When designing the token functionality, we opted for a buy and burn mechanism. The combination of this token mechanism together with the system we designed when decentralising our own governance in 2018 strongly aligns interests between the three main stake holders within the Melon ecosystem; i) users (managers or investors), ii) developers (mainainers & developers) and iii) token-holders.

In this blog post, we’ll take a closer look at one of aspects of Melonomics, the Melon Engine. In the past, we have talked about how the Melon Engine benefits token holders by directly linking usage of the network to the value of the token. However, today we will focus on how the Melon Engine can exclusively benefit the users of the network.

What is the Melon Engine?

The Melon Engine is a smart-contract component of the Melon protocol which accumulates asset management gas fees paid by users on the network (in ETH). The ETH accumulated in this contract are initially “frozen” for 30 day. Each 30 days, it becomes possible to thaw the ETH collected. At that point the Melon Engine’s only job is to sell the ETH and buy MLN at a premium over the market price. The more ETH that are accumulated in the Melon Engine, the higher the premium it is offered at.

As soon as the Melon Engine sells ETH to buy MLN, it burns the MLN.

The premium schedule provided by the Melon Engine is as follows:

Ether in the Melon Engine < 1 ETH, premium = 0%

1≤ Ether in the Melon Engine < 5, premium = 5%

5 ≤ Ether in the Melon Engine < 10, premium = 10%

Ether in the Melon Engine ≥ 10, premium = 15%

Why should users care?

Melon managers have exclusive access to trade against the Melon Engine. If you want to learn how to become a Melon manager, you can start here! If at the end of any given 30 day period there is more than 1 ETH in the contract, they will have a unique arbitrage opportunity.

Example. Let’s assume that at the end of a thawing period, there are 8 ETH of asset management gas in the Melon Engine and the market price of MLN/ETH is 0.02. The Melon Engine will therefore be offering MLN/ETH at a 10% premium enabling Melon users to buy 400 MLNfor a total of 8 ETH and immediately sell MLN for a total of 8.8 ETH to the Melon Engine. The user has automatically pocketed 0.8 ETH of risk-free profits.

How do I thaw MLN and arbitrage it?

If you want to find out when the last thawing period is, you can view this from the Monitoring tool. The tool shows you how much asset management gas has accumulated for time period (ETH 8.3291), and when the last thawing period was. From this date, you can add 30 days and determine that the next thaw date will be on March 16th, 2020.

On March 16th, anyone will be able to call the thaw() function on the Melon Engine smart contract (https://etherscan.io/address/0x342814604cd5cc4bdeed100edebd51cac3fd98c9). This function can be called through Etherscan, MyCrypto or any other preferred method. Once someone calls that function, the ether in the engine will become liquid and ready to trade against any Melon fund manager.

So how do I trade against the Melon Engine?

Easy! Simply go to the “trading” tab under “My Fund”, scroll down to the “Liquidity Pools” section, select MLN as an asset to sell and WETH as an asset to buy, and you will see the option to trade against the Melon Engine. Now it’s all on you to arbitrage your MLN.

Good luck!

Important Note: Contract addresses may change with future upgrades etc. If you want to be sure you are interacting with the latest versions, you can always check the Monitoring tool (scroll down to find contract addresses) or contact us on our Telegram channel.