What is Mean Finance?
Mean Finance is a collection of smart contracts that turns the DCA process into a seamless activity. As if buying crypto on the regular wasn't easy enough, now you have a protocol that is managing the process for you.
"What's the point of a DCA protocol? Isn't buying and hodling the simplest thing in crypto?"
To explain Mean Finance, it is important to offer some context about the hidden costs of swaps. In DeFi, the direct way of buying an asset is via a swap, such as USDT for WETH, or MATIC for AAVE. Each operation incurs gas fees that fluctuate from a few cents up to triple digits in some cases. Furthermore, liquidity pools are prone to slippage. The lower the liquidity, the higher the slippage. Even if slippage stays constant at 0.1% (there is always some slippage), the costs compound for a repeated activity such as DCA'ing.
Mean Finance derives its value from creating cost predictability to DCA'ing. Users can forget about gas fluctuating fees and instead pay a fixed 0.6% swap fee. This fee is split between the protocol and the swappers. This creates an arbitrage opportunity for swappers in addition to free access to liquidity.
One may wonder what stops swappers from running away with the funds. For one, they don't have custody over the funds. The users are always in control of their crypto. Swappers are confined to operate within the Mean Finance liquidity pools. In other words, they can only get repaid via the protocol fees, as they can't withdraw user's crypto funds or do anything outside the encoded instructions.
Mean Finance has never been hacked to date. Due to the nature of the protocol, Mean Finance uses its own oracles to determine the price. Furthermore, the list of accepted tokens has been carefully curated to include only blue chip assets. Shitcoins will never be supported by Mean Finance as the main goal is to accumulate valuable tokens over time. To give more info over the vetting process, Mean Finance won't include tokens with high volatility such as LUNA, and tokens with low liquidity on Uniswap Oracles.
Overall, Mean Finance has been created with the simple goal of helping users DCA in a permissionless manner. It's not complicated and it doesn't have to be.
How does Mean Finance work?
The core concept of Swap Finance revolves around two main actors: users and the swappers. The protocol itself regulates the interaction between the user and the swapper to ensure users can safely DCA and swappers get a share of the fees.
Mean Finance allows users to exchange ERC20 tokens for other ERC20 tokens. In order to do so, users create a Mean Finance position in the form of an NFT (ERC721). Similarly to Uniswap V3, the NFT has more utility than showing you the details of the position. It can be freely transferred to others, or add new permissions.
Let's say your parents have joined the crypto bandwagon. As the responsible "investor" they believe you are, the prudent thing you recommend is to DCA. With Mean Finance, you can pool in your siblings to DCA on the same position while still retaining a degree of control.
The NFT gives owners the ability to customize their permissions. For example, you can give permission for your parents to add more funds to your position, or withdraw funds from your position. If your circle of contributors expands, you can even allow a specific address to withdraw funds from your swapped balance. Ultimately, you can designate an address to terminate the position and withdraw the funds.
As previously mentioned, users don't have to pay gas fees for the swaps. There is a gas cost in creating the position, creating permissions or withdrawing the balance. When a swap is executed, a protocol fee is collected from all users involved in that swap. As of now, that fee is 0.6% distributed as follows: 0.45% to the swappers and 0.15% to the protocol Treasury.
Positions are not executed by their owners. Instead, they are executed by market makers or "swappers". These actors will have to provide liquidity needed for these swaps and spend gas in the process.
There is no word about a native Mean Finance token because there is no need for one. Swappers and the protocol can leave on the swap fees alone. As the number of DeFi users increases, Mean Finance can become self-sustainable for the years to come.
How to make money on Mean Finance?
Timing the market can be notoriously difficult. After you buy a token, the market goes against you and dumps. But when it pumps, you FOMO and buy at the top. This sort of mentality led to many losses and users quitting crypto (think of all the dank memes).
On the other side of speculation we have dollar cost averaging. Over long time horizons, DCA’ing has so far proven to be a sound strategy, delivering massive returns to investors who have stuck to their plan. Instead of going all in at a certain price, you'd split your capital to invest no matter the price over a fixed time period, whether that’s every hour, day, week or month.
To illustrate the power of DCA, let's give an example. If you bought $50 worth of ETH every month since 2020 to this day, you would have made $6,616, a 430% return. But wait, it gets even crazier. If you invested $50 worth of MATIC since 2020 to this day, you would have made a whooping $21,727 return. And the examples go on. Although, it is important to mention that past events don't guarantee the same performance in the future.
There are times when you accumulate during rallies, and times when you buy during dumps. Over time, your entry price is averaged out, making the Dollar Cost Averaging (DCA) strategy an effective way to scale into crypto.
To create a position with Mean Finance, follow these steps:
1. Open the Mean Finance app
2. Select the asset you want to sell and the asset you want to buy
3. Type how much you would like to invest
4. Choose the frequency of investment
5. Create position
6. Approve the transaction
7. Done 🥳
Congrats! You have just created your DCA position. From this point on, swappers will execute the swaps on your behalf. Once a position has been crated, you’ll receive the NFT associated with it.
If you would like to create permissions for the NFT we recommend checking the Mean Finance documentation. The process is a bit technical, but the steps are easy to follow. Just make sure you follow their instructions word by word.
Same goes if you would like to become a swapper on Mean Finance. It is a more technical process that requires you to consult with their documentation.