World first, User-Centric DEX governed by On-Chain, Enterprise-Free Organization
More than just a DEX: Materia represents a new paradigm in the growing ecosystem of Decentralized Finance.
Since its launch, Uniswap has dramatically contributed to the growth of the entire DeFi ecosystem. Its revolutionary and innovative protocol has become the new standard and an inspiration for many projects.
Despite its success, there are many issues to address in order to further develop the protocol and allow the growing DeFi community to use liquidity for their own needs.
Materia started with the goal of researching and developing a new single pool approach protocol, taking advantage of all the strengths and experiences of UniSwap v2. The main objective was to implement a multistandard, dollar-based protocol able to reduce the impact of both impermanent loss and slippage issues that are the Achilles’ heel of many DEXs.
With this objective in clear view, Materia’s ongoing mission is to explore any further development of DEX protocol. This initiative is designed around community involvement and is ruled via our voting token, GIL. More on that in a moment!
Materia as a DFO
DeFi is a rapidly evolving space, but most governance models are not designed to quickly adopt protocol changes in such a volatile market. That’s why we made Materia as a Decentralized Flexible Organization (DFO). Materia is based on a new approach of managing smart contracts as microservices to build a new generation of Decentralized Autonomous Organizations (DAO) in which token holders will be able to propose the alteration, addition or termination of any function of a Decentralized Application and even contribute to the evolution of the front-end using Base64 on-chain data. Materia, as well as its upcoming features, can be updated entirely via voting!
Uniswap v2 introduced arbitrary ERC20/ERC20 couples in the pools, which has been useful for liquidity providers who can maintain their positions without being tied to a single token. However, by forcing trades to route through privileged liquidity pools, Uniswap’s centralized front-end design is allowing vampiric arbitrage bots to drain the prices of certain tokens. We decided to focus on this issue, challenging ourselves with the goal of overcoming these limits and simplifying the swap process of the AMM (Automated Market Maker).
We believe that a safe restart should begin from the single token routing of Uniswap v1 in order to ensure stability and optimize gas consumption. For those reasons, we chose WUSD as a bridge token for every route. Betting on a super-stable coin will allow liquidity providers to operate with reduced slippage and impermanent loss compared to ETH. Impermanent loss is a well-known side-effect of AMMs that are subject to arbitrage opportunities. When two assets are paired in a constant-product formula AMM (such as a 50:50 ratio), each asset reserve in the AMM keeps a constant product of their cardinal values.
ITEMs and LEGO Swap
Materia is designed to leverage the power of the ETHItem protocol, harnessing its underlying support for both ERC20 and ERC1155 standards. This choice will allow native support even for NFT tokens and takes advantage of the BatchTransfer function, thus efficiently creating complex LEGO Swaps and saving gas costs.
In our view ITEM is the next object standard on top of Ethereum. It synergizes the features of the three most common interfaces, ERC20, ERC721, and ERC1155, and is therefore interoperable with all current Ethereum applications.
ITEMs can be used as ERC20, ERC721, or ERC1155 as needed and can be both native and wrapped. Native ITEMs are collections of several objects that can perform complex and custom behaviors, optionally defined in their component “Extension logic”. This extension allows the implementation of custom rules.
Wrapped ITEMs maintain all the capabilities of the default ITEM standard, but drop any extra features — DAO or DFO wrapped governance tokens cannot communicate with the DAO or DFO until unwrapped — Wrapped ITEMs can be exchanged as any ITEM using a gas-efficient methods like BatchTransfer — aka LEGO Swap — a powerful feature of the ERC-1155 standard that enables the transfer of multiple tokens in a single transaction.
Materia is designed to support both native and wrapped ITEMs in order to perform all the typical AMM operations — Swap, Add/Remove liquidity, and so on — with increased performance and reduced transaction costs, avoiding fruitless approval operations.
Users will be able to interact with the protocol through the Orchestrator which will provide the core functionalities of the swap, add and reduce liquidity, and other advanced features that we have planned for the future.
Because the Orchestrator is stateless and does not hold token balances, it can be safely and trustlessly replaced if more efficient smart contract patterns are discovered, or if additional functionalities are approved by users who own GIL, as well as liquidity providers in the Materia Pool, who can vote directly to change parameters or propose a new feature.
Each Materia core smart contracts — factory, pair — manages a liquidity pool made up of reserves of two ITEMs. But more specifically, all liquidity pools are between WUSD and a single ITEMs. Users can interchange any ITEM by routing through WUSD. Since WUSD is currently the most resilient and secure stablecoin in the industry, we deemed it the best choice for Materia. WUSD liberates holders from censorship or centralized manipulation by states and stablecoin issuers and resolves all risks that come with trusting the big stablecoin organizations, like MakerDAO, Coinbase, etc.
Materia initially requires a 0.3% Swap Fee which, in the future, could be adjusted by the liquidity providers of each pair through a proposal, as a way to provide more competitive prices to the market.
GIL is the voting token of Materia. It is programmable equity of the protocol because the funds locked into a DFO wallet are actually funds in the hands of token holders. DFO funds can be transferred or used only by voting.
Our aim is to lead this project as an R&D initiative, we plan to gradually lose control of it over time, after securing the stability of the project.
For this reason, we implemented the Mint/Burn voting functionality, ruled by a smart contract, it will be kept in place until the project gains full stability, avoiding any malicious network attacker who could buy up a large amount of tokens, vote in the worst interests of the application and subsequently sell all their holdings immediately thereafter without penalty.
After that, via voting, we will disable this functionality, thus allowing the full and proper participation of the entire community of GIL holders.
100M GIL voting tokens will be minted at genesis and distributed with the following allocation:
- 24,3% — Team members and future researchers
- 70,5% — Materia DFO Funds, ruled by voting
- 3,7% — Advisors and marketing initiatives
- 1,5% — DFOHub as initial fee
Team members and future researchers
24,3M will be assigned to founders, team members and future researchers as an incentive to develop the protocol.
Materia DFO funds
The initial fund of 70,5M will be ruled by voting. A percentage will be released during the launch as follows:
- 10M as an Initial Liquidity on Materia
- 2,5M as free tokens to uSD, BUIDL, ARTE, UNIFI holders on 31/01/2021 available via claim
- 15M as a reward for Liquidity Mining
The first real challenge for a DEX is where to find the initial liquidity for starting the project and enabling users to trade tokens within it. As an R&D project we accomplished this by involving few investors who provided the initial collateral to launch the platform. We destinated them the 2,3% of the total supply bought from the initial liquidity.
3,7M will be available as a reward for advisors and marketing purposes, to boost users’ awareness about Materia and stimulate community growth.
1,5M will be paid as a generation fee to DFOHub.
A perpetual inflation rate per day, of 0,015% of the circulating supply, will start after Materia releases. It will ensure the continued participation and contribution to Materia at the expense of passive GIL holders.
Anyone can become a liquidity provider by adding liquidity to our protocol. An initial liquidity mining program will go live immediately after the mainnet release. The initial program will run for 45 days and target the following five pairs on Materia:
15M GIL will be allocated to MPs proportional to liquidity.
Through a Smart Contract based proposal we will progressively inflate the GIL circulating supply by minting 0.015% additional tokens per day in order to sustain the R&D initiative and to further develop Materia. During the first year, the Smart Contract will inflate the circulating supply by approximately 1.5%. The funds will be cycled into the WUSD/GIL Materia Pool and eventually be converted into ETH or other tokens. We will use these funds for operations and the team’s rewards.
There are several advantages to Materia from a User perspective. The primary benefit is the Lego-Swap function which will allow for several tokens to be traded in one transaction, for example, GIL into two or more tokens like Dai and Aave. By eliminating the need to perform multiple transactions to reach the same end, Materia users will be able to save a great deal on gas fees. Another game changing advantage is the implementation of the EthITEM standard, utilizing ERC1155 and ERC721 to make Materia both a DEX and an ITEM Marketplace. And this is only just the beginning. Many more features are already in development. We encourage everyone in the community to participate and stay up to date on the new projects as they come.
Materia is a radical step forward to improving the security and stability of the Defi realm, in part by reducing side effects like impermanent loss and slippage, while at the same time ensuring community control and community driven development.