Welcome To Magma Finance
Last updated
Last updated
Magma Finance is a DeFi hub, building on the cutting-edge layer 2 Mantle network. Magma Finance aims to serve protocols and users with deep and efficient liquidity that facilitates the best swap rates with our flagship AMM (automatic market maker). Our vision is to create the best possible experience for traders, liquidity providers, and protocol owners, balancing the needs of all groups. Inspired by the vote-escrow model of Solidly, veMAGMA holders will control and direct oMAGMA emissions allocated to liquidity pool gauges, while receiving the trading fees and bribes for votes. This model rewards long-term supporters, and aligns stakeholders interests by incentivizing rewards to active pools that show user demand and generate fees.
For decentralized exchanges, liquidity and trading volume is a chicken-and-egg problem. People only provide liquidity as market makers to earn trading fees. Fees can only be earned if there is trading volume. Trading can only occur if there is liquidity to trade. In general, a DEX kickstarts this by offering incentives to attract liquidity TVL, to then facilitate trading activity. One of the dilemmas is deciding how much to offer and where. Which pools should be incentivized? What assets are users willing to LP? What pairs will garner the most trading volume? Without clear answers, teams of early DEX iterations had to try to guess. This often led to large rewards being paid out to LP pools which remained stagnant with little volume. The liquidity was, in the end, not needed or useful. For other, non-DEX protocols, getting their own liquidity built up proved challenging, as they had to pay out their native token to rent this liquidity. In both of these cases, a lot of waste is found in overpaying for liquidity, paying for more liquidity than is necessary, or being unable to pivot fast enough when conditions change.
The original Solidly idea pioneered to solve this by taking the gauge model of Curve and pushing it even further. That is, all pool rewards would be determined by votes from holders of the DEX governance token. In exchange, those voters would get 100% of the swap fees from the pool they voted for. In this way, voters are incentivized to vote for the pools that are earning the most fees from trading volume, directing emissions there. And liquidity providers are incentivized to provide liquidity to these useful pools. Therefore, a closer alignment is found where liquidity is moved to where it is most needed, and an appropriate market value can be found to pay for that liquidity provision. The market is able to shift in response to changing trade patterns, while still allowing new entrants to bootstrap their own new pools. A protocol or user can purchase and lock veMAGMA to vote for their pool in order to bootstrap liquidity during a phase of expansion, rather than having to pay out an endless stream of their own native token. If a protocol is unsure of the value proposition, they can "bribe" voters by offering up a bounty in exchange for votes from other veMAGMA holders that week. This allows a protocol to test capital efficiency and liquidity response before having to commit to a longer term investment.
