Author[s]: Mendi Core Team
Title: The Evolution: Migration to Unified Liquidity Lending
Type: Mendi Improvement Proposal
Link to Snapshot:
https://snapshot.box/#/s:mendifinance.eth/proposal/0xd59b7da37f5122decb18cfb7aadf0cd3fd58fece60511237d577955d772472eb
We are embarking on the next chapter of our protocol’s journey, transitioning from a single-chain solution to a Unified Liquidity Lending protocol across Ethereum mainnet and Layer 2s. With this evolution we are aiming to fill in a significant role in DeFi, that expands beyond the Mendi we know today.
Our current single-chain lending protocol has served us well as a foundation, reaching peak TVL of $110+ million and more than half a million users. However, the next phase of growth requires a more ambitious, ground-up re-imagination of a multi-chain solution. To meet the needs of a decentralized world where liquidity and innovation span across Ethereum mainnet and Layer 2s, we will migrate to the unified liquidity protocol that leverages the strengths of our current model while introducing the next generation of lending. The single-chain solution we have today will become the building block of a unified lending protocol that enables us to operate on a much larger scale.
This evolution requires us to grow on multiple fronts to allow the protocol to rise to the challenge and succeed in its next chapter:
- Team: To deliver on the cutting edge tech required for a unified liquidity lending protocol that leverages ZK technology for security, we have been expanding our team and will continue to do so. A larger team, with more diverse skills, particularly expertise in ZK, is enabling us to deliver the complexities of a multi-layered protocol while maintaining high security standards and a seamless user experience.
- Strategic Investment: The vision of a unified future is a novel one that must be pioneered, and investments are a key fuel to make it happen. This capital will enable team expansion and support day-to-day operations, allowing us to further attract top-tier talent and execute a go-to-market strategy that drives significant user adoption. Additionally, it will help fund security measures, such as extensive audits and bug bounty programs. To honor the spirit of fair launch, we aim to first extend an exclusive opportunity to Mendi’s most loyal supporters to take part in this pivotal funding event, through a Governance Round. While future strategic investment opportunities are explored.
- Tokenomics: The transition to the unified liquidity lending protocol calls for an enhancement of our tokenomics to effectively attract liquidity, so users benefit from deep pools and efficient markets. As we evolve from a single-chain to a multi-chain environment, it is essential that our token model is designed to maintain competitiveness across all networks. Additionally, the updated tokenomics framework will pave the way for strategic investment, a critical element for paving initial growth, development and audits.
- Brand: Alongside these technical and operational upgrades, we’re launching a new brand that better captures our grander vision and more ambitious goals. This fresh identity marks our growth from a single-chain protocol to a leading force in DeFi, committed to pioneering a unified future. With zkProofs at our core, we’re set to bring secure, scalable, and easy to use solutions to users - all embodied in this new identity.
Creating a Unified Future, powered by zkProofs
Our Unified Liquidity Lending protocol (detailed in this litepaper) is going to redefine capital efficiency and user experience in DeFi. Users gain access to larger pools, better yields, and a streamlined experience without chain-specific limitations.
- Unified Liquidity: Users can leverage assets from one chain to access opportunities across others, without being confined to a single ecosystem — all from a single unified account.
- Enhanced Capital Efficiency: By accessing a unified pool with globally unified interest rates, users benefit from a more efficient allocation of capital. Instead of fragmenting assets across chains, users can maximize their capital for larger trades and potentially higher returns.
- Secure Protocol Interoperability: ZK Coprocessors at the heart of the protocol, every transaction is verified off-chain and is proven on-chain. This dual-proof setup ensures high levels of security and prevents any missteps in execution, creating a trustless environment.
- Simplified Interactions Across Chains: Thanks to smart accounts, users only need to authorize the protocol once, enabling single-click execution across multiple chains without needing to switch between chains.
We envision a DeFi ecosystem where liquidity is truly global, accessible, and unfragmented. With zkProofs as the backbone, our protocol isn’t just aiming to unify liquidity across Ethereum and Layer 2s but also to pioneer a new standard for secure, scalable, and composable financial services. Our ultimate goal is to become a cornerstone of the DeFi ecosystem, fostering liquidity, efficiency and accessibility.
Roadmap
Our roadmap outlines a path to bring the protocol’s vision to reality, with milestones aimed at ensuring steady, scalable growth:
- The Governance Round (Q4/Q1): To support our expansion, we will open a Governance Round exclusively for the Mendi community. Unlike traditional funding rounds dominated by VCs, this round gives Mendi stakers the opportunity to invest directly, ensuring that those who believe in the vision of unified future have a chance to deepen their involvement in its next chapter.
- Testnet (Q4/Q1): With the testnet launch we will be enabling users early access to interact with the protocol, provide feedback, and ensure all features work as expected before mainnet release.
- Mainnet Launch (Q1): To bootstrap liquidity for the Unified Liquidity Lending, we will launch with a Liquidity Migration, where we incentivize users to migrate their assets to the unified liquidity protocol from Mendi. After establishing a solid liquidity foundation, we’ll move on to Token Migration, with a phased rollout.
- Expansion to More Layer 2s: As we grow, the protocol will continue to integrate major Layer 2 chains, further unifying liquidity across the Ethereum ecosystem, with paramount considerations to security.
- Dynamic Enshrined Risk Management System: We will introduce a zkML based risk management system that brings the risk management from past proprietary models employed by other lending protocols to fully transparent models run in zkML and fully verified on-chain. This will enable development of on-chain credit systems that dynamically adapt to market conditions by analyzing lending protocol behavior.
- Leverage DeFi Trading: Through the increased efficiency of zk off-chain compute, we will be able to implement a secure and scalable decentralized leverage trading product, to increase yields.
New Era, New Tokenomics: Powering Growth
To fully realize the potential of our transition to a unified lending protocol, we must introduce new tokenomics that enable us to secure deep liquidity, drive growth, and remain competitive across all chains.
Liquidity Migration
As part of the protocol upgrade, we are committed to migrating existing Mendi liquidity to the unified liquidity protocol, which will include supplies and borrow positions. To ensure a smooth transition and incentivize participation, we are implementing a double reward system that will bootstrap the protocol’s liquidity from day one.
Users who migrate their positions will receive double incentives:
- $MENDI Rewards
- Points from the Unified Liquidity Lending protocol
These incentives will ensure that we retain a robust liquidity base and pave the growth from the get-go.
Token Migration
The migration focuses on long-term value creation, ensuring $MENDI holders not only retain significant influence in the protocol but also directly benefit from its success as it scales.
Why We Need a New Token
Mendi’s tokenomics was designed for a native lending protocol within the Linea ecosystem. The Unified Liquidity Lending protocol requires a new token for the following reasons:
- Incentivizing markets on several L2s and Ethereum
- Allocating funds for audits and security toolings
- Expanding the core team, including zk developers and account abstraction specialists
- Onboarding strategic investors, either in private fundraising or by following the large scale public sale
- Paying for ongoing infrastructure costs for off-chain components
- Expanding the community, new investors will be naturally more attracted to a new token
Allocation
The $New_Protocol_Token will have a total supply of 700 million, out of this 105 million is reserved for migrators.
The 105 million is going to be distributed to the Mendi community, excluding any core team wallets (addresses can be found through docs, at core team vesting claim contract; estimated ~10-11 million).
All of the non-circulating supply held in protocol contracts, protocol multisig, and Timelock contract will be removed from circulation by sending it to the 0x000 address (burn address).
This means that only the circulating supply will be used for migration.
The remaining part of the tokens will be dedicated to:
- Community Emissions
- Initial DEX and CEX liquidity
- Treasury
- Core team allocation - Subject to 6months cliff and 2 year vest from TGE
- Strategic Investment Allocation - Subject to 6months cliff and 2 year vest from TGE
- Potentially slightly adjusted terms for Gov Round participants
Circulating Supply of New Token
At launch, the circulating supply of the New Token will include MENDI migrators and Season 1 airdrop holders. This means that current Mendi holders will have the most voice within the DAO that underpins future security of the Unified Liquidity Lending protocol.
In terms of % dilution the correct calculation is around 1:3.5, given that the estimated amount of $MENDI that is migrated is around 50 million.
Timing
The token migration will take place around the time on $New_Protocol_Token TGE, which will happen after the initial growth phase of the unified liquidity lending protocol has been concluded (we cannot determine the exact date, but estimated to happen somehwere 2025 Q2).
Until then $MENDI will remain tradable on the market. $MENDI holders will have the opportunity to upgrade their tokens for the new $New_Protocol_Token, at a fixed ratio.
Management of POL
Once the migration is complete, $MENDI will remain tradable, but as the protocol gradually withdraws protocol-owned liquidity (POL), the liquidity of MENDI on secondary markets will become less robust.
The USDC part of the POL will be moved to the treasury while the $MENDIs will be used as rewards for migrators who lock their tokens.
The Governance Round
To fuel our expansion, we are opening a Governance Round. Unlike typical closed rounds that cater only to VCs, we are making this opportunity available to the Mendi community.
The Governance Round is designed to empower our loyal MENDI stakers, giving them the opportunity to actively participate in this crucial funding event. This round allows stakers to invest in the protocol, gaining enhanced governance rights and helping shape the future of the protocol. While we remain open to exploring potential strategic investment opportunities in the future, our primary focus for this round is on strengthening and empowering our dedicated community members. To reward and reinforce the commitment of our community, the vesting period for participants in this round will be determined based on the amount of MENDIs staked.
With community involvement, our goal is to keep the governance truly decentralized, while ensuring that the protocol has sufficient capital to grow in a sustainable and secure manner.
FAQ
Why is there a need for a new token?
Mendi tokenomics were designed for a native lending protocol in the Linea ecosystem.
The Unified Liquidity Lending Protocol requires a large and continues expansion of the core team, and required onboarding zk developers, account abstraction specialists all of whom are in high demand on the job market and required substantial allocations.
Additionally the new protocol will require a new distribution strategy to incentivize key components to unify the liquidity in the Ethereum ecosystem, onboard new users coming to web3 with our launch partners. This will require onboarding strategic investors, either in private fundraising or by following the large scale public sale methods that are taking place again (Legion, Infinex paving the way).
We are also going to have ongoing infrastructure costs to deliver the off-chain proofs reliably on-chain, multiple ongoing audits during the next year as new features are released on the roadmap.
(Enshrined and programmatic risk management module, on-chain credit solutions for better capital efficiency, leveraged trading products to generate more revenue for suppliers, etc.)
Given the constraints of the current tokenomics after the announcement of the Unified Liquidity Lending Protocol the community itself brought up the fact that a potential tokenomics rework is in order. The core team working with specialists in tokenomics started the design of that, for which the first step is this proposal.
New investors will be naturally more attracted to a new token, and the opportunity that entails. This expansion requires major expansion of the community across different rollups and their unique communities and unique use cases they will build on top of the Unified Liquidity Lending protocol.
One example would be Aerodrome for how this can present a high upside and large growth opportunity.
What is the unified liquidity lending protocol?
The unified liquidity lending protocol is the first protocol to create global pools across Ethereum and L2s, without creating an appchain, and leveraging the security that was bootstrapped and built by the major leading rollups.
It rests on 3 pillars:
- zero-knowledge technology built on the Risc-0 tech stack
- intent-based bridging pioneered by Across Protocol for secure rebalancing between rollups
- zk-finality of Linea to have a scalable and secure rollup layer for the ledger
Why do we need to rebrand from Mendi?
As we can see with other ecosystem examples, tokenomics reworks and rebranding are great tools to elevate the protocol and onboard new community next to the existing one.
Mendi and the DAO will serve as the strong seed to build a new brand that will be fully focused to have an equal meaning to zk-technology based DeFi protocol.
What is reserved for migration and how much $MENDI, sMENDI and uMENDI migrators are allocated?
The new token would have a total supply of 700 million, out of this 105 million is reserved for migrators.
The 105 million is going to be distributed to the Mendi community, excluding any core team wallets (addresses can be found through docs, at core team vesting claim contract; estimated ~10-11 million)
All of the non-circulating supply held in protocol contracts, protocol multisig, and Timelock contract will be removed from circulation by sending it to the 0x000 address (burn address).
This means that only the circulating supply will be used for migration, which can be tracked on the Dune dashboard.
At launch, the circulating supply will include MENDI migrators and Season 1 airdrop holders. This means that current Mendi holders will have the most voice within the DAO that underpins future security of the Unified Liquidity Lending protocol.
In terms of % dilution the correct calculation is around 1:3.5, given that the estimated amount of $MENDI that is migrated is around 50 million.
The core team is planning to use the $MENDI part of the POL to provide additional rewards to the migrators who choose to have vesting for the project.
How much extra emissions will enter the market until migration?
Once launch happens incentives will be directed to migrate the liquidity from Mendi to Unified Liquidity Lending Protocol for a short period of time, and after that incentives will stop on the Mendi deployment. At that point no more emissions will enter the circulating supply, putting the final cap on migration. At that point the final exchange ratio between $MENDI and New_Token can be calculated.
Why not have 30-40% of the allocated supply given to the migrators?
If the allocation would be 40% the dilution would be only 20% that is true, but the shift requires a major rework, and it would not be a sustainable support.
As a benchmark take a look at how much funding Aave Labs requested from the Aave DAO to build v4, which is similarly complex with a different approach, has requested ~$17.25 million in funding.
Given this difference between the ability of Mendi DAO to provide the necessary funding, we believe our requested tokenomics rework is very reasonable to make this shift feasible.
Additionally Aave already has the established liquidity.
Despite this the core team developed a strategy to bring the Unified Liquidity Lending vision to market in a more cost effective way, while also maintaining full involvement of the Mendi DAO and the Mendi community.
When is TGE?
2025 Q2
We cannot determine the exact date, due to the uncertainties in software development. Our aim is to do it as soon as securely possible (given the fact that our vesting is also delayed by TGE delays, I believe the incentives are well aligned for us not to delay it for undue reasons).
How are you planning to allocate the remaining supply?
- Core team allocation - Subject to 6months cliff and 2 year vest from TGE
- Strategic Investment Allocation - Subject to 6months cliff and 2 year vest from TGE
- Potentially slightly adjusted terms for Gov Round participants
- Initial DEX and CEX liquidity
- Mendi Migration
- Community Emissions
- Treasury
We are following best practices and DeFi standards to build a sustainable tokenomics that can continue to operate without reworks long-term (learning from examples for reworks from early DeFi protocols).
The exact ratios are yet to be determined by continues simulations to find the best tokenomics fit for the product.
Can you reveal exact % of allocations?
This is not a standard practice on the market, especially given the fact that we are planning to launch with a points system.
We are very convinced that publishing the token allocation so much earlier than the TGE, when usually they are published a week earlier would contribute negatively to the project.
The allocations should also slightly shift given market dynamics. The allocation for Mendi migration however should be set in advance to manage expectations and align the DAO to move forward to this next chapter.
Why not have a set value in USD for token migration?
This was an option that we initially discussed but decided against, because the models indicated that community could potentially be undervalued in that setup.
By keeping a fixed allocation the design the models indicated that not only there is more upside for the community, it is also highly unlikely that a situation could arise where the new tokens would have less monetary value.
This design follows a similar path as how future Eurozone countries softpeg their currencies to the Euro. Given that we are not introducing any actual pegs this is a full free-market approach, but the design is built on similar principles.
How is the migration going to look like?
We are going to deploy 3 different smart contracts to manage migration.
- First, to prevent taxation burden for Mendi stakers it is going to be possible to migrate directly from staked_Mendi to staked_New_Token
- Non-staked Mendi will be migrated to New_Token
- If there is demand we can create the opportunity to migrate from staked to non-staked and vica versa
Via another mechanism we are considering building an early migration mechanism for staked_Mendi. By committing to the migration earlier will be one possible mechanism to gain a higher allocation.
At migration, we are designing a system where the users can choose to keep their New_Token allocation unlocked, or implement lockups, similarly to previous mechanism, for additional rewards. This mechanism is there to reward long-term holders at the initial stages of the project.
When do I need to decide to migrate?
Mendi will stay tradable until TGE, when we are going to withdraw the Protocol Owned Liquidity. LPs will potentially continue to operate but the depth of liquidity behind $MENDI is expected to decrease at that point.
Timeline:
- Migration will be available from the launch until TGE plus 1 week.
To migrate MENDI or staked_MENDI to New_Token, users will have the following options:
- Migrate early
- Migrate at TGE
- Migrate in the week after TGE
What are the benefits for Mendi holders?
- Access to Governance Round for Mendi stakers
- Ability to gain additional allocation via early migration or vesting period post-TGE
- Formulate the vision of the Unified Liquidity Lending protocol.