Sections: Overview | Tutorial | Strategies
*Last update - 11/23/2021 after mainnet launch
With the launch of the Maiar Exchange, many have been asking about how to approach it, how much $EGLD to use, what are the best/easiest strategies? This article will explore its functionality and offer what I think is an easy, low effort way to capitalize on this new opportunity on the Elrond Network.
I’ll start with an overview of what the Maiar Exchange is and then go through a tutorial for using the platform. Finally I’ll discuss some thoughts on simple strategies and provide links for further study for those who would like to learn more. I may go over what I personally will be doing in another article but this should hopefully be a nice guide, or at least a decent introduction for anyone who describes themselves as completely clueless.
If you don’t need an Overview, feel free to skip to the Tutorial and likewise to the Strategies if that is what you need to see.
Overview
The first thing to note is that there is a new token in the Elrond ecosystem, $MEX. $MEX is the rewards token for the Maiar Exchange. This token will be distributed as rewards for staking LP tokens after providing liquidity to the liquidity pools. If you had to read that twice and still don't understand, not to worry. We will go over everything you need to know and soon you'll be farming like a pro.
You may have heard people talking about $MEX, even seen them flaunt their tokens and are now wondering where to buy them? The answer to that is, right now. With the opening of the Maiar Exchange the only way to acquire them at present is to swap $EGLD for them on exchange and then farm to earn them. There is no other way to buy them at this time by design, so that they can integrate the value of the tokens with $EGLD and distribute them fairly to the community while they bootstrap their platform. There was also a distribution prior to launch based on the amount of $EGLD they were holding earlier this year. I myself am the proud owner of 15 whole $MEX tokens... ha, not enough to make it worth the minor fee to claim. Do you think you may have tokens? You can find out and claim them on the platform, (maiar.exchange/mex). Connect your wallet and see if you have any to claim. I am not aware how long this opportunity to claim these tokens will last.
At launch the platform has only two pools, an EGLD-MEX pair and an EGLD-USDC pair and soon it will begin launching pools for ESDT tokens (Elrond Standard Digital Token... any token on the Elrond network that is not EGLD is ESDT), as well as assets from every other network. Before long, the Maiar Exchange will be populated with as many choices as Uniswap, Pancakeswap, or Sushiswap. (In fact they have provided incentives to farmers on these other platforms to bring their tokens over.)
Liquidity Pools
Simply, a liquidity pool is where you will go to swap your tokens (also referred to as swap pools). If you want to purchase or sell a token you will need to go to an exchange and find the appropriate liquidity pool. Most every coin or token will probably have an $EGLD pair and many will likely have a $MEX pair but if you want to trade one ESDT token or token from another ecosystem for another, you may have to make two or more trades within different pairs in order to get to the token you want.
These pools work because people have put up their own tokens in order to facilitate the trades. They are incentivized to do so by being paid in exchange tokens ($MEX on the Maiar Exchange) as well as fees from swaps. You will give your coins and tokens to a pool and then receive LP tokens in exchange for them that represent part ownership in that pool. But, your LP tokens are not identical to those tokens. You you gave them up. This is important to understand. People like to talk about tokens being in an LP token but this is a mischaracterization. You no longer have possession over any of the tokens that you have provided. You gave them to the pool and now anyone who comes along to swap can freely take one in exchange for an equal value of the other half of the pair. What you have as an LP token is a claim that you can use repossess the value of that portion of the pool whenever you wish, and at with whatever ratio the tokens in the pool happen to be at that moment.
One way to picture this is to put 100 chips on the table in front of you, 50 red and 50 black. This makes the ratio of red to black 1:1 because they are evenly matched.
Say you had LP tokens equal to 10% of the pool. Turning them in would give you 5 Red and 5 Black chips.
Now let’s do some trading. People really like the red chips so they swap black chips for red and now the ratio is 80 black and 20 red or, 4:1.
For the ease of the math we will assume that there are still 100 chips in the pool total so, 10% of the pool is still 10 chips. Now though, if we wanted to pull our 10% out of the pool, instead of 5 red and 5 black, we would now have 8 black and 2 red. The red chips are now valued at 4 black chips so you would need more black chips than before in order to swap for one red. (Before it was 1 black for 1 red and now it is 4 black for 1 red.) So you "lost" red chips and "gained" black chips in your share of pool even though you still have an equal value of each one.
If you decided to exchange all of one side of this pair for the other now, you could swap your red chips and have 16 black chips, or you could swap your black chips and have 4 red chips in total. It is worth reading this section again in a few days if this was confusing. It's a lot to process the first time but worth the effort to understand. Look for more articles and videos on liquidity pools like this one.
This is a very basic overview and this topic deserves it’s own article but this is the essential concept you need to grasp. You no longer own your tokens. You now own a portion of the pool and that portion is worth whatever is in the pool at any given moment while everyone trades. Think about this in terms if $MEX and $EGLD now. If you got $MEX while is was cheaper and people swapped their $EGLD for those $MEX tokens, what does that do to the amount of $MEX in your share of the liquidity pool as it becomes more expensive? Likewise what happens if there is a high demand for $EGLD and there is a run on swapping $MEX tokens? This is worth considering a bit before providing liquidity to any pool. What do you expect to happen to the values of each long term and is that a desirable outcome? A bit of a headache now could save you a truckload of heartache later.
Farms
Luckily, there is one solution for numbing any potential heartache from making the wrong moves when providing liquidity. Exchange tokens are often paid out as compensation for those who deposit their tokens into a liquidity pool and on the Maiar Exchange this is $MEX. The tokenomics of an exchange token like $MEX is such that as the DEX is adopted and used, the value of the token generally rises over time. Users will earn these by providing liquidity and then staking their LP tokens in a farm.
Pay attention to that last sentence. It's not enough to provide liquidity, you must also stake the tokens in a farm to earn $MEX. There will be as many farms as there are liquidity pools (one for each in fact), AND you can only stake your LP tokens in the appropriate farm specific to the pool to which you provided liquidity so… many people inevitably ask, why go through this whole extra step of staking in a farm at all? Why not do away with that and let us earn $MEX on the LP tokens directly? I think these are valid questions and the answer is roughly because you can use your LP tokens for other things as well.
As representing a portion of a liquidity pool, LP tokens have a certain amount of value unto themselves. While right now staking in the one farm that is available is the only and obvious option, this likely will not always be the case. As the platform develops it is possible we will see other uses emerge such as additional farms with different rewards, or lending perhaps. You can also send LP tokens to another wallet, sell them, or perhaps eventually stake them on another, entirely separate site with a completely different rewards system. While this seems like an extra step now, it will likely be one of many options in the future.
Locking
I may be mistaken but I think the Maiar Exchange is the only platform so far to offer this option to lock your rewards for double APR. Plenty of other platforms offer a concept of locking and even offer outsized rewards for doing so. The difference where I've seen this is that on those platforms you are locking the stake, and on Maiar you maintain free ownership of your stake and you are locking the rewards. Locked rewards are paid out in another token called Locked Mex or, $LKMEX. The precise limitations of $LKMEX have been somewhat ambiguous with answers from the team flip-flopping back and forth but as of now it seems that $LKMEX is exactly the same as $MEX except for one quality: they are unable to be swapped for anything else. You may send them to people, trade them with another person off of the exchange (someone whom you trust, as this will not be covered by a smart contract), eventually lend and probably as many other things as there exists creativity to come up with them. The one place where they differ from $MEX, swapability, means that you cannot drop them back into the liquidity pool in exchange for $EGLD or any other token. (With the exception of one single way, which I will explain later in Strategies.)
If only 1/3 of the value on the exchange is paid out in $LKMEX from farms, then it will be even with the value paid out in $MEX. Then, with the ability to stake your $LKMEX for additional $MEX and lock those rewards as well for even more $LKMEX… it won’t take long, or very much value staked for locked rewards before most of the $MEX that exists on the exchange by far is unable to be traded. This means that the potential for a mass dump of the $MEX token is unlikely or at least will be a lot more difficult than it has been in other systems. This helps the price action of $MEX and leads to better overall health for the entire platform. Tokens begin to unlock on a schedule after one year, after which they can be unlocked and converted to regular $MEX tokens. (The early distribution was delivered as LKMEX as well but this unlock period was much sooner, weeks. It is possible we see them selling off soon.)
This has implications on strategy. What is the right approach for you? If you lock all of it you can’t swap and stack $EGLD or some other token that you had your eye on, or that sexy NFT project for that matter. You won’t be able to convert that value and build more LP tokens to earn even higher rewards…. On the flip side, for every token you leave in a simple stake earning $MEX (i.e. not LKMEX), you will need to earn at least 100% on it immediately in order to break even compared to what you would have earned by locking…. Definitely lots to consider about how to most effectively use this one feature.
If any aspect of this was confusing or you have further questions, feel free to DM me on Twitter and I will try my best to answer or find the answer for you. I appreciate your feedbak as it helps me refine this article so it may help more people.
Sections: Overview | Tutorial | Strategies
For my own strategy, I may put out an article discussing on my thoughts on using the Maiar Exchange which will have aspects of all of these below but with my own needs and vision for long term growth in mind.
For more advanced strategies and further learning, take a look at the following resources:
- For visual learners, Wesley Kress has created a wonderfully thorough video: A Master Class: A Deep Dive into The Maiar Exchange (DEX) of The Elrond Network
- And for further exploration of advanced strategies, The Palm Tree Network has put out a guide based on discussions in their community.
- There is a Telegram channel for discussing strategy, made by the community here
- And the official Telegram channel is here
- The official docs from Elrond are here, with their how to guides and simple explanations of concepts
- Here is a video: Maiar Exchange Crash Course
- A useful guide and another tutorial from MGStaking
- An introduction to liquidity pools by Ishtari Vision
Thanks for stopping by my Elrond blog! Please share with others and let me know if there are topics you would like me to dive into for future articles
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