What is Mercurial Finance (MER)?

What is Mercurial Finance (MER)?

What is Mercurial Finance (MER)?

Mercurial Finance is a stablecoin-focused Automated Market Maker on the Solana blockchain that introduces several new features. Foremost among these is what Mercurial calls “Dynamic Vaults.”

In this article we’ll break down how the Mercurial Finance dApp works, and the use cases of the platform’s native MER token.

    What does Mercurial do?

    Mercurial Finance is essentially an Automated Market Maker (AMM) for stablecoins. If you already understand what that means, feel free to skip the next paragraph.

    Unlike traditional securities markets like NASDAQ or centralized crypto exchanges like FTX, where buyers and sellers (market makers) are matched, a decentralized exchange (DEX) uses liquidity pools containing equal dollar amounts of a pair of tokens to swap.

    Investors who contribute funds to these pools earn a reward for locking up their tokens. Traders buy and sell against these pools, at prices determined automatically by a formula.

    Mercurial provides liquidity mostly for fiat-based stablecoin swaps but with a couple of innovations:

    • Liquidity pools of three stablecoins, described in a later section;
    • Dynamic Vaults—Instead of sitting idle in liquidity pools, assets can be deployed to yield-generating opportunities across the Solana ecosystem. Liquidity providers earn both transaction fees and yields from other protocols simultaneously.
    • Dynamic fees—Market volume and volatility data are used to dynamically adjust LP fees according to a complex formula optimized for stablecoins. High volatility increases fees to reduce illiquidity and increase LP profits, while low volatility decreases fees to encourage trading. The formula provides up to 100 times less slippage for swaps of pegged assets compared with traditional AMMs.

    Dynamic yield on Mercurial Finance (MER) - IMG SRC

    How it works

    A Dynamic Yield Optimizer algorithm dynamically allocates staked assets from each vault to external platforms using on-chain algorithms, including interest and yield collection, exiting platforms and liquidation of earned assets.

    Platforms may include flash loans, collateral for lending platforms, leveraged stable lending or external vaults.They’re selected based on returns, risk profiles and ease of retrieving liquidity. Investors who deposit into these protocols receive an additional yield.

    Here’s how this works with a USDC-USDT liquidity pool:

    • Investors deposit USDC and USDT tokens into the pool, which is immediately allocated to the USDC and USDT vaults.
    • The vaults retain a percentage of tokens as reserves for the connected AMMs to withdraw or swap.
    • The remainder of the tokens are allocated to various lending platforms, such as the Mango Markets DEX, Port Finance and Solend, to earn additional yield.
    • The Yield Optimizer monitors and adjusts the liquidity allocation ratio to the platforms every few minutes to earn optimal yield.

    The governing DAO approves all yield programs before vault capital is deployed to external platforms and determines the percentage of deployable assets for each vault.

    The $MER token

    MER is a Solana SPL-20 token with a total supply of 1 billion and a circulating supply of 55 million, as of May 2022.

    The MER coin is available on Solana’s popular Raydium DEX, as well as several major centralized exchanges.

    MER is paid to liquidity providers as a percentage of transaction fees, used as collateral to mint synthetic assets and for commissions from yield farming. It’s also used for DAO governance, allowing token holders to make decisions that affect the future of the platform.

    Dynamic Vaults timeline

    On April 15, Mercurial announced the beta launch of its Dynamic Vaults ecosystem. Users can deposit up to $10,000 in SOL, USDT and USDC tokens, earning interest of around 2-4%. These funds are available to supported lending platforms Mango Markets, Port Finance and Solend.

    Late Q2 2022 will see the launch of the Dynamic Stable Pools yield program and the MER staking pool.

    External protocols will be integrated with the yield layer in early Q3 2022. Developers will also benefit from the release of an SDK and a library of pre-built modules to expedite rapid application development.

    Other liquidity pools

    Mercurial also maintains several “normal” liquidity pools, several of which contain multiple assets. Among these are:

    • a collaboration with LIDO to bring non-pegged stable pools to Solana, starting with the stSOL-SOL pool, announced in October 2021.
    • The three-stablecoin USTv2 3Pool, launched in January, comprising UST, USDT and USDT. When UST crashed in May, the pool became imbalanced.
    • fUSD-3Pool, a three-asset pool made up of fUSD, an algorithmic stablecoin earned by staking Fabric (FAB) tokens, USD Coin (USDC) and Tether (USDT), introduced in May.

    These projects promise to make swaps among different stablecoins easier, with less slippage.

    The Mercurial organization

    Mercurial Finance was founded as a decentralized organization (DAO) in 2021 by a team of seven developers, who bring to the table a variety of technical and operational experience. They include:

    • Engineer PierreArowana, a founding engineer at Kyber Network;
    • Head Researcher Andrew Nyugen, former engineer and Technical Manager at Kyber Network;
    • Frontend Engineer Zhengyu Tay, from similar positions at Binance and FLOchip;
    • Design Lead Mohd Izuddin Helmi Adnan, formerly Design Lead for Petronas, Grab and others.

    The DAO decides base fees and commissions, whether fees are burnt or distributed, where capital can be deployed and which yield programs can access vault capital.

    Its investor list includes The Solana Foundation, Fantom, Raydium, Gecko Ventures (CoinGecko’s parent company), the Gate.io, Houbi and OKEx exchanges, and Coin98 Finance.

    Mercurial Finance has introduced several noteworthy additions to the Solana DeFi ecosystem. When fully implemented, Dynamic Vaults can provide investors with higher returns, and multiple-asset liquidity pools provide greater convenience for stablecoin swaps.

    Of course, DeFi projects are substantially riskier than savings accounts or Treasury bonds. Projects can lose value quickly if trust evaporates, as evidenced by the recent events on the Terra blockchain. As always, never invest more than you can afford to lose.

    How to buy Solana

    To buy SPL-20 assets you usually have to start by buying Solana (SOL). You can buy Solana (SOL) in Exodus using a credit / debit card, bank account, or Apple Pay. For a simple, step-by-step guide on how to buy cryptocurrency in Exodus using Ramp network, head to our knowledge base.

    Exodus hosts over 180 different crypto assets, and you can buy Solana (SOL) with Bitcoin and other cryptocurrencies within Exodus by either using the built-in exchange app, or by linking your Exodus wallet with the FTX exchange.

    This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

    Get insider crypto knowledge and product updates from the world’s leading crypto wallet
    Sign me up