What is Enzyme Finance?
The saying that "one year in crypto is 5 years irl" is absolutely true. Open-source software and community coordination led to experimentation that would have never been possible in the traditional finance environment. The industry started with simple swaps and liquidity provision, and quickly evolved into DAO governance, derivatives, and crazy farming strategies.
Enzyme Finance is helping users make sense of the increasingly complex DeFi ecosystem. The protocol enables you to search for and deposit into Vault strategies in a completely non-custodial and transparent way. This means you are in total control of your funds and you don't need KYC to use Enzyme's tools.
To give some context, Enzyme was initially launched as Melonport in 2019. Their plan has been to launch a permissionless version of what hedge fund managers do today. Instead of some Joe Schmo in a suit managing your life savings, people from all backgrounds can come together and design their own strategies to maximize profits. Enzyme serves the new money and the little fella equally. Setting up a crypto hedge fund with Melonport takes minutes, anyone can participate regardless of their investment or accreditation, and it's completely transparent. Although an anon is managing the fund, as a user you can see exactly how the hedge fund invests and funds always remain in your possession.
Enzyme encourages open finance in the true sense of the word. Their smart contracts are publicly available and verifiable. The Enzyme team works with reputable auditors to ensure the integrity of the smart contracts.
To this day, Enzyme has never been hacked. That doesn't mean the protocol stays hack-proof in perpetuity. Because funds are held on-chain, any type of hack puts users' funds in jeopardy. It could be a DAO using Enzyme's tools, or a fund manager. Knowing the risks can help you adjust your strategy accordingly. The downside of decentralized protocols is that no central authority can freeze funds in case of a hack.
The closes thing to an authority is the Enzyme Council, a group of experts that have a fiduciary duty to act in the best interest of the Enzyme protocol. You can think of them as guardians that have the technical knowledge of how to act in case of an emergency.
Enzyme also has its own token called MLN. Token holders can participate in the network governance and adjust the protocol parameters and fees. Additionally, MLN can be used to pay for fund management execution.
How does Enzyme Finance work?
Enzyme Finance works as a crypto hedge fund manager built on Ethereum. It offers a framework that DAOs and fund managers can use to create their own permissionless funds.
The protocol itself consists of two layers, a fund layer and an infrastructure layer. The fund layer is where users launch and control the funds other users can invest in. The infrastructure layer is controlled by the Melon Council, and it pertains to the infrastructure contracts that make up Enzyme protocol.
Enzyme charges a protocol fee of 0.50% of the total assets under management for each vault. These fees go into the DAO treasury and help maintain the protocol. At the end of the day, the Melon Council needs to be paid for their effort. The protocol fees can be adjusted in cooperation with the community.
Enzyme derives its value from creating Treasury Management tools, Vault Strategies, and Indexes. Each of these products represent a framework that users and projects can model based on their needs. A DAO can choose to implement a liquidity provision feature to their treasury; Vault managers can add derivatives to their existing yield farming strategy.
The protocol has embedded security measures to ensure none of the participants can run away with users' funds. For example, a DAO that uses Enzyme can delegate trading to a team member with very specific permissions to ensure efficiency whilst guaranteeing safety of the funds. Depositors in a vault can withdraw exit their funds at any time.
Enzyme Finance Vault
Each hedge fund strategy is contained in a vault. In essence, Enzyme vaults are smart contracts that offer financial instruments for the creation of investment strategies. Examples include: yield farming, staking, lending & borrowing, AMM, governance pools, bots, and so on.
Vaults typically use one or more of the tools outlined above. There is no rule other than the vaults need to be profitable in order to attract depositors. Enzyme lets vault managers set their own fees for the management services. For their effort, fund managers receive a periodic payment in MLN. Fund managers can also set a performance fee.
In theory, anyone can deposit into the vault. In practice, there is an option to create private vaults where the depositor fully trusts the vault owner. Typically there will be an "allowed depositor" list on this type of vault, possibly a KYC and likely some legal documents to define the relationship. The majority of Enzyme vaults are public, which means you can freely deposit funds with them.
Enzyme offers a curated list of well-known DeFi protocols your vaults can interact with. Vault managers can choose to deploy their strategies on Uniswap, Aave, Compound, Curve, Convex Finance, Yearn Finance, and Maple Finance.
Generally speaking, redemptions are available 24/7 unless the Vault policy dictates otherwise. Funds cannot be locked in perpetuity – there is always a window to withdraw your crypto funds. This time window depends on the settlement duration (if the strategy relies on protocols that have a delayed settlement design) or the redemption threshold.
In some cases, withdrawing all the liquidity at once can be damaging for the rest of the depositors. For this reason, a portion of the deposit remains locked in the vault and can be redeemed at a later point in time.
How to make money on Enzyme Finance?
Enzyme Finance can be your gateway to novel crypto trading strategies. The best part is that others have put in the effort to create that strategy. All you have to do is find the one that matches your risk appetite. With the yields in your pocket, a small fee goes to the vault manager, and you are free to keep using the vault or move on to greener pastures.
The advantage with depositing with Enzyme is that much of the DeFi technicalities are abstracted. You don't have to look through dozens of protocols for arbitrage opportunities or understand complicated derivatives such as perpetuals. Just sit back, and put your money to work for you.
Enzyme Finance Deposit
Before you jump in one of Enzyme's vaults, make sure you take your time to look through the different vaults and their accepted assets. There are a few things you should check before choosing to deposit. Namely, the fees (in the Fees tab), policies, and the financials. The data is updated in real time so there's no point to elaborate all these details here as you will see for yourself for each vault.
To make a deposit with Enzyme, follow these steps:
1. Open the Enzyme app
2. Scroll through the vaults using the "Discovery" tab or the "Vault" tab
3. Choose the vault and make sure you have the asset they support
4. Click on the "Invest" button at the top corner
5. Type the amount you would like to deposit
6. Approve the token (if it's your first time using the vault)
7. Click on "Deposit"
8. Profit!
Approving the tokens grants the vault permission to spend the assets in your wallet. The crypto funds always remain in your possession and you can always revoke the vault permission from your wallet's settings.
Now that you have deposited your crypto you can track your portfolio performance from your Dashboard. Before depositing, make sure you have checked the withdrawal policies. Enzyme Vaults may have a lock-up period that is decided by the Vault manager.
Enzyme Finance Vault Creation
If you have gathered some experience from your DeFi journey, now you can multiply your profits by sharing your strategy with others. As a Vault manager, rewards come in the form of management fees paid by depositors, with the option to introduce performance fees. Besides the DeFi know how, creating your own Vault takes some upfront liquidity to get the vault up and running. If your strategy is profitable, more users will deposit into your vault and the fees will come in.
Enzyme Vaults allow you to configure every aspect of the vault. Starting with the instruments of your strategy and ending up with the fees you set for your service. Ideally, it would be good to stick to the initial configuration of your vault, making small changes if needed. Changing your setting configurations frequently might compromise your relationship with your stakeholders so ideally there should be a justifiable reason to make changes.
With these considerations in mind, we can get started with your Enzyme vault:
1. Open the Enzyme app
2. After you have connected your wallet click select the option to create your vault
3. Choose they type of vault (public, private, hybrid)
4. Choose a name, a symbol for your vault shares, and the denomination asset
5. Choose the types of fees. There you can choose to add an entrance fee, a management fee, a performance fee, entry/exit fee. These are all optional. How much you choose to charge in fees can attract more users, or repel them. It is a good idea to set up an entry/exit fee to avoid arbitrage opportunities at the expense of long-term depositors.
6. Configure Deposits
7. Configure Shares Transferability
8. Configure redemptions. By default, deposits to and redemptions from your Vault are possible 24/7 unless you add a policy that dictates otherwise.
9. Configure your Asset Management settings (they can be changed after creation)
10. Review your vault
11. Deposit the seeding liquidity to get the vault started
There may be some use-cases where you’d want to change the vault owner (eg. moving it to a multi-sig, retiring with a succession plan, etc). In that case, you can use this form to change the vault owner.
Ownership transfer is a 2-step process. First, go to your vault settings and nominate a vault owner. To complete the vault ownership change, the nominated vault owner will need to claim the ownership of the vault. Once the ownership change is claimed, you will lose all owner privileges for this vault.
Price Prediction for Enzyme Finance — Can it hit $1000?
Buying and hodling MLN — the native token of Enzyme — is one way of potentially making money on Enzyme.
By looking at its current price, it’s natural to think about the chance of MLN hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the MLN token by analyzing its tokenomics. MLN’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} MLN tokens being in circulation today, that means a price of {PRICE} per MLN.
How did we come to that calculation? It’s quite easy, the price of a MLN token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each MLN coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of MLN at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for MLN to hit that price.
At a price of $1000 per token, that means the current market cap of MLN would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. MLN’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} MLN which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of MLN? Taking into account the current price of a MLN token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. MLN coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of a MLN token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the MLN protocol fully diluted market cap.
These are all crucial details to know when calculating if MLN can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of Enzyme depends solely on its growth as a network used by tens and hundreds of millions of users.
If you’re looking to add some MLN to your portfolio, the most trusted places to get some are Binance and Coinbase.