Mellow Protocol

Core Features of Mello LRT

• Permissionless LRT Creation: Mellow LRT allows users to create LRTs without requiring permissions, supporting a wide range of Automated Validator Services (AVSes) and operators. Users can design their risk frameworks and choose AVS profiles, giving them control over their LRTs.

• Vault Smart Contracts: Mellow offers a series of vault smart contracts managed by LRT curators, tailored to different risk profiles. These contracts facilitate the integration of LRTs with DeFi protocols, enabling easy asset utilization and participation in liquid markets.

• Supported Token: The platform is agnostic to the type of assets used for restaking, supporting any ERC-20 tokens that AVSes might require. Currently supported tokens include stETH, ETH, wETH, and wstETH, with WBTC and USDC support coming soon.

• Mellow ALM (Active Liquidity Management): This arm of Mellow focuses on enhancing the efficiency of the DeFi ecosystem by developing the Mellow Permissionless Vaults, an active liquidity management system.

The Mellow LRT Architecture

• Core Module: The Core Module is the central hub of the Mellow LRT architecture, responsible for integrating and managing all other modules within the ecosystem. Its primary function includes overseeing AMM positions by handling tasks such as depositing, withdrawing, and rebalancing liquidity. It ensures cohesive operation across various modules by maintaining robust communication and coordination within the system, facilitating seamless interactions and efficient management of liquidity throughout the Mellow ecosystem.

• AMM Modules: These modules interface with various Automated Market Makers (AMMs) like Uniswap, Sushiswap, and Velodrome. Their primary function is to enable interaction with different liquidity pools on these platforms, facilitating efficient trading and liquidity management within the Mellow system.

• DepositWithdraw Module: This module manages liquidity movements within positions by facilitating partial deposits and withdrawals. It allows for flexible fund management within AMM positions, accommodating varying liquidity needs and adjustments.

• Strategies Module: The Strategies Module houses diverse strategies for liquidity management. It offers users multiple options for optimizing their liquidity goals and managing risks by dynamically adjusting to market conditions and strategic objectives.

• Oracles: Oracles provide essential market data, supplying reliable and up-to-date price information. This data is critical for accurate asset valuation, risk assessment, and informed decision-making in managing liquidity positions.

• LP (Liquidity Provider) Wrapper: The LP Wrapper pools resources from multiple liquidity providers, enabling collective participation in a single strategy. It simplifies the process for stakeholders to contribute and benefit from managed positions.

• Mellow Automatic Liquidity Management (MALM) Toolkit: This toolkit simplifies and automates liquidity management in AMMs. It offers tools for bootstrapping liquidity, optimizing positions, and managing risks by automating strategies based on initial user-set parameters and adjusting positions for optimal performance.

• Managed Position: Represents an AMM position that is automatically managed by the Mellow toolkit. These positions are adjusted and rebalanced according to predefined strategies, allowing for automated and optimized liquidity provision.

• Strategy: Determines the target state of Managed Positions. It guides how positions should be adjusted based on market conditions, ensuring optimal performance and effective risk management.

• Rebalancer: Facilitates the adjustment of Managed Positions to move from their current state to the target state as determined by the strategy. It ensures positions remain aligned with market conditions and strategic goals.

• Owner: Manages and controls Managed Positions. The Owner opens, closes, and owns Managed Positions, determining their parameters and overseeing the execution of strategies.

• Position Manager: Handles the specific parameters of liquidity positions. It manages the details and settings of positions to ensure alignment with the owner's strategic objectives.

• Liquidity Provider (LP): Provides liquidity to the Mellow ecosystem by contributing assets to Managed Positions. LPs earn a share of the returns, represented by LP tokens that signify ownership in the position.

• Mellow Protocol: Oversees the overall functioning of the liquid restaking protocol. It manages vaults with smart contracts to ensure security, flexibility, and composability while mitigating AVS risks, and integrates with various DeFi infrastructures to enhance user experience and system robustness.

How does Restaking Work on Mellow LRT?

• Restaking Concept: Stakers contribute their ETH to support various protocols or projects, accepting potential risks such as slashing if the protocol’s security is compromised. Restaking enhances the security of AVS (actively validated services) modules by extending Ethereum’s security to these modules, ensuring reliable consensus and generating additional income for restakers.

• LRT Curators: Curators create and manage Liquid Restaked Tokens (LRTs), curating different vaults tailored to various risk profiles and strategic goals. They can launch new LRTs permissionlessly, meaning they do not require central approval. Curators set competitive fees on restaking revenue to incentivize participation in their curated LRTs.

• Restakers (LRT Holders): Restakers deposit their ETH into Mellow’s vaults and receive LRTs representing their stake in the assets. They gain access to a curated set of restaking opportunities across AVS modules, though they have limited control over the management of their ETH. Restakers can adjust their exposure by changing the amount of LRT they hold.

• AVS Operators: AVS Operators manage the AVS modules benefiting from restaked ETH. They depend on the enhanced security provided by the restaked assets to ensure the reliability of their modules.

• Vault Structure: Mellow Protocol operates a series of vault smart contracts, each designed for different risk profiles. The main vault contract manages interactions between users (restakers), curators, and AVS operators, handling deposits, withdrawals, LP token issuance, and administrative functions.

• Deposit Process: Restakers deposit ETH into a vault using the deposit function. LP (Liquidity Provider) tokens are minted to represent the restaker’s share in the vault. These LP tokens can be used within the Mellow ecosystem or redeemed for the underlying assets.

• Dynamic Strategy Adjustment: Each vault employs strategies for asset management that are dynamically adjusted based on market conditions and risk assessments. This approach helps mitigate risks associated with slashing and market volatility, ensuring the vault’s long-term viability and profitability.

• Rebalancing of Assets: Mellow Protocol includes mechanisms for rebalancing vault allocations, adjusting the proportion of assets in response to market changes or risk shifts. Rebalancing maintains the desired risk/reward profile of the vaults, optimizing returns, and protecting against potential losses.

• Standard Withdrawal: Restakers can initiate a withdrawal request using the registerWithdrawal function, specifying the amount of LP tokens to be redeemed. The protocol ensures sufficient underlying assets (ETH) are available in the vault and processes the withdrawal, providing the restaker with ETH based on the current valuation.

• Emergency Withdrawal: If a standard withdrawal request isn’t fulfilled within a specified timeframe (emergencyWithdrawalDelay), restakers can perform an emergency withdrawal. This allows quick exit from their position, though there is a risk of receiving less than the full asset value due to potential slippage or incomplete processing of non-ERC20 assets.