Our investment in Mangrove, a new type of DEX.

For someone who follows our posts (Monday Capital thesis), this will be an obvious match for our thesis.

The team at Mangrove is leveraging the power of Blockchain technology to create a new type of exchange. A DEX that orders are Programmable. Meaning, when you place an order, what you set is a “callback” function for when this order is matched. What happens in that order when it’s matched, it’s what makes the magic come to life. The only thing you are required to provide is enough “gas” to cover the execution of the logic when that happens + some “Fee” to cover the expenses of the maker. If the transaction fails, then no harm is done; you lose the gas. If it does, then everyone is happy.

Some use cases

- Requires no capital to be locked when a user places an order to “sell” some tokens that are now earning yield on Compound.

Since there is no capital locked, the tokens locked on Compound are kept making the profit from the yield. This will only stop when the order gets matched. Then, the “callback” function should ask the user to close the position on Compound and fill the order. If the user decides to do so, then everything is fine. Money moves out of Compound and fills the order. If they decide that this is not a good idea, they cancel the order, pay the penalty and move on.

- Positions are not exclusive (one can have multiple positions with the same asset). Since there is no actual capital locked in the positions, a MM can have various orders at multiple levers and decide based on the Market when they want to sell. This makes for a lot more liquid and dense order books.

- Allows for positions that are not backed by actual capital. Meaning that if you need to fill an order and have no capital, you can fill the order by lending over another protocol (or a flash loan).

There are, of course, issues that people that have been monitoring the crypto markets will bring up: ghost orders, failed orders, etc. This is good for the markets, and it exists in traditional markets forever. For example, ghost orders exist in the stock market; they depend on front-running and rely on “data center proximity” to work. Failed orders (filled but did not settle) account for about 8% of the NYSE. This kind of stuff makes markets more efficient.

What Mangrove brings to the table is the maturity and tooling that market makers need to expand their offerings. Blockchain and smart contracts are relatively new technologies that need experimentation and iteration to work. Programmable orders are a nuance that leverages blockchain technology to its fullest. We are super excited to be part of Mangrove from their first steps and look forward to seeing what Vincent from Mangrove and the team of Atka will launch soon.

You can watch this spot-on presentation from Vincent here.