The DeFi asset management track is popular, what are the potential and constraints of the improved Melon?

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Chain News ChainNews (ID: chainnewscom)

, by Jack Purdy, Research Analyst, Messari, translated by Lu Jiangfei, published with permission.

As one of the first projects to raise funds through token sales, Melon appeared years before decentralized finance DeFi appeared in the dictionary of the cryptocurrency world, and its goal is to re-architect the core parts of the financial system. While Melon built a viable product and led the way in decentralized governance, its native token, MLN, lost 99% of its value after a brutal bear market.

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Melon's current economic design

Traditional fund management ($10 million fund size), source: Melon

Source: Dune Analytics

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Source: Dune Analytics

At the current price of 1.75 MLN per fund (approximately $87, MLN has been reduced from 8.75 MLN to 1.75 MLN after the recent price increase), even if the annual expansion to create With thousands of funds, it is difficult to support a market value that is much larger than the current level. MLN's current token economics also make it difficult to predict MLN burn rates, as the rate at which funds are created varies widely at different cap times.

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Enter the MIP7 era

The MIP7 proposal by members of the Melon community seeks to alleviate these issues by introducing a new fee structure that instead of charging a fee for each fund created, charges 20 basis points annually on the total assets under management (AUM) of the Melon fund. cost. So if some funds are successful and get a decent investment, the protocol can monetize them more efficiently.

Focusing on AUM fees enables the assessment of potential returns through various assumptions about the scale of DeFi growth and the proportion of Melon funds holding. I speculate using the market cap of DeFi, not the market cap of cryptocurrencies as a whole, because the growth of Bitcoin or other Layer 1 assets has not greatly expanded Melon's investable space.

This is a conservative assumption, because there are already BTC and ETH packaged versions on the market, and they occupy the largest holdings. However, I think Melon's success depends on the growth of other investable assets, as most BTC investments will continue to be off-chain, while the unique opportunities we see in the DeFi space will remain on-chain.

The current total market cap of DeFi assets is about $6 billion, while Melon's share is only $2.2 million. However, I expect the overall market size to increase significantly in the future, and the demand for asset management will naturally increase accordingly. Let's take a look at how changes in these two variables could affect Melon's underlying profitability.

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Melon's annualized protocol profit sensitivity: With the growth of the total market value of DeFi, if Melon can occupy a small proportion, it may see considerable benefits

Based on the scale of DeFi's actual growth, we can use the proposed 20 basis point annual fee as a coefficient to obtain profitable results ranging from less than $1 million to $25 million. By estimating returns and applying multiples from other asset management protocols, we can arrive at Melon's total network value.

For the comprehensive coefficient, I used the coefficient of yearn.finance. The Vault product of this project provides a variety of income generation strategies. Balanced product. Using a range of earnings figures between $1 and $10M, and P/E ratios for YFI and BAL (20x and 56x), we can draw a number of different results, ranging from a market cap below Melon's current $65M level, To appreciate more than 750%.

At this stage, predicting future benefits is wishful thinking at best, but providing contextual analysis helps assess the value of the network under various circumstances. To assess the likelihood of either scenario, one needs to examine the tailwinds that could drive earnings. As they mentioned in their latest community meeting, the team is pushing for a Q4 release covering several improvements, including the addition of a DEX aggregator, OTC trading, simplified fund creation, and fund migration .