Manifold Finance
During this bear market, we’ve seen a strong new narrative emerge that centres around. protocols which generate revenues and share these with token holders. We’re calling this period the ‘fees narrative’, and its being pioneered by the likes of GMX, SNX and others. In this article, I’ll introduce a new potential player in this space, FOLD, and how they aim to target the $650m+ MEV industry.
Project Overview
Manifold Finance ($FOLD) is a ‘middleware’ product aiming to improve connectivity between DeFi products. From trade execution to on-chain protocol extensions, Manifold Finance has built a scalable stack of DeFi products focusing on enhancing and providing additional functionality to DeFi protocols. Their first product protects users from MEV attacks.
Mechanics
To understand how Manifold works, you’ll need to know how MEV works and how it affects users on-chain.
So here’s a brief primer;
Maximal (formerly “Miner”) Extractable Value (MEV) is the value that can be extracted by changing the order of transactions within a block. In PoW chains, this power lies with miners — In PoS chains (soon to be ETH) with validators. These miners and validators have autonomy in deciding which transactions from the mempool—an off-chain space where pending transactions await confirmation - they’ll include in the blocks they mine.
Usually, these miners and validators optimise for fees, ordering transactions by the highest gas price, though the protocol doesn’t require transactions to be ordered this way. However, it's usually not miners hunting these opportunities; bots and arb traders seek out these opportunities and forward them to miners to be included in blocks. These traders bid large amounts of ‘Priority’ gas to strategically place their transactions in blocks or use off-chain extraction tools such as FlashBots.
Common Example: Sandwich Attacks
A sandwich attack is a variation of front-running whereby a predatory trader places two transactions, one before and another right after a pending victim transaction. MEV traders usually use these attacks to buy a token before a victim pushes the price up. After the victim’s buy goes through, the MEV bot will sell the token straight after, capturing the difference.
OpenMev
Now that you know what MEV is and how value is extracted from users on-chain, it's time to introduce Manifold officially. FOLD’s OpenMEV protects users from the attacks described above by taking advantage of the MEV opportunities and returning the funds + fees to initial users/traders. To do this, the platform uses a mix of MEV and smart contract techniques, which allows for the scaling of services like SushiSwap for end users. It can do this since it's built atop of SecureRPC, another $FOLD product. SecureRPC provides users with an accessible, convenient and secure infrastructure for transaction routing and execution:
Accessible: allow ordinary users to quickly discover the trading risk and value on the network.
Convenient: enable backrunning swaps automatically so that there are more opportunities to capture profits at a lower cost.
Secure: make transactions on the blockchain network more secure and private.
An easy way to understand SecureRPC is to imagine it as a tunnel where only FOLD is able to process/access the transactions which go through it.
OpenMev then provides a trading proxy engine used to protect transactions and maximise profits on the network by enabling private communication between traders and block producers.
How does it work in practice?
SushiSwap Integration Example:
The SushiSwap integration provides a service that realises a profit by transaction batching, for arbitrage, by controlling transaction ordering.
Before OpenMEV: Every user would send a transaction directly to the network mempool, thus giving away the arb, sandwich, and front running opportunities to MEV bots.
After OpenMEV: The OpenMEV matching engine matches all Sushi trades that enabled Sushi Guard, allowing the protocol to extract the MEV opportunities through this private communication channel.
Technical Explanation
Features of the router:
It’s gas efficient. Thus, trades will always cost less than they do now.
The back running trades are made on-chain and emit an event ‘SushiGuard’, meaning users can track how much the router has made from them, enabling Sushi to do account-specific reimbursements.
Value to Users
FOLD's products allow extra MEV opportunities to be returned to eligible traders. Whenever you submit a trade on SushiSwap, if your trade is eligible for getting its transaction cost refunded, you will get a notification if it is eligible for a rebate. If your trade is not eligible, it will be immediately submitted through a private RPC layer: you still benefit from a protected trade submission.
Value to Protocols
User experience on a protocol naturally improves (especially due to gas efficient trades), whilst these protocols also get a share in the revenue of the strategies.
Market Overview
So, how big of a problem is FOLD solving? Since 2020, MEV has amounted to a total of $550-650m on the Ethereum network alone. In the past week, there were ~$13.8m (Source). As well as Sandwich attacks (mentioned above), MEV results from liquidation attack liquidation attacks (i.e. forcing liquidations), replay attacks (cloning and front-running a victim's trade) and DEX arbitrage.
This is a massive opportunity for the FOLD team to capture. They've already begun forming integral partnerships to dominate this market on the ETH side (see below) and on any EVM chain with $AAVE (used for Flashloans).
Team, Investors and Partnerships
Team
Manifold was founded by Sam Bacha, a Yearn contributor and a very experienced & known builder in DeFi, having appeared on many shows/podcasts. He's super active in the TG and Discord.
The following names have contributed to or have been mentioned or contributed in the Manifold Repositories on Github:
Aldo Borrero (@aldoborrero)
Sandy Bradley (@sandybradley)
BMG (@brianmcgee)
Jonas Chevalier (@zimbatm)
I've also received note of a very prominent DeFi builder in this space joining the team in some capacity. Unfortunately, I can't release any information now, but you will likely be very impressed.
Investors
Manifold had one private sale round and a public sale round.
Private Sale:
Raised: $2,500,000 (1m tokens / 50% of supply)
Price: $2.50
Lock-up: 20% at the TGE, then 20% quarterly for 12 months
Public Sale:
MISO: $150.000 (50k tokens)
Price: $3.00
Lock-up: none
Performing both on-chain analysis and general research, we can discover a few things:
1) Cobie is one of the private round investors and currently the largest staker of FOLD
2) VCs involved are; Marshland Capital, Ascensive Assets, Genesis Block Ventures(GBV), Moonrock Capital, Spark Digital Capital, Magnus Capital, Rarestone Capital, Vendetta and Skynet Trading.
3) 0xMaki (not confirmed as an investor), from LayerZero and Aura Finance, has recently shown interest in the protocol and launched a forum to enable a Balancer Gauge.
Partnerships
Sushiswap
Manifold has had a long-term ongoing partnership with Sushiswap; as the second IDO on MISO, Sam knew the team as a yearn contributor. FOLD's OpenMev tech will be integrated with Sushi at the protocol layer, meaning all Sushi trades will go through the router. This ‘SushiGuard’ integration went live in December, but although the private RPC worked well, they had to rewrite the MEV bot and then the new router.
The router is scheduled to go live any day, the leading cause of all the recent hype:
FOLD has committed to only implementing backrunning into the SushiGuard routing contract. This ensures that users are never left worse off, which is impossible to guarantee with other forms of arbitrage, i.e. Sandwich Attacks.
Balancer
Balancer is an AMM which allows users to create liquidity pools with up to eight different tokens in any ratio.
Currently, there's no timeline or further updates on a Balancer x OpenMEV integration. But today, I noticed a forum post from 0xMaki, which aims to boost Manifold's on-chain liquidity, which is essential for its growth. Though I can't see a pool on Balancer having a significant effect since the main pool will likely remain on Sushi.
LayerZero
LayerZero is a trustless protocol that will enable users to send tokens or any message in a single transaction across applications that live on various chains.
This partnership bodes a lot of potential since LayerZero is seen as one of the most promising protocols in the space. Though like Balancer, there is no estimate on the timeline of an integration.
Other chains
The team were initially supposed to be moving onto Avalanche for integrations in February, but the new router had a longer than expected development time.
Tokenomics and Utility
Ticker: $FOLD
Blockchain Network: Ethereum
Max Supply: 2,000,000
Initial Market Capitalization: $1,500,000
Total Raise (All Rounds): $2,650,000
Public (MISO) Raise: $150,000
The FOLD token acts as a governance token that can be staked for a portion of platform revenue. Staked FOLD turns into xFOLD. All revenues earned by the platform go to xFOLD stakers. There are no team costs as the team are xFOLD stakers themselves, tying their earnings to the project's success.
72% of the $FOLD supply is already circulating. Seed tokens finished unlocking in June, and team tokens have a few more months to go.
Protocol Revenues
Based on currently volumes going through the Sushi platform ~c. $50m a day
Preliminary estimates range from $420,000 USD to $1,840,000 USD in profits monthly. This includes all chains that it is deployable to (chains in which Aave is also on).
Governance
FOLD's governance system uses an architecture of an ‘elected dictator’. Staked FOLD tokens delegate their protocol control to one address (the dictator), who offers rewards for support. Accounts participating in this regime may vote for a new ‘dictator’ by removing their support and reallocating it towards a new address.
Competitors
Gnosis Protocol - Gnosis launched CowSwap in 2021, a trading interface allowing users to buy and sell tokens using gas-less orders that are settled peer-to-peer among users or into any on-chain liquidity source while providing MEV protection.
Being a Swap rather than being integrated at the protocol level means CowSwap misses out on a lot of value captured by incumbents. CowSwap only
The future of Manifold Finance
The ETH2 Vision
The ‘merge’ has probably been the hottest topic in crypto (other than hacks) for the past few months. At the merge, Ethereum transitions from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus protocol. The move from a PoW to a PoS consensus means the network becomes secured by validators, who stake security deposits of 32 ETH and vote to come to a consensus on the state of the beacon chain.
Since it’s pretty expensive to become a validator, some entities offer a service where you can stake your tokens with them, and they'll share some of their fees with you. For example, Liquid Staking Protocols like LIDO allow you to deposit ETH with them but return you a token called stETH, which in theory can be used like ETH.
A critical difference between PoW and PoS lies in how PoS splits block building and validation into two distinct activities. The result is a new stakeholder group called the block builder. These builders are responsible for bundling transactions and sending them to validators for inclusion in a block. A third-party system called mev-boost then aggregates these blocks from a handful of builders and offers them to validators.
Block Building and the FOLD Vision
When ETH makes this transition, FOLD aims to become a block builder. Block builders and producers usually share in the MEV within blocks; thus, both prefer to process blocks with the highest MEV. Block builders with the most order flow can generate the highest MEV since they have a larger pool of transactions they're able to order.
With its router integrated with Sushi, and soon other DEXs plus “two of the top 5 MM” who have been trying out SecureRPC, FOLD gains a monopoly on using blocks which have originated from where OpenMEV is integrated.
FOLD further positions itself in a strong feedback loop, whereby other entities who control order flow are incentivised to share this flow with large block builders who are more likely to have their blocks accepted by block producers.
Now earlier, I also mentioned P2P as an investor in FOLD. P2P is the parent company of LDO, currently the largest block producer. Thus, you can imagine there are many ways the two may collaborate in the future.
Oracle Extractable Value
Similar to miners/validators, oracles also have updates to provide to the chain, specifically the price of an asset. Oracle prices can be tied to derivatives contracts, which rely on oracles for assessing the collateralization of assets and hence, liquidations. Bots who know when an oracle will update and to which price will have an advantage, allowing them to perform liquidations before other parties, earning the liquidation fees we call OEV.
DeFi protocols such as SNX, rely highly on these oracles, and FOLD founder Sam has mentioned interest in venturing into this area in the future.
Staking V2
In FOLD’s upcoming V2, the Vault Facility will be the entry point for staking and offers 3 ways to manage a FOLD position:
Continuous Strategies: yield-generating strategies that are either actively or passively managed. OpenMev is an example of an actively managed strategy which requires DevOps and monitoring.
Bonding Facility: an improved fork of OlympusDAO which provides the ability to collateralize different stablecoins and manage liquidity for the entire system
Validator Staking: a managed validator hosting platform for ETH2
Facility Overview
This is something I’ve spoken about with the team but is still under heavy development, so will update this section as time goes on!
Risks
Smart Contract Risk
As we've seen recently, platforms are vulnerable to hacks + bugs. This is likely the most significant risk for FOLD, especially being a protocol that integrates with others.
Mitigation: An audit was committed by yAcademy (created by Yearn Finance) and paid for by both Manifold and Sushiswap.
Liquidity
The protocol currently sufferers from a lack of liquidity; this makes it a little harder for larger buyers to attempt to accumulate as large buys/sells swing the price heavily.
The team is slowly adding liquidity and will likely find ways to use protocol revenues to increase the pool size.
Centralisation:
GitHub
Mitigation: regular off-site backups are performed in the event of GitHub deleting the manifoldfinance org
Anonymous team members:
Although Sam is doxxed, various members/contributors aren’t.
This issue is hard to avoid in this space, but it is positive to see a doxxed founder with more team members looking to dox in the future. It’s also great to see their level of commitment to building a product that hasn’t generated any revenue since its inception and has been through many cycles where token price has dropped immensely.
Thanks for taking the time to read; I also post threads on Twitter sometimes: https://twitter.com/0xMinerva