Multiple Protocol: How to reduce the risk of capital efficiency improvement?

Multiple Protocol
7 min readSep 15, 2021

Cointelegraph China conducted an in-depth interview with Multiple Protocol CTO Tony Carson. He will introduce us to how Multiple Protocol uses Uniswap v3 to improve capital efficiency for users.

Since 2020 DeFi Summer, the crypto industry has made a new exploration of decentralized financial protocols, including the emergence of multiple chains, financial protocols of various architectures, DeFi, and GameFi of NFTs, highlighting the decentralized world Charm.

However, it is worth noting that the DeFi world still has the problem of low capital efficiency. The asset management above the protocol and application layers is not perfect, and the products on the market are basically in the exploratory stage. However, with the launch of Uniswap v3, “centralized liquidity” improves capital efficiency and also provides a deeper trading system for other developers and protocols. Here arrives the need for the Multiple Protocol.

Cointelegraph China conducted an in-depth interview with Multiple Protocol’s CTO Tony Carson. He will introduce to us how Multiple Protocol uses Uniswap v3 to improve capital efficiency for users.

Understanding Multiple Protocol

In the introduction, Tony Carson stated:

“Their team is considered a pure R&D team in the currency circle. Before doing blockchain, it was a game R&D team. They started their game development career as early as 2000. In 2017, the team fully transformed to the blockchain and started working in the public sector. We have accumulated technology in the chain, wallet, and exchange, and have done some smart contract projects on EOS, and achieved the global head position. Since last year, the team has been in full contact with DeFi and launched the BSC’s first DeFi protocol Burgerswap. After that. , The team has done Clover Finance again, and now Clover has launched Coinbase and Binance. It is the project with the largest number of participants ever on Coinlist. At the same time, the team has also done some ecological projects on Ethereum with Bybit’s BitDAO.”

The origin of Multiple Protocol is based on the team’s appreciation of Uniswap v3. Tony Carson believes that the centralized liquidity introduced by Uniswap v3 is a very valuable thing. In fact, as mentioned above, higher capital efficiency.

But higher capital efficiency means higher barriers to entry. Different from Uniswap v2’s average distribution, users only need to deposit money, v3 requires users to choose a strategy to enter the market more actively. These strategies are often in the hands of traditional brick arbitrage market makers, that is, concentrated in CeFi.

Tony Carson introduces:

“Multiple Protocol is actually a bridge, linking ordinary user funds and professional market maker teams.”

At the same time as the introduction, the Multiple Protocol is analogous to FoF (Fund of Funds). FoF is a fund that specializes in investing in other securities investment funds.

Each market maker team is a fund on the Multiple Protocol platform. Multiple Protocol will allocate users’ funds according to the rate of return of the market maker team. The better the performance of the market maker team, the more funds it can manage. Basically, the top ten market maker teams can manage 90% of the platform’s funds.

At the same time, Tony Carson also gave a very appropriate example. If we deposit 100 yuan on the platform, there will be more than 10 or even 100 professional market maker teams to manage our funds, and the allocation of funds will be determined by the performance of the market maker team.

In-depth Multiple Protocol

Develop strategies

How does the market maker team specify the strategy?

Tony Carson introduced us to two basic strategies:

  • Provide liquidity strategies. Multiple Protocol will fully hedge against impermanent losses on decentralized exchanges on centralized exchanges. Impermanent loss refers to the loss faced by funds in the liquidity pool. This loss usually occurs when the proportion of tokens in the liquidity pool becomes unbalanced.
  • Uniswap grid trading strategy. Grid trading is a strategy that uses market fluctuations to make profits. In the process of constant fluctuations in the underlying price, draw a grid on the underlying price, and make the most profitable by adding and reducing positions when the market price touches a certain grid line.

Tony Carson believes:

“Diversified strategies can better manage users’ funds, including the ability of funds to resist risks will also be improved.”

Correspondingly, users can also choose a market maker team for fund management according to their own risk preferences, which is a private equity fund function provided by Multiple Protocol. At the same time, the platform will also have the option of public offering funds-as mentioned above, users directly deposit funds and are jointly managed by multiple market maker teams.

Professional Trader (GP)

How does Multiple Protocol manage multiple market maker teams?

Proof of Profitability (Proof of Profitability). To facilitate understanding, Tony Carson gave us an example of the Sharpe Index. The Sharpe Index measures the performance of an investment (such as a security or investment portfolio) relative to risk-free assets after adjusting for risk. Multiple Protocol generally measures the strength of GP through Proof of Profitability.

At the same time, Multiple Protocol’s selection of the market maker team is closely related to the operation stage of its project. According to Tony Carson, the market maker teams that worked in the early stages were basically early investors, and market maker teams that were deeply bound to cooperate, such as Quick Advance.

For professional traders, Multiple Protocol will issue a work permit NFT for them, which only allows transfer under limited circumstances, records all the performance of GP, and is also the most intuitive embodiment of Proof of Profitability.

Risk Management

In the process of protocol operation and development, the security of funds and the risks it needs to face are always an unavoidable topic. Tony Carson believes that the agreement can solve this problem through both macro and micro levels:

  • Macro: Similar to the Bitcoin mining algorithm, 51% attacks are prone to occur when there are fewer mining nodes in the early days, and because some nodes are offline, the network cannot produce blocks. However, with the increase in the number of nodes on the Multiple Protocol platform, that is, the number of GPs, the financial loss caused by a single GP’s evil actions cannot affect the overall financial situation of the platform. Most of the funds are managed by the best-performing teams, and the likelihood of doing evil is lower than those with poorer performance.
  • Micro: Multiple Protocol conducts risk control management for all GP positions. The risk control management method is similar to the role of Liquidator (liquidator) in Compound or AAVE-when the total value of GP is lower than that of LP (liquidity provider) Anyone can liquidate his position when he takes a certain percentage of the total value from him. The liquidator is also the whistleblower, and the whistleblower will also receive certain rewards.

Second, there is the risk of smart contracts. The Multiple Protocol team has cooperated with many security companies. After choosing various aspects, Multiple Protocol chose to cooperate with Certik to conduct smart contract audits.

Token value

For the MUL distribution of Multiple Protocol tokens, Tony Carson explained for us in three aspects:

  • In the early stage of the project, the Multiple Protocol token MUL will be used as a fund for the Pioneer Program (Pioneer Program) to incentivize early GPs. MUL can compensate GPs for gas fees that need to be paid in the process of doing things.
  • Sold at the price of seed round and private equity round to some institutions that can help the development of Multiple Protocol, such as some exchange institutions that can provide liquidity in the early stage, Jubi Labs, Hotbit, and the professional market maker team mentioned above.
  • In the middle and late stages of the project, the core of the Multiple Protocol token MUL is profit sharing.

In the future, in the vision of the Multiple Protocol team, MUL is mainly reflected in the following three aspects:

  • In the future, with the increase in the size of LPs, the system will regularly add GP work permits. Work permits need to be purchased by MUL through auction. The received MUL will be locked in the Multiple Protocol platform as “Treasury funds”.
  • Multiple Protocol initially sets a parameter-5% of all transaction fees, that is, 5% of the profit of the entire platform will be used to distribute to all holders of Stake MUL tokens on the platform. Another 5% will be used for repurchase and destruction.
  • Decentralized governance. Users on the platform Stake will get corresponding voting rights based on the number of pledged tokens and participate in governance.

Interestingly, Tony Carson also mentioned the incentive policy for GP:

“We have 50% of MULs that regularly reward outstanding GPs based on their performance. We mainly reward two types of GPs. One is the GP whose performance has risen particularly fast, and the other is the GP that provides high-quality strategies for a long time.”

Future vision

“We feel that the DeFi market is becoming more and more responsible in the entire decentralized world. With the launch of Uniswap’s centralized liquidity, the curtain of the second half of DeFi has been opened. How should we understand the second half of DeFi? I think, In the second half of DeFi, it will become closer to the real world of finance. It will become more and more professional in providing strategies for DeFi, while the native DeFi users do not have the ability to do things and provide strategies. Therefore, Multiple Protocol’s The vision is to provide professional and comprehensive strategies for more retail investors in the future, whether it is hedging, liquidity provision, lending, or future GameFi, etc.”

Tony Carson said emotionally, and finally he added:

“We can also compare it with the real world. Multiple Protocol is actually a decentralized brokerage firm. It reduces the risk of capital efficiency improvement by introducing the strategy of professional market makers.”

About Multiple Finance

Multiple Protocol is a Decentralized Finance (DeFi) protocol based on Ethereum that allows expert traders (GP) to provide professional AMM liquidity strategies, which in turn ensures users (LP) securely benefit from the best yielding products.

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Multiple Protocol - Unlocking the next phase of #DeFi, a playground for expert traders to provide professional trading AMM liquidity strategies on Uniswap V3