Merlin - Road to becoming the leading DEX by achieving Long-Term Sustainable Emissions

5 min readApr 14, 2023

The shortcomings in tokenomics of DEXes

Bootstrapping liquidity has been a major challenge for decentralized exchanges (DEXs). In order to incentivize liquidity providers to deploy capital in their protocol, DEXs usually ressort to high token emissions : minting a high number of tokens that directly goes to mercenary yield farmers, resulting in an important sell pressure.

If you graph the charts of DEXs governance token vs ETH, you will probably see downward charts only. So now what? Should you give up on investing on DEXs?

Merlin approach : Distribute mainly escrow tokens that captures Real Yield and utility

At Merlin, emissions are distributed in the following way : 87.5% in $stMAGE and 12.5% in $MAGE.

The first immediate consequence of this design is an extremely reduced selling pressure compared to standard DEXs (that gives 100% of their emission in their liquid token).

$stMAGE, our escrowed token, is instrumental in achieving the long-term objectif of the protocol and our goal to become the leading DEX on zkSync Era. Essentially, most of our farming rewards require vesting to become liquid.

What value is there in accumulating $stMAGE? Is that a trap? No it’s not, because you can use $stMAGE to :

Capture Real Yield (dividends) by getting a share of all the protocol revenues (and the real yield will be partly distributed in ETH-USDC LP)
Boost the Yield on your favorite LP by allocating $stMAGE to it
Access to benefits of projects launching on Merlin Launchpad

But what about vesting $stMAGE to $MAGE?

Strategy : Staking vs Vesting? Real Yield vs Liquidity?

Investors can convert their stMAGE to MAGE by vesting their tokens for a minimum of seven days, which provides a 1:0.5 ratio. For a maximum vesting duration of six months, investors will receive a 1:1 ratio

In some protocols, those who vest their tokens still receive a part of the protocol fees. This is where Merlin made a drastic design change : users who vest $stMAGE will not get any dividends. This means all the Real Yield will be exclusively in the hand of Stakers.

So the user should be careful when executing his strategy

Deflationary mechanisms

Users that chose to vest their stMAGE for a duration inferior to 6m will only be able to get back a portion (between 50% and 100%) converted to MAGE tokens. The remaining excess MAGE portion is permanently burned, reducing the total supply.

Token Supply and Distribution

At Merlin, we understand the importance of sustainability in building a successful project. With this in mind, we have designed our token supply and distribution model to align incentives and promote the growth of the Merlin ecosystem.

Token Details

Name: Merlin Token

Ticker: MAGE

Chain: ZkSync

Max supply: 80,000 MAGE

Contract: Coming soon

Name: Merlin Staked Token

Ticker: stMAGE

Chain: ZkSync

Contract: Coming soon

Token Distribution

The table above is a summary. 5important points :

We initially allocated 13.5% of tokens to the team. But after several discussions, we decided to allocate 3.5% of our own allocation as an airdrop to give back to the community.
A first part of this airdrop will be allocated to investors that participate to the public sale to thank them for their early support. Investors buying at listing will not be eligible to this specific airdrop
As you can see (and please read the exact details below), most of the emissions and vesting are in $stMAGE. This ensures a low selling pressure and long term sustainability
The Core Farming Pools and public sale will only be launched after Audit is completed by Certik in order to reassure investors
To bootstrap initial funds to build Merlin (operational costs, Audit, Marketing, dev effort etc), there was a private raise (seed + KOL Sale) that includes partnered protocols and strategic supporters. Seed Price is $38 and KOL Price is $45 (public price will be starting at $50). As you can see, most of their tokens (65% and 75%) are 6m vested, which shows their commitment to support us on the long run and their belief that Merlin has the potential to become the leading DEX on zkSync.

To dig into the depth of the numbers, find below the details :

Fund raising:

4.5% or 3,600 tokens for the KOL sale where 35% or 1,260 $MAGE tokens are unlocked at TGE and 65% or 2,340 tokens in $stMAGE.
9.4% or 7,520 tokens for the private sale: where 25% or 1,880 MAGE tokens are unlocked at TGE and 75% or 5,640 tokens in $stMAGE.
16% or 12.800 tokens for the public sale: where 60% or 7,680 MAGE tokens are unlocked at TGE and 40% or 7,680 tokens in $stMAGE

MAGE

10% or 8,000 tokens for the Protocol Owned Liquidity where 100% will be unlocked at TGE
1.5% or 1,200 tokens for the Ecosystem linearly unlocked after 3 months
4% or 3,200 tokens for the Reserves linearly unlocked after 1 month
2% or 1,600 tokens for the Development fund where 100% will be unlocked at TGE

Remaining allocations:

28% or 22,400 tokens to liquidity mining with 12.5% or 2,800 MAGE tokens and 87,5% or 2,800 $stMAGE linearly unlocked over the next 3 years
1% or 800 tokens to Advisors in $stMAGE linearly unlocked over 2 years
5% or 4,000 tokens to Core Farming Pools in $stMAGE linearly unlocked over 6 months
5.1% or 4,100 tokens to Partnerships in $stMAGE with a 3 month cliff and then linearly unlocked over 2 years
10% or 8,000 tokens to Core team where 50% is in $MAGE and 50% in $stMAGE linearly unlocked over 2 years
3.5% or 2,800 tokens for an Airdrop in $stMAGE with a 6 month cliff