Impossible's research analysts dive into Stratum Exchange — The up and coming Decentralized Exchange (DEX) on Ethereum Layer 2 Mantle that carefully architecting every aspect of the protocol and integrating ideas and learnings from across the crypto space in order to perfect the DEX model and our 1st EAO! Find out more about the project highlights, tokenomics, team and more in our research report!

Context

Liquidity market is the backbone of any DeFi ecosystems. It facilitates the development of projects and the thrive of an ecosystem through deep liquidity and balances the interest between liquidity providers, protocols and users. The evolution of the liquidity layer was defined by new breakthroughs within the decentralized exchange (DEX) framework, towards deeper liquidity, capital efficiency, incentive alignment and improved user experience.

In 2017, the 0x protocol was introduced, providing a standardized framework for the development of decentralized exchanges on the Ethereum blockchain. The 0x protocol enabled the creation of a new generation of DEXs, known as relayers, which facilitated the discovery and matching of orders between users. This marked a significant milestone in the evolution of DEXs, as it allowed for the development of more advanced trading platforms with improved liquidity and user experiences.

One of the most significant developments within the DEX space came in 2018 with the launch of Uniswap, a fully decentralized and automated market maker (AMM) platform. Uniswap introduced a novel approach to liquidity provision, allowing users to deposit their tokens into smart contract-based liquidity pools, which facilitated instant and seamless trading between different assets. This innovation addressed one of the key challenges facing decentralized exchanges – the issue of low liquidity – and helped to drive a rapid increase in the adoption and usage of DEXs.

The next breakthrough of DEX called ve(3,3) which is a model combines the (3,3) game theory model from Olympus DAO with vote escrow (ve) tokenomics from Curve Finance. It seeks to align the incentives of token holders and LPs, incentivize fees rather than passive liquidity, and lock governance tokens to strengthen participation. By locking governance tokens, users can receive increased farming swap fees, bribes, rebases and have more influence in the protocol’s governance.

DEXs that follows ve(3,3) model of today are capable of:

• Being decentralized from smart contract layer
• Provide deep liquidity
• Align benefit of all parties involved
• Provide seamless user experience

Project overview

Stratum Exchange is a native liquidity hub built as a public good to drive TVL and user acquisition to the Mantle ecosystem. Taking inspiration from Solidly and Velodrome, Stratum utilizes the ‘vote escrow’ NFT (veNFT) model, to deliver a protocol on which the projects building on Mantle to derive sustainable liquidity for their tokens and enable users to transact in a cost effective and frictionless manner.

At launch, Stratum Exchange will be Community owned through governance. The exchange will be decentralized with protocols and users given ownership of veNFT’s to support the ongoing growth of Stratum.

Once fully deployed on Mantle, Stratum Exchange will deepen the liquidity of projects on Mantle by incentivizing Liquidity Providers through a bribing mechanism. Project teams can also hold veNFTs to vote in their own pool, usually yield interest greater than the initial investment through the distribution of bribes, trading fees and any emissions from POL pools deployed on Stratum.

Stratum will also enable projects to launch with immediate liquidity by utilizing the veNFT share model, ensuring emissions are directed to newly created pools for added trading depth.

Project Highlights

Team

Stratum team composes of 5 DeFi veterans that have years of experiences working with DeFi projects and Decentralized Exchanges in particular.

Philipp (CEO, Co-founder) - Philipp is a yield farmer, actively utilizing DeFi since end of 2019 and running a Youtube channel sharing farming strategies. He worked for a couple of protocols in the past such as Arbor Finance or Topia among other experience.

Oliver (Full stack developer) - Oliver studied engineering informatics. Software engineer & team leader in professional life for optical inspection equipment, microscopy, ML. Web developer and side entrepreneur since early 2000s. Following EVM tech since 2017, crypto investing and dev since 2020. Gearbox DAO contributor since 2021, top 5 delegate. Cofounder & developer at Substake. Special interest in decentralization, MEV, capital efficiency and yield farming

Juho (Contract, Back-end developer) - DeFi enthusiast and web3 developer. He has been in Crypto since the beginning of 2021. Previously works as a researcher for DeFi yield farming and smart contract. He is experienced in Solidity and Cairo and Starknet dapp development in bots and DeFi.

Alex (Co-founder, COO) - Alex has been in Defi for over two years and experience utilising a wide variety of blockchains and protocols across both EVM and non-EVM chains. Specifically to Stratum, during his experience with the original Solidly as well as the launch of Velodrome, it was clear that a liquidity hub with sustainable tokenomics was a necessary component of any ecosystem, which birthed the idea of bringing Stratum to a growing chain.

Outside of crypto Alex has been in the cyber security industry for over 10 years and has a deep understanding of risk and risk mitigation strategies.

Christian (Front-end Developer) - Christian has been in Crypto since 2016 and was Founder of Crowdswap. He has more than 10 years of experience in full-stack development. His previous work includes mostly smart contract and dApp development for the DeFi space as well as on-chain analysis tools and LP comparison algos.

Tokenomics

STRAT

STRAT is the ERC-20 utility token of the protocol. It is used for rewarding liquidity providers through emissions.Any STRAT holder can vote-escrow their tokens and receive a veSTRAT position (also known as veNFT) in exchange. Additional tokens can be added to the veSTRAT NFT at any time to increase its voting power.

• STRAT is used as the protocol's native token to reward liquidity providers on the protocol. By earning STRAT, users have the option to provide liquidity with those STRAT, trade them, or lock them to veSTRAT positions to participate in protocol governance.

veSTRAT

veSTRAT is the ERC-721 governance token in the form of an NFT (non-fungible token)

• veSTRAT is used for governance/
• Any STRAT holder can vote-escrow their tokens and receive a veSTRAT position (also known as veNFT) in exchange. Additional tokens can be added to the veSTRAT NFT at any time to increase its voting power.

Initial Allocation of STRAT:

The initial supply of STRAT is 25M.

Weekly emissions start at 500,000 STRAT (2% of the initial supply) and decays at 1% per week (epoch) for the first 20 weeks. After 20 weeks, the emissions decay will decrease to 0.5% per week to slow the emissions, create price stability while continuing to reward LPs. 2% of the weekly emissions (10,000 in epoch 1) will be directed to the team wallet each epoch to fund ongoing development. 7% of emissions (35,000 in epoch 1) will be allocated to rewarding protocols who bribe as part of Stratums Meta Bribe initiative. This will remain as 7% of weekly emissions in perpetuity unless otherwise voted on by the Stratum DAO. The remaining emissions will be directed to the pools as voted by veSTRAT holders LP's will earn a portion of liquid STRAT (70%) tokens and a portion of locked tokens as veSTRAT (30%).

veSTRAT % supply does not effect weekly LP emissions rates.

Investment Thesis

The Mantle ecosystem ripe for adoption in the coming months, driven by synergistic advancements from the Mantle team to facilitate a robust DeFi ecosystem with quality partnership and community incentive program. The TVL of Mantle is sitting close to $129M, ranked 5th among Ethereum Layer 2’s.

First of all, Mantle brought T-bill backed stablecoin USDY in collaboration with Ondo Finance to the ecosystem.

Users will be able to acquire USDY both by onboarding with Ondo to mint new USDY and by purchasing USDY on DEXs on Mantle:

• If you have stablecoins on Mantle: Mantle is expected to become the first blockchain ecosystem where USDY will have material decentralized exchange (DEX) liquidity, making it possible for any on-chain investor to easily buy and sell USDY without having to onboard with Ondo.
• If you have stablecoins on Ethereum: Ondo is launching a native asset bridge that will allow for low-cost bridging of USDY between supported chains, which will initially be Ethereum and Mantle Network. Any non-U.S. investor can on-board directly with Ondo to buy USDY on Ethereum and then bridge it to Mantle Network by Mid-October. Native mint/redeem of USDY on Mantle will come shortly after as well.

Further more, Mantle has just announced the launch of its second main product in the ecosystem — LSP. Starting from December 4, 2023, Mantle LSP users can access and stake the wrapped mETH token in exchange for ETH. In exchange for the ETH they contribute, Mantle LSP users will receive a share of Mantle Staked Ether (mETH). Currently, the Annual Percentage Yield (APY) is ~3.59%, comparable to other liquid staking platforms.

With the two major partnership that brings the yield of two hottest underlying assets in crypto rightnow: Staked ETH and T-Bill, Mantle DeFi ecosystem entering a phase of growth and adoption.

In terms of Stratum Exchange’s economic model, Ve(3,3) tokenomics design should help protocols decrease their dependency on large liquidity providers, which was common during the first development phase of DeFi. Unlike most protocol designs, ve(3,3) should incentivize liquidity provision and fee generation.

This approach aims to create an optimized system where the incentives of a protocol’s users and stakeholders are better aligned. That could be incredibly valuable because the two groups often have competing interests.

Other ve(3,3) DEX on different blockchains also much success including but not limited to Aerodrome on Base, Velodrome on Optimism or Thena on BNB Chain.

Risk Evaluation

The primary risk of Stratum Exchange is smart contract risk (a) and a failure to position themselves and gaining traction in this market (b).

Regarding point (a), this risk is mitigated by an Audit performed by BlockSec - a reputable Smart Contract audit firm with experience in auditing DeFi protocols. The team also plan to make additional audit for their upcoming smart contract, putting the safety of users above all.

Related to point (b), Stratum’s team has shown the capacity of closely work with Mantle team to foster the growth of Mantle Ecosystem.

About Stratum Exchange

Stratum Exchange is a native liquidity hub built as a public good to drive TVL and user acquisition to the Mantle ecosystem. Stratum has taken the model and built incremental innovations in order to deliver a sustainable and secure DEX for users that will drive largescale adoption of Mantle Network.

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