[Messari AMA] Mona El Isa (CEO and co-founder) and Jenna Zenk (CTO) of the Melon Council and Avantgarde Finance
Messari hosted a public AMA with the Melon Council and Avantegarde team in the Messari community group. This is a transcript of the conversation.
You can find all of Messari's historical AMA's here
Messari: Hey everyone, I’m excited to introduce Mona El Isa (CEO, co-founder) and Jenna Zenk (CTO) from the Melon Council and Avantgard Finance. Welcome!
We have some great questions from the community, but before we start could you give a quick background yourselves and what led you into crypto?
Mona El Isa: Hi everyone! I'm Mona from former Melonport ($MLN) and currently Avantgarde Finance. I come from a traditional finance background where I worked as a market maker and prop trader for 8 years and then shifted to the fund management sector. my last experience in hedge funds opened my eyes to how poor and clunky the plumbing in traditional finance is and eventually led me to founding Melonport
Jenna Zenk: Hi, I'm Jenna, I also come from a traditional finance background, having worked in the hedge fund industry. I had been closely following the crypto space since 2013 out of personal interest, but decided to get more involved around 2016 at the time of the DAO, which really triggered me. I decided to get into computer sciences to understand at a deeper level the potential of those new technologies and to be able to contribute by hacking things together. Naturally, the Melon project was a perfect fit for my dual finance and engineering background
Messari: Makes sense after seeing how broken our system is that you were both led to try and improve it! Could you talk about how Melonport got started and some of the problems its looking to solve?
ME: Melonport was founded in 2016 out of a genuine interest to help other people who were already working in blockchain and looking to provide decentralised asset management solutions on-chain. At the time, there were more people doing it than there are now. There was a lot of interesting efforts being made but there seemed to be a lack of how the financial engine really worked. This is where I felt I could add value and where I was passionate to make a difference. It all moved very fast from there. We conducted our first token sale in early 2017 and raised a relatively modest amount of funds. Melonport AG had a 2 years mandate to build the v1.0 of the Melon protocol.
Melon is an open-source protocol which enables enables the on-chain set up and management of pooled investment vehicles, in a completely decentralized fashion, and at a fraction of the cost of traditional funds. Melon automates the cumbersome back office and intermediary functions required in traditional asset management using smart contracts.
Messari: What are the first use cases you see Melon being picked up for? And then later on do you have examples of other use cases?
JZ: Melon was built as an infrastructure for asset management; it can cater to all kind of use cases in that industry. That being said, the DeFi space and tokenization being still quite early, we see crypto asset managers (crypto funds) as likely early adopters of the protocol. Melon supports all kinds of investment strategies. Ultimately our vision is that both traditional and crypto funds are able to leverage off the functionalities of Melon, once tokenization of real world assets has truly taken off.
Another group of early adopters that we identify are DAOs; Melon can be used by DAOs and other on-chain organizations for their treasury management and more.
ME: Other use cases which we could see happening sooner than later are ETFs (or indices). automated trading strategies and single investor fund managers just building an on-chain track record to gain recognition
JZ: Later on, you can imagine Melon being used for other purposes than hedge funds, for ex pension funds, VC / PE funds, staking pools etc
Messari: Going off that, can you discuss the differences between a Melon fund an e.g. token set from the Set Protocol or drago from the RigoBlock Protocol?
JZ: Hmm we definitely spoke with RigoBlock in the past, but I think we heard their operations stopped last year. I might be wrong but anyway as far as I recall, the code for rigoblock was not open source for a really long time so it was not clear to us what the specificities of a drago are. I think they had this idea of fund managers owning a Rigo fund, and fund managers were rewarded in the Rigo native tokens for their performance. I believe they don’t offer on-chain NAV, track record, risk management and compliance either.
In contrast, Melon funds have daily indisputable on-chain NAV and track records, with smart-contract enforced risk management and compliance. Also Melon natively integrates with a bunch of other DeFi protocols to essentially offer a one-stop shop for everything DeFi
ME: Sure, Set is a protocol for automated strategies, and Melon is an asset management infrastructure which can cater to most asset management use cases. The Melon infrastructure isn’t a vision but a reality as of Feb 2019.
Anyone is free to use it to set up baskets in the same way Set does with automated rebalancing strategies. But also, you can use it for much more diverse and interesting use-cases like ETF’s, crypto hedge funds, and we’re seeing other interesting ideas come our way too recently which we’ll keep as a surprise.
In other words, Melon is not limited to just automated strategies, it can be used for both automated and discretionary strategies. Rebalancing Sets are a subset of what Melon offers.
As a user or creator of an investment product/ vehicle, you have the possibility to customize rule-sets which are unique to your fund at a smart-contract level and charge both a management fee to your investors (time-based) and a performance fee which aligns interest of investors and managers (performance based). Melon also offers asset managers with on-chain risk management and compliance. This is not currently possible on Set.
Finally, we care about the “de” in DeFi and we worked hard at making Melon completely decentralized - from the governance to all the other aspects of the protocol making it *truly* permissionless, easily accessible to anyone and without a single point of failure.
JZ: Also, there is a short twitter thread about the differences between Melon and Set, see here
Messari: Awesome that make sense. I'm happy you brought up governance too because the team has recently made changes to decentralize the protocol and we've received a handful of questions on the subject
Who is maintaining Melon since Melonport dissolved? What are plans for the future?
ME: Great question! We get that a lot... after main-net deployement, the protocol governance was handed over to the Melon Council just before Melonport was dissolved. We always promised we would do this since day 1. Now the Melon Council is responsible for the future maintenance and governance of the Melon protocol. That being said, the Melon Council members are all full time professionals in their respective companies, and they are not a full time dev team for Melon. The idea is that now any team can decide to work on Melon and apply for funding through the Melon Council. Today there are already 2 teams working on Melon: the Ash team who got the first Melon Funding Proposal (MFP) approved, and the Avantgarde Finance team who recently submitted a proposal to take on a lead developer role for the next 3 years. See proposal here
For those who aren't aware of our governance model, I strongly recommendt this blog and happy to say the Melon Council DAO runs on aragonOS
Messari: Two more governance questions here:
- Can the mtc or avantgarde finance provide more participation possibilities, like this one, to engage with users? E. G. Twitter polls for most important updates.
- What is the relationship between MAMA and Avantgarde Finance?
(It could help to define mtc/MAMA for those unfamiliar)
JZ: Sure, the MTC (Melon Technical Council) is a subset of the Melon Council, to which the governance of Melon was handed over when Melonport dissoved after delivering v1.0. All details around the Melon Council can be found in the governance post Mona posted just above.
Regarding the 1st question, this doesn’t really fall within the responsibilities of the MTC. The MTC is a group of technical experts (developers, security auditors, project founders, market professionals) and their strength is intended towards ensuring protocol credibility, security, upgrades and sustainability.
That being said Avantgarde Finance included in its recent proposal to the Melon Council to take care of community building and engagement going forward. Should the proposal be accepted Avantgarde Finance will make sure to provide more participation possibilities, in various formats.Keen to hear the formats that you'd like to see
As a firm, Avantgarde is also a Melon Council member
ME: On your second question, MAMA (Multichain Asset Managers Association) was co-founded by Melonport and others in 2017. It was founded out of an early need we saw for a unified voice to represent the on-chain asset management space. DeFi technologies are very disruptive to financial intermediaries and there is a general fear of losing operational and regulatory control of an industry through new technologies which can do the job “the same or better”. I believed (and still believe) that it will take a lot of education and lobbying to enable decentralised asset management technologies to flourish and reach their full potential. If regulators were truly understanding the technology’s potential and fearing it less - the discussion would move past KYC/AML and towards collaborative routes. That is our goal. The relationship between MAMA and Avantgarde Finance is that Avantgarde is now a member of MAMA and I continue to serve on the board of MAMA and devote time to it on a voluntary basis.
Messari: Great, thanks. I personally find some of these experiments in decentralized governance some of the most fascinating things to watch in the space!
Moving onto the MLN token, could give a brief explainer on how it fits into the system
And Is there a limited supply of MLN? How does the inflation and burning system work?
(Moderator note: You can view token supply curve here)
ME: Sure, the protocol inflates by a fixed amount of 300,600 MLN tokens per year. This inflation pool can be used to fund future maintenance and development. The Melon Council DAO can decide to allocate these tokens towards developer teams if they deem the overall value of their proposal to outweigh the dilution effect. Otherwise, the Melon Council DAO can burn the un-spent tokens at the end of the year. In the first few years, it is expected that there will be more need for development on the protocol, and once usage picks up, funding needs should decrease.
On the other hand, MLN tokens are burnt as the protocol is used. The MLN token model is unique in the sense that it truly links the levels of protocol usage to the token value. The MLN token is used as "asset management gas" on three functions in the protocol: setting-up a fund; investing in a fund and; claiming any fees (management and performance). Notably, the protocol does not charge fees on trading or redemptions in order to keep barriers to entry low. The asset management gas is calculated by using the number of Ethereum gas units in the function multiplied by the asset management gas unit price (amgu). The fees are collected in ETH and transferred to the Melon Engine smart contract which then purchases MLN tokens and burns them. Crucially, this buy and burn model directly links the usage of the network to the value of the token.
All those metrics (amgu consumed, amgu price, MLN burnt etc) are viewable in real time here
Messari: You touched on this next question a little with the burn mechanism, but Is there a discussion about limiting the current issuance rate (300,600 tokens/year) which seems very high or bad for token economics?
ME: As per above, there's an ongoing discussion the Melon Council has about whether it would be in the best interest of the protocol to allocate those tokens or if it would be better to burn them. In other words 300,600 tokens per year is the "maximum" amount that the tokens can be inflated by in a given year
JZ: but the effective yearly inflation rate will be the tokens actually allocated to developer teams minus the burn rate
Messari: So in this case the burn effectively limits the issuance rate to prevent unnecessary inflation - got it! We're getting a little close to the hour mark so I'm going to shoot off a handful of rapid fire questions regarding the future outlook for Melon and then a few higher level questions to wrap it up.
1.) Will there be a Web-UI for investing/redeeming in the near future? (To be clear - not setting up the fund etc. / just investing/redeeming)
2.) What private or public funds or structures have already shown interest in Melon and are closely working on its use in the future?
3.) Will there be fund manager competitions and hackathons to attract users and developers?
4.) What can we expect in terms of new erc20 added to the platform?
5.) Are there plans for educational and/or advertising videos about melon?
JZ: 1) Yes, we definitely have that in mind. This might be enabled directly on the monitoring tool or through a dedicated UI. 100% agree it’s important for users to be able to invest/redeem from a fund without having to download the Melon Manager Interface.
ME: 2) What private or public funds or structures have already shown interest in Melon and are closely working on its use in the future?
> In the Avantgarde capacity, we have been in discussions with an array of different types of investment vehicles. We can’t disclose the names but we are working to support them launch their products as best we can.
3.) Will there be fund manager competitions and hackathons to attract users and developers?
>We actually have a hackathon ongoing now for 8 weeks. Its a DeFi hackathon in collaboration with Kyber and other partners including Compound, Synthetix, Chainlink, BzX and others. You can find out more here
Some of our favorite inspirational suggestions for this hackathon include:
- Building a melon fund which acts as a kyber reserve manager
- Building a more user friendly front end
- Build another use-case on Melon infrastructure (eg. structured product or automated strategies)
- Integrate Melon with any other protocol
If you want to discuss any of these ideas or explore others, feel free to write to us in the hackathon discord channels!
JZ: 4) There are currently 11 assets already available on Melon (including DAI, MKR, WETH, KNC, ZRX, BAT, REP, USDC, WBTC and others) but this should be growing very soon. Basically for an asset to be part of the Melon Asset Universe, it needs to be an ERC20 token + it needs to have a reliable on-chain price source through Kyber. One Melon Council member (Woorton, a liquidity provider) is working on launching a Kyber reserve, which should enable the council to add more assets in the coming months.
ME: 5.) Are there plans for educational and/or advertising videos about melon?
> Yes Yes Yes. As you may have seen, Avantgarde Finance made a proposal to the Melon Council to take over lead role for the protocol for the next 3 years. One of the big parts of this program is educational/ advertising etc. So we are looking forward to seeing how the Melon Council vote goes with regards to this proposal
Messari: Stepping back for some more macro looks at the project:
- From your point of view, what are the missing pieces for Melon's success?
- If Melon is a success ten years from now, what does that look like from your team's perspective?
JZ: Here are the main adoption challenges we've identified and that we'll be working on solving over the next few months/years:
UX/Usability: We have spent most of our time focusing on the protocol side of things and delivering our promises at a smart-contract level. Even though we have developed a front-end to interact with the smart-contracts we need to do more to improve its usability, which is part of our plans for the coming months.
Regulatory framework: The regulatory environment for pooled investment vehicles on-chain is tough but we are working on it via an association, Multi-chain Asset Managers Association (MAMA), we co-founded with other DeFi projects in 2017. The law in most countries requires financial intermediaries to be present in order to prevent investor fraud. We are working closely with regulators to raise awareness about the benefits of on-chain asset management and the ability for smart-contracts to replace financial intermediaries in the traditional sense. We are making some good progress in a number of jurisdictions.
Liquidity on DEXs: not a secret that liquidity on DEX is not close to being enough for asset managers to be able to operate in those environments. We work closely with and support people working on improving liquidity on DEXs, and are interested to be in touch with anyone else working on those matters.
ME: 2 - If Melon is a success ten years from now, what does that look like from your team's perspective?
>Every crypto investment product/vehicle is underpinned by Melon’s operating infrastructure. AND increasingly more traditional investment products/vehicles are beginning to migrate to Melon.
Messari: Well that's all the questions we have, thank you both so much for joining. This was very insightful!
To finish things off, just let us know what the best ways are to stay in touch with the project and then I'll open the chat back up if you want to stick around 😊
JZ: Thanks Jack!
All of our news usually go through Twitter (@melonprotocol and @avantgardefi) and our Medium
Also, here are some useful resources:
- If you’d like to dig into the smart contracts, head over here
- The technical documentation is available here