IOTA EVM Buildsphere AMA #14 – MagicSea

Published 04 September, 2024

In this AMA of IOTA Foundation which took place on August 7, 2024, Jonathan hosted Dr.Tangle and TangleHank from MagicSea to discuss the features and functionalities of MagicSea, the different models of automated market making, HypeTrain campaign, LUM rewards, and more! Read our notes below to learn more.

Background

Jonathan Hellweg (Host) – Community Manager at IOTA

Dr.Tangle aka Doug (Guest) – Core Contributor at MagicSea

TangleHank (Guest) – Contributor at MagicSea

MagicSea – native DEX & NFT Marketplace on Shimmer and IOTA EVM

IOTA – an open-source, scalable, feeless, green & permissionless distributed ledger

An Introduction to MagicSea and Its Liquidity Models

Jonathan introduces Buildsphere #14, explaining that it’s a format designed to showcase projects populating the IOTA EVM to the community.
Hank introduces himself as part of the MagicSea team. He says he’s been in crypto for a while and in DeFi since the DeFi summer of 2020. Hank mentions that his main focus at MagicSea is marketing and communication, but notes that as part of a small team, he does a bit of everything.
Doug introduces himself as Dr. Tangle, part of the core team of MagicSea. He explains that he’s been in crypto since 2017. Doug describes his key responsibilities at MagicSea as being in two areas: engineering the protocol and business development. He works closely with developers to make design decisions and build features, acting as a kind of business owner in a traditional sense. In business development, he works on maintaining contact with partners, setting up token launches, and deciding how to collaborate with other protocols.
Doug explains that MagicSea is the leading decentralized exchange on Shimmer and IOTA EVM, as well as the leading NFT marketplace on IOTA EVM. He describes the key features of MagicSea, including token swapping, farming, liquidity provision, and token staking. Doug also mentions that on their NFT marketplace, users can buy, sell, and hold NFTs in their wallets.
Jonathan asks about the different models of automated market making used by MagicSea: Uni V2 and liquidity book.
Doug explains that the Uni V2 model uses full-range pools where users provide liquidity to the entire price range. Users need to add both tokens in equal dollar amounts. He describes these pools as good for providing base liquidity and spot trading, as they cover all possible price points. Doug notes that these pools are easy to handle but less efficient.
Doug describes the Liquidity Book as a concentrated liquidity management feature. He explains that users can decide specifically how to provide their liquidity, including single-sided provision in specific ranges with different shapes (spot uniform, curve shapes, or bid-ask shapes).
Doug compares the Liquidity Book to an order book, where users can place sell or buy orders in specific price bins. He mentions that this protocol can be used for basic liquidity providing, liquidity farming, or even trading without paying fees.
Doug elaborates on the complementary nature of Uni V2 and liquidity book protocols. He explains that Uni V2 pools are efficient for smaller tokens where price discovery is still ongoing and volatility is high. On the other hand, the liquidity book is more efficient for larger tokens like stablecoins, Bitcoin, or Ethereum, which typically trade within specific ranges.

Choosing Between UniswapV2 and Liquidity Book Models

Jonathan asks about considerations for choosing between Uniswap V2 and liquidity book models, using a meme coin launch as an example.
Doug explains that for a meme coin or fair launch, it’s usually better to start with the Uniswap V2 pool. He says this provides basic liquidity and is less impacted by impermanent loss when prices are volatile. Doug mentions that later when there’s sufficient fundamental liquidity, it’s good to start a liquidity book pool for more specific price support.
Doug recommends using the simple mode for newcomers to the liquidity book feature. He says this mode makes design decisions for users, using spot 400 bins as a starting point to learn about the creative book with lower risk.
Jonathan mentions he’s come across liquidity book market making rewards in the documentation and asks for more information.
Doug explains that liquidity book market-making rewards are called such because users act like market makers when providing liquidity. He describes two main ways to earn $LUM rewards: providing liquidity to earn fees and climb the leaderboard, and participating in liquidity book farming.
Doug elaborates on liquidity book farming, saying it’s a new feature using advanced technology like hooks. He explains that users need to provide liquidity in the active range, usually in 11 bins, to be automatically rewarded with $LUM.
Jonathan asks about the HypeTrain campaign currently live on MagicSea.
Hank takes over to explain the HypeTrain campaign. He says it’s a three-month campaign rewarding 400,000 LUM tokens, with rewards given out in two-week epochs. Hank highlights that new participants can join at any time without being at a disadvantage.
Hank describes the three main pillars of the HypeTrain campaign:
- Liquidity bootstrap: Users can provide liquidity on the DEX using either concentrated liquidity book bins or simple V2 pools to earn $LUM rewards.
- Trading competition: Using Tide, users mint an NFT and earn points for trading on MagicSea, with rewards given in $LUM tokens.
- Social media campaign: Users can earn $LUM rewards for helping to spread the word about MagicSea beyond the IOTA community.

LUM and MLUM Tokens: Rewards, Governance, and Emissions Strategy at MagicSea

Jonathan asks about the $LUM rewards given out to HypeTrain participants and requests an explanation of $LUM and $MLUM tokens and their relationship.
Hank explains that $LUM is the reward token of the DEX, which can be earned through the HypeTrain campaign or by providing liquidity. He then describes the booster, a smart contract that allows users to allocate $LUM tokens to earn $MLUM, burning the staked $LUM in the process.
Hank elaborates on $MLUM, saying it’s the governance token with a limited supply of 1 million. He explains that $MLUM can be staked to earn fees from the protocol, and future features will include voting on emissions and bribing.
Jonathan asks about the team’s approach to sustainable emissions and preventing mercenary capital.
Doug responds by highlighting the strong community support for MagicSea, mentioning that over 75% of the circulating $MLUM is staked, with more than half locked for longer than a year.
Doug explains that they closely monitor emission rates and use liquidity book farms to efficiently incentivize liquidity where it’s most needed, allowing them to use less $LUM for greater effect.
Doug describes how the booster mechanism helps control the supply of $LUM tokens, with the system balancing itself out based on the price of $LUM and the health of the boost.
Hank adds that more than half of all emitted $LUM has been burned through the booster mechanism.
Jonathan asks about the process for third-party tokens to be featured in the community staking section on MagicSea.
Doug explains that while many actions on the DEX are permissionless, specific features like staking pools or community farms require contacting the team. He mentions two ways to get in touch: through the partner application form on the website or by opening a ticket on their Discord server.
Doug highlights that MagicSea aims to support the ecosystem and help projects become successful and that they discuss specifics with interested parties to determine how best to help them.

Upcoming Features and System Enhancements for MLUM Staking and NFT Trading on IOTA EVM

Hank asks Doug to explain the upcoming bribing features for projects using farms.
Doug describes the upcoming voting and bribing system, which will allow $MLUM stakers to vote on $LUM emissions. He explains that projects can either acquire $MLUM to vote for their own pools or bribe community members to vote for them.
Hank explains that NFTs need to be minted on IOTA EVM to be tradable on MagicSea. Hank clarifies that the NFT marketplace is not MagicSea’s main focus, and they prioritize key NFT collections with strong community demand.
Jonathan asks about the $LUM booster resurrection on behalf of community members.
Doug explains that the booster is offline on ShimmerEVM and in transition to IOTA EVM. He says they’re taking time to improve the booster’s functionality, making it more adaptable to the DEX’s current state and growth. Doug estimates a potential relaunch in September 2024, depending on the extent of changes and required audits.
Jonathan asks about $MLUM staking and farming availability.
Hank confirms that $MLUM staking for emissions is available on IOTA EVM. He explains how users can bridge their $MLUM from Shimmer EVM to IOTA EVM and stake it to earn protocol rewards. Hank and Doug mention that there are also farms available for MLUM-IOTA pairs, both in simple V2 and liquidity book formats.

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Show Information

Medium: YouTube (Video)

Show: IOTA Foundation

Show Title: Buildsphere AMA Ep #14: MagicSea

Show Date: August 7, 2024