I’m so proud of what we’ve already achieved with the recent v1.0 main-net deployment of the Melon Protocol — but it’s imagining the potential impact and future of Melon that gets me the most excited. The recent price behaviour of the MLN token has been tough on all of us, market opinion perhaps signalling that our enthusiasm is misplaced. But the market is not always right. Indeed, Ben Graham, mentor to the younger Warren Buffett used to advise his students to view “Mr. Market” as a manic depressive. Desperately pessimistic about prospects one day, wildly optimistic the next. This sounds all too familiar to those of us in crypto!

There’s been a lot of speculation in recent months which I want to counter with some facts and an update. As a team, we have always focused on what we can control (the project) rather than things we can’t (the token price, or opinions on social media). This focus ensured we delivered the project as promised, on budget and on time. More recently, it has allowed us to make good progress on putting in place the team which will write the next chapter in the Melon protocol’s story. We’re currently in the process of setting up a new company, working out what we want to achieve and how we’re going to do it. We’ll be sharing more information about this new company later in the year.

I understand that people might feel that we haven’t always been the best communicators of our work and our thinking, so consider this blog a first step at trying to remedy this. I want to use it to reiterate the importance of the unique MLN design which links user adoption to token burn. In doing this, I want to demonstrate why the team and I are so excited about the future of the protocol.

To emphasise this latter point, now might be a good time for me to state categorically that I have not sold a single of my founder Melon tokens which vested in March 2019. In fact, I have been a buyer in the market in recent months and don’t intend to sell any time soon. I remain invested in, committed to and excited about the Melon Protocol’s potential. In this blog post, I want to explain why.

A little thought experiment….

Let’s start by considering the story of Interactive Brokers, one of the most innovative if unsung fin-tech innovators of the last two decades and a disrupter of security broker-dealers long before “fin-tech” and “disruption” were things. Their mission was straightforward: compete on price, speed, size, diversity of global products and advanced trading tools. In 2002, they launched Integrated Investment Management Accounts which enabled customers to trade stocks, options, futures and exchange traded funds from a single account accessible from anywhere in the world. From then on, they had two areas of focus. The first was to use their technology to make it significantly cheaper and easier for Financial Advisors to open separately managed accounts, thereby easing the headache of managing the money of multiple clients who each wanted their own bespoke investment mandates. The second was to take that same easy-to-use technology and roll it out to retail clients, providing them with the kind of institutional quality investment experience (transparency, low fees, professional trading front-end, portfolio reporting etc) smaller-scale players could only have dreamt of. It was quick, easy, cheap and entirely web-based. And it all worked.

The results spoke for themselves. Ten years after the 2002 launch of their tech, their 2012 annual accounts stated that they had 210,000 account holders. Today they have more than 600,000.

But what does this have to do with Melon? There are parallels between Melon’s democratising mission today and Interactive Brokers’ then, the key idea behind the Melon protocol being to lower the fixed infrastructure cost of setting up investment funds so that they are less of an entry barrier to small-scale players. Indeed, the protocol already makes this possible today. Beyond inspiration, their story also gives us a number (210,000) and a time period (10 years) around which we can anchor some kind of basic user adoption trajectory and explore what this kind of growth might mean for the future of the token. It is important to remember that the MLN token’s value is mechanically linked to the protocol’s usage — a critical and deliberate design feature which is sometimes overlooked.

We have a simple model we use internally to help us do this, and when I plug the growth scenario derived from the Interactive Brokers experience into it (after making various assumptions around amgu prices, new fund attrition rates, fund activity etc.) it gives the chart below.

The blue bars show the number of total Melon funds in a particular year, the red bars show the associated MLN burn. As can be seen, with 200k Melon funds, the annual burn rate would be 1.8m tokens. For context, there are currently only 1.2m tokens outstanding (Each year, 300, 600 MLN tokens are issued and become available for the Melon Council to allocate towards protocol maintenance/development/adoption. It is worth noting that the Melon Council are free to burn tokens if deemed a better course of action.)

Drawing on Interactive Brokers’ experience to imagine what potential growth rates could look like for the Melon Protocol may raise some readers’ eyebrows. After all, when they started out on their journey they had a tried and battle-tested financial infrastructure to plug into, regulatory clarity, a wide range of established fiat securities to offer and a seamless UX. Melon boasts none of this (yet). Isn’t it overly optimistic to hypothesise that Melon could replicate Interactive Brokers experience given such different starting points?

Possibly. But it’s also worth understanding that Interactive Brokers started out in a mature and stable industry, and that despite its success it remains a very small player (compare its 600k accounts with Charles Schwab, for example, which has nearly 11m.) Crypto, in contrast, is the opposite — clunky, controversial, problematic and volatile. The tokenisation of assets has barely even taken its first baby steps. But the flip side of this is that the potential runway is far greater than anything Interactive Brokers ever faced and Melon, an infrastructure protocol offering a unique solution to an established industry, is likely one of the first in the queue to benefit as tokenisation gathers momentum (global asset management industry AUM is estimated at around $80tr, if 10% of this is tokenised in the coming say ten years, there is $8tr of assets the melon protocol can help run). All this is to say that adoption could be faster than the Interactive Brokers case.

Anyway, I’m not trying to pretend this is anything more than mildly educated guesswork. My crystal ball is as dim as everyone else’s. But I wanted to explain why I am so excited about the next chapter and this upside potential is a big part of it. The price of MLN is currently low because the number of users is low. But the arithmetic behind our token design draws a strong conclusion: we don’t need much growth in the user base to generate the meaningfully higher token price we need to bootstrap future network building.

What is our plan for attracting users? This will be the focus of our new company. There are so many exciting ideas we’d like to develop; we’re currently in the process of working out our objectives, identifying the most compelling and value-adding opportunities to pursue, and pulling together the best possible team to deliver on these. Separately, we are fortunate to have a new and entirely independent use-case in town building on the Melon Protocol infrastructure which will no doubt attract a different type of user as they reach main-net. The Ash beta will go live later this summer on test-net and if you haven’t already signed up, don’t miss it!

What I can say now is that the team and I are well aware of the frictions users encounter when using the Melon protocol and that the objective of the new company will be to eliminate these frictions, and in so doing, unleash the revolutionary power of Melon technology for the new tokenised decentralised financial system.