VMEX aims to be the central hub for users to borrow tokens with their yield-earning LP and vault tokens as leverage. As such, the ability to calculate fair and hack-resistant LP token pricing is critical to the health of the protocol. In the past, there have been numerous hacks targeting the malleability of LP token prices due to swaps along the AMM curve. For instance, Warp Finance was hacked for about 7.8M of DAI due to an attacker taking out a flashloan to swap into an AMM pool, arbitrarily raising the value of the LP token as collateral, and then draining the borrowable assets.

In response, Alpha Homora has pioneered the idea of “[fair reserves](https://blog.alphaventuredao.io/fair-lp-token-pricing/),” which assumes that the fair price of the LP token should not change as tokens are swapped along the curve, but rather depend on K, the invariant of the AMM curve function. They showed that their pricing formula works for Uniswap V2 AMMs, and the idea was later applied to [Balancer pools](https://docs.balancer.fi/concepts/advanced/valuing-bpt/valuing-bpt.html). However, the formulas derived in the aforementioned articles only apply to the specific invariant curves of the AMM protocol. There did not yet exist a method to price LP tokens with solidly’s $r_0r_1^3 + r_1r_0^3 = K$ invariant, which is the same invariant used by Velodrome for their stable pairs. Therefore, to be able to fairly price the Velodrome stable pairs, we at VMEX finance have developed the following formula.

$$\frac{2\sqrt[4]{\frac{Kp_0^3p_1^3}{p_0^2+p_1^2}}}{L} $$

In the above formula, K is the invariant constant, p0 is the fair price of token 0, p1 is the fair price of token 1, and L is the total supply of LP tokens.

The proof for the formula is as follows:

First, let's write the invariant (1) where r0 and r1 are the reserve amounts, or the current amount of token 0 and token 1 in the pool, respectively

$$(1)\quad   r_0r_1^3 + r_1r_0^3 = K$$

Next, let's write the condition for fair reserves (2)

$$(2)\quad   p_0r_0' = p_1r_1'$$

In this formula, $p_0$ and $p_1$ are the "fair" prices of tokens 0 and 1. The fair price would be the price returned from Chainlink, or some other central source of truth, not the current price that the AMM is reporting. We also denote the reserves in the pool $r_0'$ and $r_1'$ with the prime since it represents the exact amounts of each token in the pool such that the reserves amounts are fair. 

Rearranging the terms in (2) we get the following

$$(3)\quad   r_1' = \frac{p_0r_0'}{p_1}$$

Now, plugging in (3) to (1) and simplifying, we get the below formulas

$$r_0'^3\frac{p_0r_0'}{p_1} + \left(\frac{p_0r_0'}{p_1}\right)^3r_0' = K$$

$$\frac{p_0}{p_1}r_0'^4 + \left(\frac{p_0}{p_1}\right)^3r_0'^4 = K$$

$$r_0'^4 \left(\frac{p_0}{p_1} + (\frac{p_0}{p_1})^3\right) = K$$

$$(4)\quad r_0' =\sqrt[4]{\frac{Kp_1^3}{p_0^3+p_0p_1^2}}$$

By symmetry of $r_0$ and $r_1$, we can also derive

$$(5)\quad r_1' =\sqrt[4]{\frac{Kp_0^3}{p_1^3+p_1p_0^2}}$$

Now, the equation to calculate the price per token would be the total value locked in the pool divided by the total supply of LP tokens (L), shown in equation (6)

$$(6)\quad \frac{p_0r_0'+p_1r_1'}{L}$$

Plugging in $r_0'$ and $r_1'$ from equations (4) and (5) into equation (6), and simplifying, we are left with the final equation for the price of a stable swap LP token:

$$\frac{2\sqrt[4]{\frac{Kp_0^3p_1^3}{p_0^2+p_1^2}}}{L}$$

# Implementation

*Note: returned price should have same number of decimals as chainlink (8 if OP, 18 on mainnet)*

VMEXOracle.sol
```
/**
     * @dev Gets an asset price for a velodrome token
     * @param asset The asset address
     **/
    function getVeloPrice(
        address asset
    ) internal returns (uint256 price) {
        uint256[] memory prices = new uint256[](2);

        (address token0, address token1) = IVeloPair(asset).tokens();
		(, , , , bool stable, , ) = IVeloPair(asset).metadata();  

        if(token0 == ETH_NATIVE){
            token0 = WETH;
        }
        prices[0] = getAssetPrice(token0); //handles case where underlying is curve too.
        require(prices[0] != 0, Errors.VO_UNDERLYING_FAIL);

        if(token1 == ETH_NATIVE){
            token1 = WETH;
        }
        prices[1] = getAssetPrice(token1); //handles case where underlying is curve too.
        require(prices[1] != 0, Errors.VO_UNDERLYING_FAIL);

        price = VelodromeOracle.get_lp_price(asset, prices, BASE_CURRENCY_DECIMALS, stable); //has 18 decimals

        if(price == 0){
            return _fallbackOracle.getAssetPrice(asset);
        }

        return price;
    }
```

VelodromeOracle.sol
```
// SPDX-License-Identifier: MIT
pragma solidity >=0.8.0;

import {vMath} from "./libs/vMath.sol";
import {FixedPointMathLib} from "../../dependencies/solmate/FixedPointMathLib.sol"; 
import {IVeloPair} from "../../interfaces/IVeloPair.sol"; 
import {IERC20} from "../../interfaces/IERC20WithPermit.sol"; 


library VelodromeOracle {
	using FixedPointMathLib for *; 
		
	/**
     * @dev Gets the price of a velodrome lp token
     * @param lp_token The lp token address
     * @param prices The prices of the underlying in the liquidity pool, there must be 18 decimals
	 * @param stable is the pair stable or volatile
     **/
	//@dev assumes oracles only pass in wad scaled decimals for ALL prices
	function get_lp_price(address lp_token, uint256[] memory prices, uint256 priceDecimals, bool stable) internal view returns(uint256) {
		IVeloPair token = IVeloPair(lp_token); 	
		uint256 total_supply = IERC20(lp_token).totalSupply()* 1e18 / (10**IERC20(lp_token).decimals()); //force to be 18 decimals
		(uint256 d0, uint256 d1, uint256 r0, uint256 r1, , ,) = token.metadata(); 

		r0 *= 1e18 / d0; 
		r1 *= 1e18 / d1; 
	
		if (stable) {
			return calculate_stable_lp_token_price(
				total_supply, 
				prices[0],
				prices[1],
				r0,
				r1,
				priceDecimals
			); 
		} else {
			return calculate_lp_token_price(
				total_supply, 
				prices[0],
				prices[1],
				r0,
				r1
			); 
		}
	}
	
	//where total supply is the total supply of the LP token
	//formula solves xy = k curves only
	//assumes that prices passed in are already properly WAD scaled
	function calculate_lp_token_price(
		uint256 total_supply,
		uint256 price0,
		uint256 price1,
		uint256 reserve0,
		uint256 reserve1
	) internal pure returns (uint256) {
		uint256 a = vMath.nthroot(2, reserve0 * reserve1); //ends up with same number of decimals as reserve0 or reserve1 without loss of precision, which should be 18
		uint256 b = vMath.nthroot(2, price0 * price1); //same number of dec as price0 or price1, should be chainlink agg (op: 8)
		uint256 c = 2 * a * b / total_supply; //must end up as num decimals as prices since total supply is guaranteed to be 18

		return c; 
	}
	
	//solves for cases where curve is x^3 * y + y^3 * x = k  
	//fair reserves math formula author: @ksyao2002
	function calculate_stable_lp_token_price(
		uint256 total_supply,
		uint256 price0,
		uint256 price1,
		uint256 reserve0,
		uint256 reserve1,
		uint256 priceDecimals
	) internal pure returns (uint256) {
		uint256 k = getK(reserve0, reserve1); 
		//fair_reserves = ( (k * (price0 ** 3) * (price1 ** 3)) )^(1/4) / ((price0 ** 2) + (price1 ** 2));  
		price0 *= 1e18 / (10**priceDecimals); //convert to 18 dec
		price1 *= 1e18 / (10**priceDecimals); 
		uint256 a = FixedPointMathLib.rpow(price0, 3, 1e18); //keep same decimals as chainlink
		uint256 b = FixedPointMathLib.rpow(price1, 3, 1e18);  
		uint256 c = FixedPointMathLib.rpow(price0, 2, 1e18);  
		uint256 d = FixedPointMathLib.rpow(price1, 2, 1e18);  

		uint256 p0 =k * FixedPointMathLib.mulWadDown(a, b); //2*18 decimals
		
		uint256 fair = p0 / (c + d); // number of decimals is 18

		// each sqrt divides the num decimals by 2. So need to replenish the decimals midway through with another 1e18
		uint256 frth_fair = FixedPointMathLib.sqrt(FixedPointMathLib.sqrt(fair  * 1e18) * 1e18); // number of decimals is 18
		
		return 2 * ((frth_fair * (10**priceDecimals) ) / total_supply); // converts to chainlink decimals
	}

	function getK(uint256 x, uint256 y) internal pure returns (uint256) {
		//x, n, scalar	
		uint256 x_cubed = FixedPointMathLib.rpow(x, 3, 1e18); 
		uint256 newX = FixedPointMathLib.mulWadDown(x_cubed, y); 
		uint256 y_cubed = FixedPointMathLib.rpow(y, 3, 1e18); 
		uint256 newY = FixedPointMathLib.mulWadDown(y_cubed, x); 
	
		return newX + newY;  //18 decimals
	}

}
```


Derivation of the Fair Pricing of Velodrome's Stable Swap Pools

Fair Pricing of Velodrome's Stable Swap Pools


## Introduction

[yAudit](https://yaudit.dev/#) was recently asked by [VMEX](https://vmex.finance/) to assess the protocol’s smart contracts. The contracts of the VMEX Repo were reviewed by 3 auditors over 5 weeks. As an added layer of security, Fellows from yAudit Block 5 additionally joined the review.

The team at yAudit found an overall satisfactory result which has now been made publicly available **[here](https://reports.yaudit.dev/reports/06-2023-VMEX/#top)**.

The yAudit team ranked their risk assessment methodology by measuring the likelihood of a security incident and the impact of such an incident.

Findings are broken down into sections by their respective impact:

- Critical, High, Medium, and Low impact - These are findings that range from attacks that may cause loss of funds, impact control/ownership of the contracts, or cause any unintended consequences/actions that are outside the scope of the requirements
- Gas savings - Findings that can improve the gas efficiency of the contracts
- Informational - Findings including recommendations and best practices

## Audit Results

32 contracts were inspected and analyzed by yAudit engineers, who found the following:

- Two Critical
- Seven High Findings
- Six Medium Findings
- 12 Low Findings
- Seven Gas Savings Findings
- 24 Informational Findings

## Closing Thoughts

This is an important step for VMEX as we push forward to our launch. Security of the protocol will be a continuous effort, furthered by additional smart contract audits — such as our current audit competition on Hats Finance. Details of the Hats competition will be announced in the near future. 

Stay tuned on [Twitter](https://twitter.com/vmexfinance) and join [Discord](https://t.co/PdELPhalhQ) if you have any comments or questions for the team.

Special thanks to Pandadefi, Sjkelleyjr, and Blockdev for their dedication and hard work.

**About yAudit**

yAudit is an auditing collective made up of the best auditors hand-selected from the yAcademy training program. Delivering high quality smart contract security audits under the yAcademy brand since 2021, clients include Yearn, Olympus DAO, Nouns DAO, Superfluid, Timeless Finance, and Get Protocol.

**About VMEX Finance**

VMEX is a meticulously designed over-collateralized lending protocol that utilizes an isolated pool structure and embedded risk management framework to support the responsible expansion of collateral types in DeFi. The novelty of VMEX lies in its ability to support a wider range of assets and risk profiles than traditional lending protocols. Our primary goal is to substantially enhance the integration of assets into DeFi by minimizing the obstacles for new assets to access deep and efficient capital markets.

VMEX underwent a security audit from yAudit. Thirty-two smart contracts were analyzed, and these were their findings.

VMEX Announces Security Audit with yAudit

We are excited to announce our upcoming audit competition with [HATS Finance](https://hats.finance/). In this competition, participants worldwide will be searching for vulnerabilities in the [VMEX’s](https://vmex.finance/) codebase, with prizes awarded based on the severity of each vulnerability found. We’re excited to leverage HATS’ network of security researchers committed to developing a safer infrastructure for all users in the DeFi ecosystem. 


**The audit competition starts June 19, 2023, 18:00:00 GMT, and ends July 3, 2023, 18:00:00 GMT.** 


### About the Competition
Starting June 19th, a new vault will open in the Hats dApp — “VMEX Finance Audit competition.” Participants can check the contracts in scope and start searching for bugs.

### Submission Guidelines
Submissions should be made using the Dapp in the “VMEX audit competition” vault.
You can submit one on-chain submission mentioning all issues found on the repo.
Please send a plain ASCII following the following format:

**[TITLE]**: a short description of the issue.

**SEVERITY** (either High, Medium, or Low; see the rules)
- Submission should contain at least one test demonstrating the problem and, if possible, a possible fix.

Report template:

Description - Describe the context and the effect of the vulnerability.

Attack scenario - Describe how the vulnerability can be exploited.

Attachment -
Proof of Concept (PoC) File: You must provide a file containing a proof of concept (PoC) that demonstrates the vulnerability you have discovered.

Revised Code File (Optional): If possible, please provide a second file containing the revised code that offers a potential fix for the vulnerability. This file should include the following information:

- Comment with a clear explanation of the proposed fix.
- The revised code with your suggested changes.
- Any additional comments or explanations that clarify how the fix addresses the vulnerability.

Recommendation - Describe a patch or a potential fix for the vulnerability.
- Due to the native of the audit competition mechanism, the report will not be encrypted.

### Evaluation Guidelines

$45K allocated for High Severity tasks - with a $15K cap for one high issue

$12K allocated for Medium Severity tasks

$1.5K allocated for Low Severity tasks

$1.5K allocated for Gas Savings tasks

- The prize pools are divided based on the number of eligible submissions. For example, suppose there is one high-severity issue and four medium-severity issues. In that case, submitters of the medium-severity vulnerabilities will be awarded $4k each, and the submitter of the high-severity vulnerability gets $15k
- You can submit one on-chain submission mentioning all issues found on the repo. Please make sure you make separate issues on the repo
- Participants submit one issue at a time in the Github repository
- The first participant to submit an issue following guidelines gets a bounty for that issue (issues already received or out of scope will not receive a reward)
- Issues that we are aware of (as witnessed by any open issues in the repository) will not be eligible for the bug bounty

### Default severity description:
**High severity description**

Issues that lead to the loss of user funds, such issues include:
- Direct theft of any user funds
- Long-term freezing of user funds
- Theft or long-term freezing of unclaimed yield or other assets
- Protocol insolvency

**Medium severity description:**

Issues are issues that lead to an economic loss but do not lead to direct loss of on-chain assets. Examples are:
- Gas griefing attacks (make users overpay for gas)
- Attacks that make essential functionality of the contracts temporarily unusable or inaccessible
- Short-term freezing of user funds

**Low severity description:**

Issues where the behavior of the contracts differs from the intended behavior (as described in the docs and by common sense), but no funds are at risk.

Reporters will not receive a bounty for any known issue, such as
- Issues mentioned in any previous audit reports
- Vulnerabilities that were already made public (either by HATs or by a third party)
- “Centralization risks” that are known and/or explicitly coded into the protocol (e.g. an administrator can upgrade crucial contracts and steal all funds)
- Attacks that require access to leaked private keys or trusted addresses
- Issues that are not responsibly disclosed (issues should typically be reported through our platform)
- Attacks related to incorrect data supplied by third-party oracles
- Best practice critiques

**Gas saving description:**

This competition will reward participants with ideas to maximize gas savings.

The prize pool will reward $1.5k.

The guidelines are as follows:
- Submissions should be forks of our repository, with the test suite unchanged
- Optimizations should use solidity (no inline assembly)
- Entries will be measured on the total average amount of gas used for each function (i.e. the sum of all numbers in the “avg” column), as reported by the hardhat-gas-reporter when running the tests in the repository

### Closing Thoughts
The security and protection for users in the DeFi ecosystem is a top priority for VMEX, and the opportunity for collaboration with HATS Finance offers a great way for our community to contribute towards the development of a safer, more secure environment for DeFi users across the industry.

We'll share important updates on our [Twitter](https://twitter.com/vmexfinance) and [Discord](https://t.co/PdELPhalhQ) throughout the audit competition. Stay tuned for more details.



VMEX Finance announces audit competition with HATS Finance, leveraging their network of White Hat Hackers

VMEX Launches Audit Competition

### VMEX Finance’s Road to Mainnet

VMEX is a meticulously designed over-collateralized lending protocol that utilizes an isolated pool structure and embedded risk management framework to support the responsible expansion of collateral types in DeFi.

Our primary goal is to substantially enhance the integration of assets into DeFi by minimizing the obstacles for new assets to access deep and efficient capital markets. Our initial focus is on enabling interest-earning LP positions containing high quality assets as collateral. This is not currently available at scale at any existing lending protocol.

2023 is proving to be a successful year for VMEX Finance. From the Goerli Testnet launch to a successful first raise and growing our VMEX team, we are looking forward to doubling down on the success with another year of exciting milestones. Let’s look at what the team has accomplished as we prepare for mainnet.

### Testnet
Feburary 2023, VMEX Beta went live on Goerli [Testnet](https://twitter.com/vmexfinance/status/1623731476125868032?s=20). 


### Risk Framework & Tools

At VMEX, we believe that the foundation of a secure lending protocol hinges on robust risk management and Oracle security. This belief forms a critical component of our mission, as we strive to broaden the spectrum of assets available for use in lending protocols.

There are two high-level risk categories to consider when supporting a given asset: oracle risk and market risk. With that mind, we have developed two risk tools that are essential to VMEX’s ability to safely support higher risk assets: 1. Oracle attack simulator, and 2. Asset market risk simulator. Upon completion, we will share an in depth look at both of these tools.

### VMEX Seed Round

We have had participation from MetaCartel Ventures, Rana Capital, and GuanxiDAO and opened round to [DegenScore](https://degenscore.com/cafe/opportunities) Beacon Pass holders and [LobsterDAO NFT holders](https://twitter.com/10b57e6da0). We are in the process of closing our seed round so watch for updates on our [Twitter](https://twitter.com/vmexfinance).

### Growing the team

The VMEX core team is expanding! Since the Goerli launch, we’ve expanded our Engineering and Marketing resources. The VMEX roster follows:

- 2 Product & Growth
- 6 Engineers (combination of FT and PT)
- 1 Marketing 

We value community governance and ecosystem contributors who share our vision. If you’re interested in contributing to VMEX, join our [Discord](https://www.notion.so/c04fc897b2574b1b81d4ccb4a6810d26) and get involved.

### Security Audits with yAudit

The beauty of DeFi lies in its open source and interoperable nature. However, the very features that make DeFi so compelling also drastically increase the potential for exploits. As a result, undergoing both formal security audits and crowd sourced audit competitions is a crucial step to securing a protocol. 

We began our audit with YAudit on April 11th and will share the full report and learnings when it’s complete. We will also launch an audit competition with Hats Finance mid June. Watch for updates on our [Twitter](https://twitter.com/vmexfinance).

### Events and Conferences

VMEX is building out its 2023/2024 conference schedule, with a focus on strengthening the VMEX Community. In addition to increasing user engagement, the team is increasing attendance at in-person events to fuel human interactions and show that behind VMEX, there are individuals who work with passion and enthusiasm.

### Closing Thoughts

What has been achieved thus far is a testament to VMEX’s unparalleled versatility and dedication to the mission. Each year we will drive towards a new horizon. 2023 was focused on building out the protocol, and the remainder of the year through 2024, will be focused on our mainnet launch and integrating this infrastructure with the DeFi community.

VMEX Finance shares a timeline of milestones as the team approaches Mainnet.

Looking Ahead: VMEX's Road to Mainnet

VMEX is a modular lending protocol that uses a risk isolated lending pool structure to achieve one simple goal: maximizing flexibility. Legacy lending protocols like Aave and Compound are no doubt great for low risk lending, but their design inherently limits their ability to support assets with a wide variety of risk profiles.

This has been observed with Aave’s recent [governance](https://app.aave.com/governance/proposal/125/) decision to freeze volatile assets due to risk concerns. Instead of reducing risk by simply not supporting “higher risk” assets, we believe VMEX can mitigate risk with its isolated pool structure — and importantly by making risk clear to end users.

VMEX’s structure also allows for experimentation with special purpose tranches and a suite of other novel features. A few examples:

1. The creation of permissioned tranches (KYC, etc.)
2. The addition of a modular, tranche native stablecoin with fixed rate, variable duration borrowing. 
3. Creation of 0-governance robo-tranches using 3rd party [risk-oracles](https://vmex.finance/blog/VMEX-B.Protocol-Partnership).

### Permissioned Tranches
As new types of participants and assets are brought on chain, particularly real world assets (RWA), it follows that the individuals and protocols that want to interact with these products will have to follow US regulatory requirements (KYC). Tokenizing real world assets opens up a new source of yield for crypto users, and as with any interest bearing on-chain asset, users will want access to liquidity against it. 

For this reasons, VMEX allows tranche admins to set address whitelists and blacklists to restrict which users can participate in a given tranche. To help facilitate this, VMEX plans to integrate with a 3rd party protocol to manage the KYC process, so users can simply reference an API or managed list. For example, a protocol that offers access to tokenized treasury bills could create a VMEX tranche, enable the assets as collateral, and allow their KYC’d users to borrow and lend in the pool.

### Modular Stablecoins
One of the largest problems faced by lending protocols is generating sufficient stable coin liquidity to service the demand to borrow it. Protocols default to spending token emissions to attract liquidity, which can be very costly and wasteful. As seen in Rari Fuse, many pools struggled to bootstrap sufficient USD pegged asset (the most popular assets to borrow) deposits to service demand.

Creating a typical platform native stable, such as Aave’s GHO, to service this demand would not be compatible with a risk isolated, permissionless structure. A platform native stable couldn’t be minted into ANY pool, as that would open up a very easy attack vector. If a stable coin is going to mint unbacked tokens into a lending pool, it is inherently absorbing the risk of that pool and all collateral in it. 

For that reason, a modular and permissionless structure for a stable coin is more fitting to service the use case — offering potential partners a complete solution to capitalize their assets. This structure could eventually enable pool admins to launch their own stable coin with any collateral they want enabled and with a (effectively) fixed lending rate. A lot more on this to come.

### Robo-tranches
Leveraging on-chain sources of risk data allows for VMEX to transparently assign verifiable risk scores to assets. With risk scores in place, tranche and asset configurations can be determined without the need for governance. Clear procedures can be put in place for downgrading assets over time and even delisting. This already happens today with 3rd party risk assessors being contracted by lending protocols to provide guidance and create governance proposals. With the ability to start small using individual VMEX tranches, automating the parameter adjustment process can be fine tuned in a lower risk, but still very live environment.

We would love to hear feedback and novel feature ideas from the community! Make sure to join our [Discord](https://t.co/P6NNu0f8dh) and follow us on [Twitter](https://twitter.com/vmexfinance) to stay up to date!

Novel Features Enabled by VMEX’s Isolated Tranche Structure

### Overview
VMEX is excited to partner with [B.Protocol](https://www.bprotocol.org/) to integrate their newly created on-chain [Risk Oracle](https://twitter.com/bprotocoleth/status/1610619775159336960?s=20&t=93SBjUaIFzi4gOAieVAuDA). B.Protocol's on-chain Risk Oracle provides objective pieces of information about an asset’s risk profile in a transparent and decentralized manner.

By leveraging on-chain risk oracles, VMEX can create a transparent, robust, and automated risk management system that reduces the need for users to trust the platform’s risk management capabilities. Read below for an overview of the integration, VMEX’s risk management framework, and future use cases.

### Initial Use Case
Most lending protocols only assess the risk of an asset at the time it’s added, or on specific request — often retroactively. The lack of active risk management exposes lending protocols to additional and ongoing risks that can be easily mitigated by active and transparent monitoring of key risk parameters.

B.Protocol’s on-chain Risk Oracle for key risk parameters — asset volatility, current DEX liquidity, and historical DEX liquidity — enables VMEX to transparently assign risk scores to assets. With this system in place, asset risk scores will dynamically update with changes in an asset’s risk profile, allowing VMEX to effectively adjust asset risk parameters if their risk profile erodes (or vice versa). In summary, by leveraging on-chain risk oracles VMEX can: 

- Effectively evaluate the risk of a given asset and dynamically adjust asset specific risk parameters.
- Make an asset’s risk and corresponding risk inputs clear to end users.
- Evaluate the risk of new assets added to the protocol with little overhead and input, allowing VMEX to safely scale the base of supported assets.
- Downgrade or upgrade assets between VMEX managed tranches.

### VMEX’s Risk Scoring Framework
When evaluating the risk of an asset, VMEX evaluates three main questions: 

1. Are the limitations to the protocols ability to liquidate an asset due to on-chain liquidity or volatility? 
2. How sticky is the on-chain liquidity for an asset?
3. How susceptible to manipulation is an assets price oracle?

With the above in mind, we have developed VMEX’s risk management framework, which is divided into three major categories: Market Risk, Liquidity Risk, and Oracle Risk. 

Based on predefined and data driven cut-off points, VMEX aggregates the individual risk parameters to create a holistic view of an assets on-chain risk as it pertains to a lending protocol. More details on VMEX’s risk framework will be shared in an upcoming post.

### Future Use Cases
VMEX’s initial integration with B.Protocol’s Risk Oracle is meant to demonstrate an early and simple use case: providing transparent and verifiable data about an asset's risk to end users.

As the information supported by B.Protocol's Risk Oracle expands, the next evolution of our integration will focus on leveraging on-chain data provided by risk oracles to make on-chain and automated decisions. A few use cases we are evaluating are:

- Allowing for fully permissionless asset listing if an asset exceeds a governance pre-determined risk score.
- Setting default risk parameters (supply/borrow caps, LTV, etc.) for new assets listed based on their risk score.
- Robust and transparent scoring of VMEX tranches based on the assets included in them.
- The creation of “Robo-tranches” based on an asset's risk score.

### About B.Protocol
The idea of this new DeFi primitive that publishes risk rating on-chain doesn’t come from a void. B.Protocol's community was founded in mid 2020 (after “Black Thursday” events) with one main goal — providing safer ways for the DeFi ecosystem to scale. 

Since inception, B.Protocol has launched a liquidation [backstop](https://app.bprotocol.org/) product — a robust liquidation engine that enables lending platforms to better secure their lenders’ funds, minimize the potential of accruing bad debt in the protocol, and facilitate better capital efficiency for borrowers. 

Additionally, after the Luna/UST crash, the B.Protocol team launched [RiskDAO](https://twitter.com/Risk_DAO) together with 1kx research arm and other researchers and developers. RiskDAO is dedicated to providing open-source tools, dashboards, and monitoring systems that give better transparency into lending platforms, stable coins, and alt-L1s and L2 networks.

VMEX is excited to partner with B.Protocol to integrate their newly created on-chain Risk Oracle! 

VMEX <> B.Protocol On-Chain Risk Oracle Integration

If you haven't yet read VMEX Token Economics Part 1: Distribution, be sure to check it out [here](https://vmex.finance/blog/VMEX-tokenomics-part1/).

In part two of the series we propose a system for how tokens, once distributed to markets, are delivered to depositors of those markets and how the token and protocol will be balanced. There are a three core principles that informed this design:

1. Simplicity for users
2. Holding is just as good as locking
3. Rewarding users for consolidating their borrowing activity into VMEX

### VMEX Boost Points
1. **Boost Balance NFT:** Holders of VMEX, VMEX LP, and other approved positions will accrue Boost Points to a Boost Balance NFT. Boost Points accrue OVER TIME, starting at 0 and counting up.
2. **Locker NFT:** Holders can also mint a VMEX Locker NFT with immediate Boost Point value. When minting a locker NFT, Boost Points are earned IMMEDIATELY and decay over time.

The sum of the boost points across all of an accounts relevant NFTs will be their total Boost Points.

![Boost-Image](https://i.ibb.co/92tSR3x/Boost-Image.png)

![VMEX-Locker-vs-Held](https://i.ibb.co/gmjmnrh/VMEX-Locker-vs-Held.png)

### Boost Balance NFT
The goal of the Boost Balance NFT is to allow committed users to maximize their share of rewards without having to commit to locking up tokens. Boost Balance NFT’s also allow for users to be rewarded for positive behavior, like holding LP positions. With VMEX’s Boost Balance NFT, the longer a user holds VMEX the more Boost Points they earn and ultimately the more proportional rewards they earn.

Any address can mint a VMEX Boost Balance NFT and assign it to their account as their accrual NFT. Periodically snapshots will be taken and the Boost Points parameter on the NFT will be updated based on the addresses holdings. The more VMEX, VMEX LP, and other Boost Eligible Assets (BEA) an address holds the faster it will accrue Boost Points to its NFT, since 1 VMEX held for 1 year earns 1 Boost Point. Conversely, if an address reduces its BEA holdings, the Multiplier Points on the associated NFT will be reduced. The reduction rate is a maximum of ~15% per day until the NFT’s total boost points matches what it would have been if they had their current BEA balance since the inception of the NFT (described in more detail below).

![Boost-Parameters](https://i.ibb.co/7rz0s6V/Boost-Parameters.png)

**User Process:**
1. Mint a Boost Point NFT with a minimum value of 10 Boost Points (Free!).
2. Configure for a given address an “active” Boost Points NFT. There can only be one per address. 
3. As Boost Point snapshots occur, the Boost Points parameter on their NFT will be updated.  

The Boost Points system was designed to be impactful but still simple. Despite the seemingly complicated calculations underlying the mechanism, the user experience should feel intuitive. 

If a user keeps the same BEA Balance or increases their balance over time, their Boost Points will continue to accrue. If they reduce their BEA Balance (remove VMEX from their address, close LP positions, etc) their Boost Points may decrease for a short period before starting to increase again.  

The chart below shows an example of an address starting with 1000 BEA Balance then going to 4000 -> 1500 -> 2000 -> 1000 over a span of 200 days

![Boost-Balance-Over-Time](https://i.ibb.co/nc5YwRq/Boost-Balance-Over-Time.png)
![Locker-Legend](https://i.ibb.co/JyNbFDf/Locker-Legend.png)


### Boost Locker NFTs
Users will also have the option to lock VMEX to immediately acquire Boost Points. Anyone can mint a Boost Locker NFT by depositing VMEX to a contract and choosing a lock duration up to 720 days. Any holder of a VMEX boost locker NFT will receive Boost Points equal to: 

![Screen-Shot-2023-01-17-at-1-56-20-PM](https://i.ibb.co/NTSQrP6/Screen-Shot-2023-01-17-at-1-56-20-PM.png)

When Current Date passes Unlock Date, the full contributed amount of VMEX during mint can be redeemed. NFTs can be redeemed early, but users will forfeit a portion of their initial contributed value. The amount that can be redeemed early is based on the following formula:

![Screen-Shot-2023-01-17-at-1-56-28-PM](https://i.ibb.co/xG9T7mx/Screen-Shot-2023-01-17-at-1-56-28-PM.png)

For example, 5,000 VMEX locked for 360 Days will count towards 2,500 Boost Points and can be immediately redeemed for 1,250 VMEX.

![Lock-vs-Redeem](https://i.ibb.co/DpRcpsJ/Lock-vs-Redeem.png)

All forfeited VMEX from early redemptions will stay in the locked pool increasing redemption value for remaining lockers.

![Redemption-Parameters](https://i.ibb.co/3CWhVCm/Redemption-Parameters.png)

### Boost
The mechanism used to calculate a users boost (earning weight) is similar to Curve’s boost mechanism but will use an address’s total Boost Points in place of veCRV balance. Depositors in VMEX markets can earn up to a 2.5x boost on their liquidity deposited in VMEX markets by acquiring Boost Points.

### Formula

![boost-equation-1](https://i.ibb.co/6v7Ht2M/boost-equation-1.png)

The goal of the boosted reward mechanism is two fold: 

1. Protect against mercenary capital by rewarding committed and loyal users.
2. Create an incentive mechanism for users to hold VMEX tokens.

### Value Accrual
Fees collected by the protocol will flow back to the VMEX treasury. The VMEX treasury will initially be an extension of Volatile Labs, the organization responsible for building the VMEX protocol. As the DAO matures, a treasury team will be built out to manage the funds. The priorities of the initial treasury team will be:

1. Ensure continued operations and technical support for the protocol.
2. Liquidity support for the VMEX token.

There are many costs associated with maintaining a protocol and application: headcount, infrastructure, audits, and legal — to name a few. Volatile labs is in the process of raising money to support these efforts through the launch of the protocol. Once the protocol and governance structures have been established, methods for more systematically driving value back to token holders can be put in place. In the early stages, staking will be the main driver of value accrual, as it will enable depositors to earn more of the VMEX distribution.

Part 2 of 2 in VMEX's tokenomics blog series

VMEX Tokenomics: Part 2

In this blog post we introduce the initial plan for VMEX’s token distribution. The goal of this post is to give early community members the opportunity to provide feedback and have a say in the final token distribution plan for $VMEX. This is the first in a series of two token economic posts. The second post will introduce VMEX staking mechanics, reward boosting, and token value accrual. To provide feedback see the #token-rff channel in our discord.

### Introduction
It has now been five years since the height of the ICO craze and well over 2 years since the inception of yield farming in DeFi. Over the years, there have been a lot of success and failures to learn from. When approaching VMEX’s token design we are taking a first principles approach, applying the lessons learned from the past years to create what we believe are optimal token mechanics for VMEX.

### Foundational principles and observations:
1. **Reward performance, not just deposits.**

The concept of liquidity mining, originated by Synthetix and Compound, expanded by Sushiswap and Curve, has seen hundreds of iterations since its inception. A common thread we observed across the majority of liquidity mining programs was the use of emissions to chase vanity TVL. The result, without surprise, is mercenary capital flooding the protocol to farm and dump the token. 

So the question becomes, how can we use emissions to accelerate user growth, adoption, and fees, but avoid incentivizing useless capital? The answer, we believe, is fairly simple; only drive emissions towards markets that are generating revenue for the protocol (i.e. assets that are being used) and do so proportionally to the revenue they generate.

2. **Don’t over commit, the landscape can change dramatically.**

There have been near infinite iterations of emissions curves and plans with various tradeoffs. The reality is, no matter how many scenarios you model, the landscape is changing too quickly to capture them all. 

The solution is to remain nimble when approaching token distribution. By distributing tokens based on revenue generation, VMEX can quickly adjust to market conditions and protocol needs — emitting more tokens relative to revenue earned in bootstrap phases and less as the protocol matures.

3. **Holding > locking.**

With the emergence of liquid lockers like Convex and Aura, “locking” tokens doesn't necessarily take tokens off the market, dampening the effect. Tracking tokens held by users is just as good or better for aligning incentives with the most committed users, and ultimately the token. Tracking tokens held also allows for more flexibility in supporting different forms of the asset e.g. LP, collateral deposits, etc. (More on this in subsequent posts)

4. **TVL drives value for lending protocols.**

Tokennomics do not and should not purely drive valuation. Bad tokenomics can make a token suffer while a protocol succeeds, but great tokenomics can’t overcome a struggling protocol or product. Looking across the past few years of lending protocol performance, it’s clear that there is a rough correlation between TVL in the protocol and market cap of the token. These protocols have very different tokenomics and distribution mechanics, but yet they track a similar MktCap/TVL ratio once the protocols have matured.

With that in mind, the goal of VMEX’s token is simple: provide incentives such that VMEX grows its base of the highest earning and stickiest TVL.

### VMEX Allocation
The 100,000,000 token supply will be split:
* 65% - DAO, Incentives, Liquidity Support
* 20% - Team
* 15% - Investors (Seed round is currently open)

Investor and team tokens are vested linearly over 100 weeks.  

Tokens allocated to the VMEX DAO can be used for future payroll, bounties, liquidity support, additional incentives, or anything else the DAO deems fit.

Since incentives are distributed based on revenue generation rather than time, it is not possible to create an accurate chart for VMEX emissions. However, VMEX’s circulating supply will roughly follow the charts below.

### VMEX Distribution
Each market, in every tranche that has opted into the VMEX risk framework, will be eligible to receive VMEX emissions. The VMEX emissions allocated to a given market will be determined by the fees generated by that market.

The key sources of fees for VMEX will be:

1. The platform fee on the borrow rate earned by lenders (10-20%). 
2. The platform fee on the yield earned by collateral strategies (5-10%). 

When fees are collected from a market, that market can claim some amount of VMEX tokens from the token distributor. The amount it can claim will be dependent on the fees-to-emissions ratio set by governance. For example, at the beginning $1 of fees could claim 20 VMEX as a bootstrapping mechanism and be reduced over time. Distributions would only move to the next period when all tokens in that period are exhausted. The below is a rough sample (for reference only), with the final emissions schedule ultimately being decided by governance.

![Distribution_Chart.png](/uploads/Screen_Shot_2023_01_13_at_8_00_26_AM_7721f4a88e.png)

This structure means that VMEX tokens will only be distributed to users participating in fee generating activities — e.g. lenders of actively borrowed assets and users deploying into strategies.

What ultimately makes borrowing cheaper is more available liquidity, and the fastest way to bootstrap more liquidity is by providing incentives. Additionally, by incentivizing the highest fee generating markets (which are the most borrowed assets in a given tranche) we can efficiently attract more liquidity to the market, reducing rates, and attracting more borrowers — and in turn generate more fees.

### Insurance Module
One of VMEX’s milestones is to launch a protocol native insurance pool. VMEX’s Insurance Module will allow depositors to opt into coverage for a fee and underwriters to stake assets into the module segmented by tranche.

We believe that eventually using VMEX in native pool underwriting, in addition to non-correlated assets, will be a natural use for the token. By staking VMEX (amount of VMEX allowed will be capped) in the Insurance Module, VMEX holders can accrue boost points (more on boost points in the next token post) while earning underwriting fees and token emissions on their position.

### Governance
VMEX is the governance and utility token of the VMEX protocol. Holders of the VMEX token can vote on the future development of the protocol, emissions distribution plans, protocol risk management, and more. 

To ensure that governance power is aligned with the most committed users of VMEX, a users governance weight will be based on the amount of Boost Points they hold, rather than just their staked VMEX quantity.

### Conclusion
With VMEX’s launch approaching, we will continue to share details around VMEX’s token design, risk framework, and more in a Request For Feedback (RFF) format. Make sure to head over to the discord to engage in the discussion and stay tuned for part two in the VMEX token economics series.


Part 1 of 2 in VMEX's tokenomics blog series

VMEX Tokenomics: Part 1

The last few months at VMEX have been busy, to say the least. Despite turbulent market conditions, the team at VMEX has been steadfast in building the best possible product to bring the next generation of open and permissionless lending to DeFi. 

Now more than ever, we believe the future of lending will be built by DeFi protocols. Specifically, DeFi protocols that utilize dynamic and transparent risk systems to mitigate lending market risk — all while maintaining an open and permissionless structure. Despite how it often seems, we are still in the very early innings of decentralized lending and we believe there is much innovation needed and to come.

### Year in Review
In the later half of 2022 VMEX went from an idea to a team of six and a mostly completed DeFi protocol with an extremely ambitious product roadmap for 2023. Over the past few months we have honed in VMEX’s MVP features and ‘23 roadmap, built VMEX’s MVP and started extensive testing, kicked off our seed round, and started discussions with potential launch partners. We are beyond excited to share what we have built in the new year.

### So what’s the status?
**MVP launch in Q1 ‘23!** VMEX protocol’s initial feature set is complete and currently undergoing internal testing and peer review. The current plan is to launch the MVP in Q1 ‘23 and ideally undergo a formal audit beforehand, funding dependent. 

Here are some features to expect to see in the MVP:
1.  Two VMEX managed pools (”safer” assets and “higher risk” assets).
2.  VMEX Curve / Convex strategies: Use Curve LP as collateral while VMEX deposits and auto-compounds your rewards on Convex for you. 
3.  The ability for whitelisted users to create and manage VMEX pools (tranches). 
4.  A transparent and dynamic asset and pool risk framework, allowing users to have clear insight into the potential risks associated with a given asset or pool on VMEX. With VMEX’s risk framework, the protocol DAO will set all asset specific parameters (LTV, interest rate, borrow/supply cap, etc.) for pool admins.
5.  A full suite of risk features, notably: risk adjusted borrowing capacity, flash loan attack prevention, TWAP collateral pricing mechanism, and liquidations powered by Chainlink Automation. More details on VMEX’s risk features and framework to come!

### Select ‘23 roadmap items
* VMEX token launch
* Audits
* Pool creation open to all
* Partnership expansion — more pools managed by DeFi protocols
* Expand base of assets and strategies supported (e.g. Balancer / Aura)
* Full risk dashboard and further risk management innovation
* Special purpose pools
* Liquidation innovation
* 👀

### How to get involved?
Follow us on [Twitter](https://twitter.com/vmexfinance) and join our [Discord](https://discord.com/invite/8eqq3V2aT9), we will soon be opening up product feedback discussions and beta testing. If you’re a DeFi protocol or power user interested in a partnership or being a pool admin send us a message. 

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