Merlin — A zkSync DEX & Liquidity lodger.

6 min readMar 31, 2023


Merlin is an immutable, permissionless, community-focused DEX based on ZkSync.

A crucial aspect of Merlin is the development of a robust, efficient, and adaptable platform that permits developers and users to leverage our infrastructure for profound and easily accessible liquidity. Merlin’s vision is to surpass existing DEX offerings and, as the first of its kind on ZkSync, to establish the necessary standards to become the liquidity beacon of this ecosystem.

As we prepare for our forthcoming launch, we will divulge information regarding all of the essential features. In light of this, the section that follows will provide a comprehensive summary of these features, as well as our motivation and vision for the protocol.

Our fundamental goal

  • To provide the zkSync ecosystem with a plethora of one-of-a-kind features that enable participants to gain assured flexibility and control over their own liquidity.
  • To support new protocols launching on zkSync by providing the tools necessary for their launch, liquidity creation, and growth.
  • To develop a proprietary architecture that can be readily integrated, built upon, and leveraged by other ecosystem protocols.
  • To enable the real applicable yields for all liquidity providers in the ecosystem via innovative emissions strategies & strong tokenomics

Innovative yield and inducements

An important aspect of Merlin is the implementation of a liquidity strategy based on non-fungible staked positions.

These yield-bearing positions serve as an additional layer on top of the conventional LP tokens, adding new features that are advantageous for both users and protocols:

  • The management of staked position locks and the associated yield increases.
  • Unique re-usability, whether through our own protocol with, for example, our Cauldron pools, or the limitless potential of external versions.
  • Significantly enhancing capital efficiency by implementing a variety of custom pledging strategies

Dynamic AMM

  • Merlin is based on a dual AMM capable of supporting both volatile (UniV2) and stable (Curve-like) exchanges while minimizing fees and maximizing speed and dependability.
  • In addition, we’re introducing dynamic directional fees for our trading pairs: this allows for various fees to be set for each pool, as well as different fees based on the swap direction (buying/selling).
  • These innovative AMM features enable us to offer pool configurations that are significantly more specialized and tailored to the particular trading pairs.

Continuity over time

The original liquid MAGE and its escrowed variant stMAGE, a non-transferable governance coin, are the two types of tokens used as farming incentives in the Merlin ecosystem.

Since most emissions are traded in stMAGE, the market supply is tightly regulated. By doing so, we can ensure the protocol’s long-term viability while still providing incentives to increase its original value.

Earnings from the protocol, initially derived primarily from swap fees, will be partially redistributed to stMAGE users in the form of real yield and used to maintain a continuous buying pressure on MAGE.

Two-token protocol

An integral component of our tokenomics will be dissected through the lenses of our two tokens, MAGE and stMAGE.

  • MAGE is Merlin’s native emission token and is an ordinary liquid token with a four-year supply cap.
  • Its counterpart, stMAGE, is a non-transferable, escrowed governance token that can only be obtained via MAGE conversion.

stMAGE is more than just a governance token, as its primary function will be to be allocated to special contracts known as Plugins. The procedure involves depositing stMAGE into a central contract, which will allocate the deposited amount to a plugin in exchange for various benefits.
This architecture choice enables us to have significantly greater composability and incorporate community or partner plugins while leveraging the allocated stMAGE for additional functionality.

Several of these plugins will be natively incorporated into our contracts from day one:

  • The first plugin on the list is called Dividends. By allocating stMAGE to it, users will receive a daily portion of the platform’s revenue as actual yield.
  • The second native plugin, Yield Booster, will utilize our NFM with yield. (It will allow users to directly allocate their stMAGE to their staked positions in order to significantly improve their yield)

This stMAGE plugin ecosystem was designed to grow over time, and our team is already integrating new plugins. In conjunction with the addition of other plugins by the community or collaborators, this results in a token that has multiple uses and can generate unique returns.

MAGE and stMAGE tokens will be disseminated through our yield-bearing NFM’s as farming rewards.

  • MAGE can also be readily acquired on the market, unlike stMAGE, which is technically illiquid because it cannot be transferred.
  • At any moment, MAGE can be freely and instantly converted to stMAGE at a 1:1 ratio.

To convert stMAGE back to MAGE, users will be required to go through a vesting process, for which they can arbitrarily select a duration between 14 days and 2 months.

Therefore, the stMAGE to MAGE conversion ratio will not be fixed, as it will increase proportionally with the selected vesting duration:

  • minimum vesting period of 15 days for a 1:0.5 ratio
  • maximum vesting period of 6 months for a 1:1 ratio

During the redemption procedure, a portion of the stMAGE being converted will be automatically allocated to the Dividends plugin, generating revenue for the owner even as the stMAGE is being redeemed.

Last but not least, it is essential to note the existence of a multitude of deflationary mechanisms designed to actively control the supply of MAGE:

Burned stMAGE when redeemed for less than 1:1 stMAGE deallocation fee, purchase back, and burns from protocol earnings…

Together, the MAGE hard quota, its meticulously crafted emissions, and a number of additional mechanisms result in a token whose circulating supply will be extremely well-controlled, preventing dilution for MAGE and stMAGE holders.

This is merely a summary of Merlin’s tokenomics, as all metrics, emissions, and allocations will be conveyed in greater detail shortly.

Cauldron Pools

What are the ins and outs of using cauldron pools, and how do they help?

An extra source of yield rewards for staked positions in Merlin, Cauldron Pools have a predetermined duration. In terms of users’ capital efficiency and the distribution of incentives within protocols, they serve as an ideal illustration of the NFM’s hidden power.

There are a number of similarities between Cauldron Pools and standard pools:

The app’s Cauldron pools will be separated into three categories:

  • Permissionless pools
  • Merlin - or partner-deployed endorsed pools will offer even more customization options and scalability than standard pools.
  • Community pools

Staking NFMs into a Cauldron Pool and receiving rewards proportional to your staked share of the pool is straightforward from the user’s viewpoint. As long as they satisfy the criteria, users are free to deposit an unlimited amount of NFMs.

Firstly, The Cauldron Pool can be restricted so that only positions with a certain minimal balance can contribute to it. This is a simple method that can be used to recognise the most invested parties in an undertaking.

Second, we need lock-based criteria, which will only benefit users who can guarantee their liquidity needs well into the future.

They can restrict access to NFMs that don’t have:

  • A lock that is currently active and will remain so until the stated end time or later
  • These lock-based requirements are a potent tool for a protocol to guarantee sustainable development over time by rewarding its most loyal holders with fixed amounts over a set period of time.

Thirdly, deployers can restrict NFM deposits to approved senders by creating a whitelist.

In a number of scenarios, protocols can use it to award a specific subset of their user base with early access to the Cauldron Pool.

The protocols that take advantage of these whitelists will have many potential applications for them, including long-term incentives for their most dedicated LPs, payment to contest victors, compensation distribution, and the efficient replacement of airdrops.

Are you prepared to embark on the Quest?





An innovative DEX solution for real yields and liquidity lodging on zkSync