New ponzi, you already know your boy had to drop a mirror for that. I’ve got so many mirrors in drafts, but never felt the same interest when I re-read them as I felt after finishing the first one so decided against releasing them. But this new defi experiment I stumbled upon made me want to pick up the keyboard again and throw thoughts on a mirror and see how I can make sense of it all.

First of all, congratulations to those that went through with the temple position, be it with or without my mirror post. You could enter with almost any size <10m$ and as I am writing this, you can exit positions with relatively good liquidity for around $0.94, around 40% in $ terms above IV ($0.65) and in the meantime ETH went about -30% from the time of the publishing of “Tumultuous road ahead”.

Unexpectedly it is bittersweet to exit temple for me as I came in looking to dissect what was left of a rotten project only to find out behind the scenes the people where much more interesting than at first glance. They might have moved slow compared to other projects in the space, but they are left standing after a raziah over the last few months and contrary to other big treasury projects, it feels like the team has only gotten stronger during that time. The mix of the DAO contributors from masters all the way to disciples is very interesting. There are some level headed guys, idealists and downright annoying individuals. But no matter what your take is on all of these guys, they have the respectable approach of having seemingly good work culture. It is one of the only DAOs working on decentralizing through their contributors and is innovating on that front, instead of decentralizing through snapshot and having repeat of this :

I have not yet exited the totality of my positions of temple, and the process to do so through LBPs is extremely PVP in nature but I am planning to exit the entirety of my position. Through the 7ish months in temple, I’ve interacted with various individuals ranging on a scale of extremely uninteresting individuals to absolute gigachads and my interactions have also ranged on a scale of trolling to articulate arguments, but overall I do not hold resentment over anyone in particular

For real though, no resentment and wish the best to the temple guys and do not doubt how robust they’ll keep on being.

Before you go any further, I am monetarily invested and just like with the first mirror, this doesn’t mean I will be skipping over the faults of the project, but it is important that you be extra skeptical. If after this medium you wish to discuss further, please do not hesitate to contact me over on Twitter or Discord.

This project’s name is MugenFinance and it is live on Arbitrum. It is “Aggregating Real Yield with LayerZero” which means it hunts for yield in tokens that don’t get diluted to zero across multiple chains with the LayerZero technology. If you are not familiar with LayerZero, I recommend the following twitter thread :

https://twitter.com/PrimordialAA/status/1438496269509423107

All we need to know to continue here is that LayerZero connects all dapps on all chains and does so with the goal in mind to not lose user funds like all bridges have been doing in 2022.

MugenFinance builds on top of LayerZero and aims to be a decentralized yield aggregator abstracting away the user interaction with “real yield” farms across chains by making it so that the staked version of Mugen (xMugen) is all that you need to collect fees from the different farms. In order to do that, MugenFinance sells Mugen through a bonding mechanism that follows an inverse exponential curve where users can deposit $USDC and mint $MGN based on a price that is updated on the homepage. When TVL increases, so does the mint price of each $MGN token, but with it being an inverse exponential curve, the mint price increase is much more important between 0-10m$ of tvl than 500m-1b$.

All tokens in circulation have been acquired through the minting process. Team remunerates themselves by taking 10% of the yield generated for xMugen users.

As all the treasury is acquired through minting, and minting is on a curve, there is a difference between token price on mint and underlying farming value. The following example is overly simplified and values are not representative of how the actual inverse exp bond curve currently works :

User A bonds at value $10 for 1 $Mugen, treasury farms at 20% yearly with $10, user A’s stake will generate $2 in 12 epochs (1 epoch = 30days) with $0.2 being given to the dev team and $1.8 being distributed as $ETH to user A.

User B bonds at value $20 for 1 $Mugen, treasury farms at 20% yearly with $30 (user A + user B mints). Yearly revenue of the protocol is $6 with $0.6 being distributed to the dev team. The $6 are split evenly between user A and user B as they both own 50% of the supply each, meaning that user B’s real yield is 13.5% while user A’s real yield is 27%.

As the title suggest, it pays to be early in the ponzu sauce.

You have three main plays with $MGN :

1. Buy it and hold it expecting a token price increase (can’t recommend)

2. Buy it and stake it to collect yield (recommended)

3. Use UNIV3 LPs to market make by either setting one sided liquidity pools or two sided LPs to collect fees by making use of the natural price ceiling in the mint price (recommended)

If you are considering 1, there isn’t much to say. You could very well 3-5x on current price but you’d be forfeiting precious yield you could collect in the other two options by waiting potentially a long time.

If you are considering option 2, it is a very simple process involving figuring out when to buy $MGN to get the most bang for your buck. If $MGN trades at 0.5x book value, and you buy & stake, you are leveraging your farming exposure and therefore receiving better yield. With the token being in the early stages, the risk you take for purchasing it now is supposed to be balanced out by the yielding rewards and subsequent premium added to price. As TVL increases, book value increases naturally.

If you are considering option 3, I salute you. It is my opinion that for this ponzu to fonction correctly, having a liquid LP makes it easier for participants to join in and let me explain why.

There are 3 scenarios for the price of $MGN.

1. Price trades at or above mint price :

Due to high demand and tightened supply with staking, it is possible for price to be at parity or trading with slight premium to mint price. In case of premium on secondary, any user is able to mint $MGN from the contract and arbitrage that premium, adding value to the collective book value of holders. In both these situations, a user willing to join the project will therefore have better returns minting directly with $USDC as there will be no slippage

I do not expect much of the trading volume to be done at this level.

1. Price trades between Book Value and mint price (mint price not included)

There is a positive premium on $MGN and its yielding returns, either because enough supply is staked for market supply to be illiquid or because there is value given on top of traditional yield per book value of each token (through bribing of xMugen for example)

I would expect a decent chunk of the trading volume to be done at this level. Meaning you could set up an LP ranging from {>= BookValue ; < MintPrice} and collect fees. Risks include large surge of TVL coming in and increasing BV and Mint price before you can adjust and causing you to lose your inventory.

1. Price trades below Book Value

People don’t trust the product or simply believe there is a better play to be made elsewhere. They sell and price drops below farming value.

I would expect another significant part of the trading volume to be present in here.

The main revenue stream of Mugen will be using it’s treasury to aggregate real yield on multiple chains but there are other ways to do so, I’ll list what has been discussed in the discord or simply what I think could be done to make it more capital efficient :

1. Bribes

A very straightforward way to add more yield on top would be bribes. With a treasury of liquid tokens, Mugen can set up a bribing tool where projects that meet certain criterias can request for the treasury to be allocated to their product and xMugen holders would receive payment (not much to explain here, same situation as other bribe mechanisms)

1. Cross chain swaps

I am not the most well versed guy in cross chain logic, but with MGN being liquid enough, it would be possible for a cross chain exchange to be built and allow people to swap ETH on AVAX with ETH on Arbitrum and have the fees of the swap re-directed to token holders.

1. Buying back treasury shares at distressed levels

We have seen this with Temple and I believe it would work here. Take a page from a book that has been written very well with the LBPs. Have constant buy pressure (and burn) at prices set up at .2x-.3x Book value in case people want to exit for liquidity and while doing it, increase the farming power of any holders. Buying a token farming 1$ for 20c/30c increases the farming power of people staying. Team and community members usually have a negative vision of buying back tokens, but in treasury style DAOs, it is one of the simplest ways to add value to everyone involved.

It is also important to note that not everyone buying Mugen will stake it, as noted earlier there are different ways to play the game. Supply in LP’s mean that it is less claim on the farming rewards. Instead of collecting 28%APY ,paid in WETH , alone by yielding on GMX you might end up collecting 50% APY as not 100% of the supply is staked.

This is the deep end, you are not getting cuddled if anything in the chain of farming goes bust in this one. Here are the risks you should keep in mind if you decide to allocate some of your hard earned digital funky money to the product.

• Smart contract risks

• Rug risk

• GMX traders winning trades and treasury getting raided as GLP goes to zero

• LayerZero contracts going bust (goes hand to hand with smart contract risks)

It is not my role to asses these risks for you and as such I would rather not give you my rationale on each of those and how likely or unlikely I set them as occuring. All you need to know is that they exist and that should be taken into account when positionning yourself in MugenFinance.

This is a high risk one. I would say this is higher risk than temple and would advise you to size it relative to that. On the plus side, it is a twist to the money games we are used to, and it hits several narratives:

• Cross chain

• Real yield

• Arbitrum

• Dev autist

Guy isn’t testing in prod but it is pretty close, we found out about possibilities of xMugen during a discussion couple days before this mirror comes out which is why I had to delay it.

The fact that there are multiple ways to play the game is a positive aspect to it in my book. Will you hold, LP, stake or fade?

Some useful links :

Website(official) : https://www.mugenfinance.com/

Website(community) : https://mugen-dapp.vercel.app/

Twitter : https://twitter.com/MugenFinance