The Mango Vision

Mango intends to merge the liquidity and usability of CeFi with the permissionless innovation of DeFi at a lower cost to the end user than both currently provide. Towards this goal, Mango offers margin trading and perpetual futures along with decentralized governance to decide the future evolution. In the medium-term, the goal to rival centralized exchanges in trading volume is ambitious, but we see no substantial impediments for Mango Markets. In the long run, we believe a permissionless ecosystem will produce spectacular, outlandish and unpredictable innovations which will overtake centralized finance.

Why Mango Markets Will Succeed

The key ingredients for this vision are low latency, low transaction cost and full decentralization. We believe all three ingredients are necessary for the project to be viable and all three ingredients are finally available on Solana.

Latency

The Solana blockchain provides block times of roughly one second. Although one second is still noticeable, Solana's intended 400ms latency target approaches the limit of human perception.The obvious benefit of low latency is usability—most people get anxious waiting on the status of their transaction. But while reducing user anxiety is important, there is another, oft-ignored benefit of low latency: better liquidity. Liquidity providers' quote spreads are directly proportional to the time required to change the quote. The longer it takes to change a price quote, the larger the risk of significant market movement to the market maker and the wider his quotes must be. At the current one second latency, we believe the raw bid-ask spread can be competitive with centralized exchanges.

Transaction Costs

Low transaction costs are arguably the raison d'etre of finance. We believe a financial innovation must lower transaction costs to be a full improvement. Therefore, the cost per transaction on all Mango financial tools will be comparable to or lower than the costs in CeFi. We believe this must be true. Lower costs indicate efficiency and more efficient protocols and tools tend to win in the long run. It is not possible to escape fees—service providers (e.g. liquidators, insurance fund, developers) on Mango protocols must be compensated. However, Mango will err on the side of lower fees.

Decentralization

Trying to achieve competitive latency and cost by centralizing key components (e.g. the orderbook) will fail in the long run. Centralizing any component is a security risk and severely harms composability. Ultimately, the centralizer decides how other apps may interact with the centralized component and the centralizer neither has the incentive nor the bandwidth to allow all interested parties to participate in the improvements. As a result, centralizing key components gives up the immense upsides of permissionless innovation. Mango Markets will retain the upside.

No Presales, Decentralized Governance

The Mango Token will govern the protocol. The vast majority of MANGO will be locked in the DAO treasury to be distributed according to token holder wishes. That being said, our vision is that governance ought to reward the people who provide protocol services (e.g. liquidity providers, oracles) and the people who build new protocol services (e.g. developers, or other contributors). The commitment to distribute the largest portion of the DAO’s power and wealth to future contributors will encourage the most skilled and ambitious builders to join us. Finally, in accordance with the crypto ethos of transparency and equal access there will be no presale of tokens.

Ultimately, Mango intends to win the long game in financial services. Low latency makes our tools usable. Rock bottom fees makes Mango hard to compete against. Decentralization makes Mango hard to kill through centralized incompetence or malevolence. Open governance that allocates power and wealth liberally to builders, will attract the best people to build and govern the protocol. Finally, the permissionless nature will allow the millions of tiny experiments to take place that yield the life changing innovations. We're motivated and driven to build Mango according to this vision, and we hope you'll join us.

Margin Protocol

Highlights

Design

The initial margin protocol adds a borrowing and lending layer on top of the Serum Dex v3. The user owns a margin account which is then associated with a serum dex open orders account for each market in the group. The user may deposit any of the tokens included in the group and its value in the quote currency (typically USDT) is calculated using an oracle. This value is then used to determine how much a user may borrow. Since positions gained from margin trading are also treated as deposits, the user may take up to 5x leverage. Mango Markets does not charge any fees.

Risks

Negative equity accounts and socialization of losses

If the price of a user's collateral falls fast enough or the price of the borrowed tokens increases fast enough, the account may fall below 100% collateral ratio without a liquidator taking the position. In this case, funds are pulled from lending pools to bring the account to 101% coll. ratio. These losses are socialized across all lenders which may trigger a liquidation cascade if most lenders are also very close to being liquidated.

Oracle error

The Solana Flux Aggregator is also brand new in Solana and may have errors in the code. The centralized exchanges feeding the price may also have errors. Since all oracle price publishers are looking at the same centralized exchanges, price errors will affect all of them. This could trigger bad liquidations.

Illiquid deposits

There is a chance the user is not able to withdraw deposits because it's borrowed. This could be a problem for someone who needs liquidity immediately. The same issue applies to positions that are lent out—the user may not be able to close a position if the utilization rate is 100%. However, the protocol guarantees a 100% APY while the user waits to be able to withdraw.

Smart contract exploit

The code has been looked over by volunteers, but there has not been a formal audit. While there are bounties offered for responsible disclosure of potential vulnerabilities, there is no guarantee that hackers will choose the bounty over a profitable exploit.

Perpetual Futures (WIP)

Highlights