Introduction

With the contrarian rise of GMX, a new wave of development has been sparked in the decentralized derivatives sector. MUX Protocol, as a brand upgrade of MCDEX, largely mirrors GMX in terms of its mechanism design. What sets it apart are the two unique features of shared multi-chain liquidity and an integrated contract trading aggregator. The project’s recent data has shown promising growth. In addition to being deployed on major public chains such as Arbitrum and Optimism, it has also launched on the Scroll testnet.

Introduction to MUX Protocol

MUX Protocol is a decentralized derivatives trading protocol encompassing multi-chain projects, deployed on five chains namely BSC, Avalanche, Arbitrum, Optimism, and Fantom, supporting leverages up to a maximum of 100 times.

The precursor to the protocol was “MCDEX,” launching perpetual contracts as its flagship product. Over time, it evolved through three iterations: the V1 version was an order book launched in the first half of 2020, followed by the “index price + complex AMM” V3 version released in the first half of 2021. The MUX is the fourth version of the protocol, integrating an oracle for feeding prices, with a trading mechanism similar to that of GMX. In December 2022, MCDEX was formally phased out and rebranded as MUX Protocol. In its early stage, the project garnered investments from renowned institutions such as Binance Labs, Multicoin Capital, and FENBUSHI Capital.

Source: https://mux.network/

Transaction Mechanism

Transactions on the MUX Protocol involve a tripartite game between the liquidity provider (LP) and long and short traders, with the LP acting as the aggregate counterparty. Users who add liquidity to the MUXLP pool can receive MUXLP liquidity certificates, participating in the distribution of transaction fee revenue. Whenever a trader opens or closes a position, their counterparty is the MUXLP liquidity pool. This pool comprises stablecoins and blue-chip assets, each having a target weight within the pool. When the weight shifts, the protocol balances it by adjusting transaction fees. This mechanism is similar to the setup of the GLP liquidity pool in GMX, with both aiming to balance the bullish and bearish sentiment in the market.

Source: https://app.mux.network/#/liquidity/stats?chainId=42161

In terms of pricing, MUX has deployed a “Dark Oracle” on the Multiplexing Layer, integrating price information from various exchanges, including Binance. The team, considering the risk of oracle price manipulation, has categorized different assets and set varying trading spreads. For example, BTC and ETH are set with zero spread; BNB and FTM are set at 0.12%; AVAX is set at a 0.15% spread. Using oracle pricing has the advantage of addressing the issue of transaction slippage, providing good transaction depth. However, it’s worth noting that the “Dark Oracle” implies that the feed system is still under the control of the development team, lacking transparency and being centralized. The team stated that in the future, the centralized oracle will be operated by veMUX holders.

For risk management, the team has limited the outstanding contracts of long and short traders in each market.

Traders who open positions by borrowing assets must pay a funding fee, determined by the proportion of capital occupied, and collected every eight hours. The team has also set a base rate (BaseRate) and a maximum rate (LimitRate) for the funding fee of each asset, a method beneficial for traders to forecast costs. The setting of the funding fee is evaluated and determined by the development team, for instance, the highest annualized funding fee for going long on BTC and ETH is currently set at 20%.

The transaction fee for the MUX Protocol is set at 0.08%, with a maintenance margin ratio of 0.5%, and a liquidation fee of 0.1%.

Source: https://app.mux.network/#/trade?chainId=42161&market=ETH&collateral=USDC&unit=USD

Liquidity

Once users contribute liquidity, they receive MUXLP tokens as proof of their contribution. Staking these MUXLP tokens allows participants to earn protocol revenues and MUX rewards, but these staking rewards are only supported on Arbitrum. To deter arbitrage, MUXLP transactions are subjected to an 18-minute execution waiting time.

Source: https://app.mux.network/#/liquidity/stats?chainId=42161

The liquidity of the MUXLP pool stems from two sources: LP and POL. POL, essentially the official liquidity provided at the protocol’s inception during its cold start, are the MUXLP tokens purchased with the financing funds used by the team at the dawn of creation. Serving as the cornerstone of the MUXLP pool’s liquidity, the protocol allocates 30% of its income to POL, consequently increasing the pool’s liquidity in tandem with the accumulation of transaction volume.

The MUX Protocol maintains its multi-chain deployment feature from the V3 version, a highlight of which is its ability to aggregate all liquidity from derivative transactions on different chains, thereby enhancing user transaction depth and supporting leverage up to 100 times. The function of shared liquidity across all chains is enabled by the “broker module,” a bot designed to monitor total liquidity and reserve a portion of liquidity for margin trading. Once the bot places an order, the broker module calculates the available liquidity on the deployed networks, and completes the order when the position size is met. This allows for cross-chain liquidity sharing without users having to move or merge their assets.

Apart from sharing multi-chain liquidity, the protocol also incorporates an aggregator function. It compares various protocols regarding comprehensive transaction costs, lowest slippage, and other aspects. If MUX’s liquidity cannot meet user requirements, the protocol will distribute the unmanageable portion of the transaction to other exchanges, such as GMX.

MUX’s Token Model

The MUX Protocol system encompasses four types of tokens:

1. $MCB: A freely circulating governance token, originally issued by MCDEX. The total supply is 4,803,144, with 3,803,144 currently in circulation. The remaining one million tokens will be rewarded to MUX holders within the next year. Users who lock $MCB can obtain $veMUX.
2. $MUXLP: A liquidity certificate token without a supply cap, analogous to the GLP index token on the GMX platform. Pledging $MUXLP yields MUX rewards, and is only supported on the Arbitrum network.
3. $MUX: A non-circulating platform token. Users pledging veMUX or MUXLP can obtain $MUX, which can be unlocked into $MCB after a one-year lock-up period. The current supply cap for $MUX is one million, with a daily issuance of 1,000.
4. $veMUX: The protocol’s governance token, generated from the locking of $MCB and $MUX. The lock-up period ranges from two weeks to four years. Holders of $veMUX are eligible for a share of platform transaction fees. It’s non-transferable and is only used on the Arbitrum network. $veMUX is created when $MCB or $MUX are locked and gets burned as the lock-up period decreases.

Source: https://docs.mux.network/protocol/tokenomics

Regarding income distribution, the MUX Protocol assigns 70% of its transaction fee revenues to MUXLP holders. However, as a portion of MUXLP originates from the team’s liquidity POL, this fraction assigned to POL’s MUXLP is distributed to veMUX holders. The remaining 30% of transaction fee revenue is used to purchase MUXLP, serving as the liquidity foundation for the protocol.

Current State of Development

After the dark horse, GMX grew against the odds, and the competition in the decentralized derivatives field intensified. The MUX Protocol, bearing similarities with GMX in mechanism, has rapidly deployed across major public chains, witnessing a swift increase in market share. The total trading volume has now exceeded $7.4 billion, with daily trading volume hovering around $200 million, primarily driven by the Arbitrum ecosystem.

Source: https://stats.mux.network/public/dashboard/13f401da-31b4-4d35-8529-bb62ca408de8

One distinguishing feature of the MUX Protocol is its shared multi-chain liquidity. The liquidity of the protocol’s fund pool is around $40 million. Initially, the protocol’s liquidity was cold-started by the team (POL), and it did not rely on external incentives.

Since its launch in August 2022, the project has mainly relied on protocol liquidity. While it initially had only around 7.4 million MUXLP, its value capture model and the introduction of incentives have seen the protocol now possessing more than 38 million MUXLP. This demonstrates that the continued development of the MUX Protocol has attracted significant external liquidity.

Source: https://stats.mux.network/public/dashboard/13f401da-31b4-4d35-8529-bb62ca408de8

At present, the growth of MUX Protocol data is commendable. The 24-hour fee income is approximately $60,000, with daily users amounting to about 230, of which, the number of new users is approximately 30.

Source: https://stats.mux.network/public/dashboard/13f401da-31b4-4d35-8529-bb62ca408de8

Conclusion

The MUX Protocol is a brand upgrade of MCDEX, and its overall mechanism is comparable to GMX. The protocol’s features lie in its multi-chain shared liquidity and built-in trade aggregator. Currently, it exhibits impressive market data performance, consistently attracting external liquidity, and the token model also serves a prominent value capture function. As competition in the derivatives field intensifies, the development landscape remains undefined, indicating that the MUX Protocol possesses considerable growth potential.