and BTC Ecosystem

STONE and mSTONEBTC

STONE is the LSD token issued by StakeStone, which is used to integrate the mainstream staking pool, re-staking pool and LSD blue chip DeFi strategy income. Its value is positively correlated with the staking income of the underlying assets, and can act as liquidity on multiple blockchains.

mSTONEBTC is the first income-based BTC derivative token based on the BTC Layer2 PoS mechanism. BTC can enter the StakeStone popular distribution network, thereby further promoting the efficiency of BTC ecological capital allocation. When StakeStone officially completes the Merlin Chain integration, it is believed that a certain proportion of it can be exchanged with it through m-BTC.

BTC Ecosystem Acceleration Plan

Although StakeStone currently relies on staking ETH to obtain STONE, on February 21 this year, StakeStone announced the launch of the BTC Ecosystem Acceleration Plan, intending to expand the scope of staking to the BTC ecosystem. The acceleration plan allows users to deposit new ETH in Merlin Seal and B^2 Buzz to mint STONE and obtain StakeStone points. The plan will last until the end of the Merlin Seal and B^2 Buzz staking period.

Note: Merlin Seal participants and eligible long-term community members before February 21 can share 0.5% of the total supply of StakeStone tokens as rewards.

Avalon Finance

Project Overview

Avalon Finance is a DeFi platform on Bitcoin Layer2, providing users with deposit, lending, leveraged mining and RWA lending services, and is currently available on Merlin Chain. Its key projects include over-collateralized lending, algorithmic stablecoins based on lending, and RWA loans. These products focus on improving capital efficiency and optimizing the income mechanism of less liquid assets through pledged lending.

・Overcollateralized lending: a basic lending protocol with an isolated pool mechanism that supports multiple assets as collateral (both major and illiquid assets)

・Lending-based algorithmic stablecoin: an overcollateralized algorithmic stablecoin that optimizes capital allocation efficiency through lending protocols

・RWA lending: the pool supports both licensed and unlicensed RWA tokens

Currently, Avalon TVL has reached 51.31 million, and the total number of users has exceeded 4,200.

Team and Financing

The core team of Avalon is composed of senior people with 10 years of experience in the crypto industry. The founder worked as a Hedge Fund Trader at ExodusPoint, a 15 billion fund, managing an investment portfolio of more than 300 million US dollars.

On March 15 this year, Avalon announced the completion of a $1.5 million seed round of financing, with participation from SNZ Capital, Summer Capital, Matrixport Ventures and other institutions.

Core Mechanism

The core mechanism of Avalon Finance includes an isolated pledge pool designed for asset security and an AVAF lock-up mechanism designed for growth.

Isolated Pledge Pool Mechanism

Due to the different liquidity of different pledged assets, Avalon chose to invest them in different pledge pools.

・Main Pool: used to pledge permissionless assets with stable prices and not susceptible to manipulation. Currently, the main pool on Merlin Chain can be used to pledge BTC, M-BTC, M-USDT, M-USDC, and M-ORDI.

・Innovation Pool: used to pledge permissionless assets with unstable prices that may be potentially manipulated. As these token assets mature, they can be migrated to the main pool after approval by Avalon DAO. Currently, the innovation pool on Merlin Chain can be used to pledge M-BTC, VOYA, and HUHU.

・RWA Lending Pool: This pool supports both permissioned and permissionless RWA tokens, including money market funds, stock indexes, and corporate bonds.

Currently, Avalon has opened the first phase of staking, and the lending function is not yet open. The main pool and the innovation pool are pledged independently, and assets can be redeemed at any time if liquidity permits. The second phase will open the main pool lending function, including BTC, ETH, USDT, USDC, etc. The team will monitor security dynamics 24 hours a day. The third phase will open the innovation pool lending, operate independently of the main pool, and start the Avalon DAO voting in this phase. In addition, the team also proposed to provide fragmented innovation for NFT and provide interest-bearing channels for "small pictures" with poor liquidity.

AVAF Locking Mechanism

AVAF is the governance token of Avalon Finance, which is used to incentivize protocol users and liquidity providers. The circulating supply of AVAF will depend on the number of tokens in the pledge pool and the total number of tokens used for marketing and relationship maintenance, with an estimated maximum supply of 1 billion. The casting of token supply exceeding the limit is controlled by a 28-day time lock, which will be triggered only when more liquidity is needed to launch new products, and the time lock needs to be voted by community governance.

In addition, liquidity providers will also receive esAVAF as proof of stake, which has the same utility as AVAF except that it cannot be transferred.

Code Audit

The Avalon security audit was performed by Salus, and the audit report and contract address have been made public.

Avalon Lego Combination

Currently, Avalon has reached cooperation with other leading DeFi projects in Merlin Eco, such as the cooperation between Avalon and Solv mentioned above, that is, Avalon supports SolvBTC staking and lending. Users can first pledge M-BTC in Solv in exchange for Solv staking pool points, and then use the SolvBTC obtained in equal proportion to pledge in Avalon to obtain points income.

Staking Tutorial

Deposit link: https://app.avalonfinance.xyz/dashboard/

Step 1: Connect your wallet (MetaMask is recommended). The default interface is the main pool. If you need to switch to the innovation pool, you need to click the drop-down button next to Merlin Market.

M-BTC can be staked in both the main pool and the innovation pool, but the points in the main pool are higher. The main purpose of M-BTC in the innovation pool is to be used as a pledge certificate in exchange for other tokens after the third phase of development lending in the future.

Step 2: Select the currency you want to deposit, click "Supply", enter the amount you want to deposit, adjust the gas to 0.05 gwei, and confirm.

After the deposit is completed, the deposit certificate token will automatically pop up, and the page will display the currency and amount that have been deposited.

Step 3: Click Points to view the current staking points (after staking, the Avalon points system will be updated every 8 hours)

In addition, click "Withdraw" next to Supply to redeem it at any time if liquidity allows.

Reference: https://merlinchain.notion.site/2f4ec0f88d584cb5bab4030ad56c0b60?pvs=74

This article is from a contribution and does not represent the views of BlockBeats.

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