This one has been a long-time coming, but I'm actually kind of excited to dive into this project because it looks fairly interesting (and they provide a lot of open source tools & libraries for others looking to interact with their mini-ecosystem).
So let's check out what these guys are all about.
Melon Protocol: Helicopter View
Per usual, we're going to start right from their website (old school!).
Upon arrival, here's what we're met with, front and center:
link = https://melonprotocol.com/
The idea feels pretty reminiscent of $Gov (are they still around?) - but $GOV was more focused on enabling copy trading for users vs. 'asset management' (which feels like more of an investment banking activity between the firm & extremely wealthy clients).
The last sentence of that opening statement on their website makes me apprehensive - specifically, where they state:
"Melon empowers anyone to set up, manage and invest in customized on-chain investment vehicles."
Setups like this one can create exponentially greater risk & liability for the team responsible for deploying the protocol.
Because now the SEC or some other financial regulatory gov body can escalate their charges against the protocol (if they were to be raised) from a simple breach of regulatory protocol for a securities issuance (via deployment on exchanges), to operating an unregistered and unlicensed brokerage - which comes with proportionately steeper penalties.
There's also a risk of criminal prosecution if the assets are shown to be managed by the Melon Protocol team for ecosystem users, as this sort of activity can only be conducted by entities with a Money Services Business (MSB) license.
Fun Fact: Ripple has an MSB license
Don't Call This 'FUD'
Or maybe it is. These are just candid observations. If that bothers you, then go read a promotional shill piece begging you to spend all of your money on this project.
I hope for the sake of the project (specifically, the one's responsible for launching the project itself), that they have carefully dotted their 'i's and crossed their 't's here - as the idea that they're proposing is fairly risky in terms of likelihood of attracting negative attention from federal enforcement agencies.
Next Section: 'The Problem'
The site is packaged pretty cleanly - so we're going to move on to the first section (among their outline at the bottom of the page), which is called 'The Problem'.
Okay, I'm following so far.
Typical hedge fund structure - agreed.
Okay, they're dropping some knowledge here - curious approach. I'm interested now.
Nowadays, project websites look like they were created by some web dev that was locked in a room on an 8-hour deadline with nothing but a laptop & infinite cans of red bull at their disposal.
Skipping Past the Rest of the Fund Management Ecosystem / Client - Firm Relationship Breakdown
Its a good read, but you're not here to get a lesson on how asset funds conduct business.
So let's get down to the 'meat and bones' of what this protocol is proposing.
'Melon as a Solution'
Okay, so this is where it gets kind of interesting.
Take a look below:
Some Initial Thoughts Here
I think that Melon has conflated the benefit / costs here in the fund - client dynamic.
Breaking This Down
"Melon is an open-source protocol which enables anyone to set up and manage a pooled asset vehicle on-chain, at a fraction of the cost of traditional funds."
In this case, the fees charged would be in favor of the users creating these asset management pools since they would essentially be taking on the role of the asset fund (but on the blockchain, I suppose - and not in 'real life').
So the fact that users cannot charge the same fees as an actual hedge fund (i.e., '2 & 20' fee structure or whatever the market norm is these days), is actually a net negative.
Another Qualm: Asset Management Firms Exist For a Reason
To be clear, a good hedge fund (i.e., one that provides consistent returns on whatever principal you've invested with them), is a desired and welcomed facet of the financial landscape.
Investors (specifically wealthy clients), want to utilize the services of established asset managers.
These firms are not composed of dopes just trading on the market in the same whimsical manner as perhaps you or I would trade on Binance.
Lines to trading desks & absurd pools of liquidity
The ability to make moves on the market with their fund's collective AUM that an individual investor could never make
Access to algorithmic bots and other highly sophisticated software that is beyond the scope of what any retail investor will likely consult in their trading endeavors (as it would be overkill for day to day trading)
Asset management firms are fucking necessary and needed. A reputable firm will have an eclectic array of individuals with lofty credentials in various highly-skilled professions such as Math, Finance, Accounting, Statistics, etc.
Going on beyond this point would be redundant - you get the gist.
What's the Value of This Protocol?
Okay, according to Melon's documentation on their site:
"Melon automates the cumbersome back office and intermediary functions required in traditional finance using smart contracts."
What do they mean by 'cumbersome'? Mid to large sized asset management firms (i.e., not a 'family-sized' shop), should (and will) have their operations running like a well-oiled machine. But that's neither here nor there, because the backend processes of an asset management firm have zero impact on their clients (you're only concerned about your delta at the end of the day).
Many firms have asset management strategies that only involve making a few moves per quarter (i.e., not day trading between 'penny stocks'). They gauge different sectors as necessary and re-allocate in line with whatever their analysis forecasts as the most optimal move.
Melon Protocol is Hawking a Fantasy
I get it. Interacting with the markets is exciting.
But if we're being 100% serious here, any Joe Blow that's stumbled into the blockchain sphere, set up an account on Binance and perhaps even learned a thing or two about the markets is still vastly, absurdly microscopically inferior to the resources, knowledge, efficiency, and reliability afforded by an asset management firm.
Doesn't Balancer Allow For the Same Protocol Design?
Moving forward slightly in this analysis, I find statements such as the following to be curious (see below):
"In short, Melon provides a platform for fund managers and investors to operate in a way which is secure, transparent, efficient and dramatically less costly. Ultimately, this will benefit the end user - investors like you and me."
Okay - so these same 'benefits' are afforded to those that interact with the 'Balancer' protocol ecosystem.
By virtue of "providing liquidity", (i.e., creating a pool) with a user-defined basket of crypto assets (among those that can be used), users are essentially accomplishing the same end goal that Melon Protcol purports to achieve.
Moreover, there are no restrictions in how one can leverage Balancer's protocol - so once we journey outside of the general architecture of the protocol, users are only limited by their creativity and available liquidity (if they're a 'maker').
Conversely, according to Melon, they impose restrictions on what activities users can engage in - which they admit explicitly (framed as a 'benefit', though):
"Melon requires fund managers to define the key rules and parameters of the fund which are in turn deployed to the blockchain and enforced by smart contracts - no more need for fund administrators."
This Idea is Terrible
I had to create the next heading to escape my mind from obsessing about how bad this idea is.
Like, its terrible.
Its founded on an untrue premise and belief about attitudes toward asset management funds (they're thriving and will continue to thrive until the end of time).
This project provides zero innovation. It repackages benefits that Ethereum / blockchain already provide by virtue of their nature and tries to re-sell that back to the user as though they've pioneered a unique solution (which, of course, requires one to go through Melon, the gatekeepers, before being able to also indulge in these fruits).
The project creates a 'market' for something with zero demand (i.e., asset funds started up on the Ethereum chain and ran by people that likely have no clue what the fuck they're doing, that don't even have to be accountable for their performance since they don't have a reputation, career, firm, or position in the markets on the line).
The project actually makes zero fucking sense on a fundamental level because it proposes that it will essentially duplicate the role of asset funds on the blockchain (and effectively obsolete their demand), while also reassuring end users that there will be no relinquishing of asset ownership on the protocol (i.e., people will somehow be able to invest in these prop up 'asset funds' with their funds w/o having to relinquish ownership of said funds, despite the fact that the main premise of this project is to provide an alternative for ASSET MANAGEMENT)