Melon Decentralized crypto asset management platform

Enzyme Finance is an open-source protocol that enables the setup and management of pooled digital assets on-chain. By automating the back and middle office processes through the use of smart contracts, Melon enables asset managers and fund sponsors to create their own tokenized investment vehicles. The project rebranded from Melon Protocol in Dec. 2020.

Background

Melonport AG was founded in July, 2016 as a privately domiciled company in Zug, Switzerland. Their sole mandate was to develop Melon, an asset management computer built on Ethereum. In February 2017, the company raised money through a token sale to fund development.

The team sees an increasingly wide range of asset classes becoming tokenized in the future and therefore sees Melon not just as a crypto investment management tool, but the infrastructure for cross-asset class investment management 3.0 of the future. Melonport AG delivered v1.0 of the Melon protocol in February 2019, and will subsequently wind down, handing control over to the Melon Council DAO, currently running on aragonOS.

The Melon protocol aims to enable participants to set up, manage, and invest in funds of digital assets in an open, competitive, transparent and decentralized way. Melon allows asset managers to create their own tokenized investment vehicles and define the key parameters (including fee structure, trading exchanges, asset universe, risk management, investors), which are in turn deployed to the blockchain and enforced by smart contracts, as opposed to being written in a fund prospectus and operated and controlled by intermediaries. Investors are thereby assured that the pooled digital assets will be managed and administered exactly as specified in the setup of the on-chain investment vehicle. This optimizes current processes in fund management to a large extent which leads to cost, time and operational savings.

Melon differentiates itself from other asset management protocols by being the first decentralized infrastructure of its kind and by allowing investors to keep control of their private keys enabling them to maintain custody of their own assets at all times. More specifically, Melon opens up the following opportunities:
Unlocks a wide variety of Web3 native use cases (eg. DAO treasury management, staking funds, prediction fund, crypto-kittie collectible fund, etc, etc)
Anyone, anywhere can set up an on-chain track record and build somewhat of a “CV” on-chain
Enables people to monetize their talent through management and performance fees
Lowers barriers to entry, giving investors access to a wide range of transparent investment opportunities (funds).
Creation and management of Web3 native investment vehicles (eg. Melon for the back and middle office, decentralized exchanges for trading venues, Compound and others for lending/borrowing, and Numerai for information sourcing)
On-chain risk management helps prevent the “bad behavior” in asset management
Smart contract level integration with DeFi to ideally become a one-stop shop protocol for everything DeFi. This produces functionality composability, and comes with substantial network effect.

Technology

The core functionality of the Melon protocol is captured by the concept of a “fund”. A collection of Melon fund smart-contracts are responsible for asset custody, NAV (Net Asset Value) calculations, performance, fee accounting, distributions, fund creation, redemptions, and trade execution. A Melon Fund is controlled by its Manager and bound by the pre-defined set of rules (embedded in smart-contracts) dictating how, and in what way the assigned Manager can invest. The Manager can place or take orders on the different decentralized exchanges integrated, and can claim their management/performance fees at any time. A Melon Fund may or may not only be open to whitelisted investors (at the discretion of the Manager); if it is, the Melon Fund is capable of attributing shares to addresses investing in the fund. The investors can invest in a Melon Fund and can redeem their shares from a Melon fund.

For better accessibility, users are able to interact with the smart contracts by downloading and locally running the Melon Manager interface for managing and investing in funds. It is also possible for anyone to create their own interface to the Melon smart contracts and white-label it. Melon features a web interface where investors can search and rank various investment funds by metrics like performance and assets under management (AUM) as well as a desktop application (Melon Manager Interface) that allows asset managers to run their fund’s operations securely. Each fund has its own front page with important details like date of inception, AUM, NAV, historical performance, description of the strategy, fee structure, and historical volatility. In addition, managers can generate custom reports, factsheets, reporting documents directly from their front page.

When a Manager creates a fund, they have to define a certain number of optional parameters: - Asset universe (assets the fund is allowed to trade and hold) - Fee structure (management and performance fee) - Exchanges the fund will be allowed to trade with - Risk management rule set (eg. max number of positions, max position size, etc) - Investor compliance (KYC and other requirements)

Once the parameters are chosen, the fund contract is deployed to the Ethereum network and has its own fund address. From that moment onwards, the fund can only behave as pre-specified. The rules specified by the contracts act like a fund prospectus, but instead of having auditors, accountants, fund administrators check and enforce those rules, the rules are enforced by the blockchain. This aims to reduce overhead and increase investor assurances. Managers can trade on decentralized exchanges that have been integrated with the Melon protocol, so far these include; OasisDex, various 0x relayers and Kyber Network have already been integrated.