Refactoring Magitek

avatar of @edicted
5 min read

Permanently on the backburner

I've had this idea for a token as far back as 2018, but I haven't done nearly enough legwork on it to actually bring it to life. Back then the goal was to just create something atop this Graphene network that was a very simple game; one that wouldn't be too much work but that people here would still want to play.

That still hasn't changed actually. The prototype game I want to launch is still exactly the same as it was back then: a Cards Against Humanity clone on the blockchain, where the cards are NFTs; player created and traded. Just something basic that can be created without too much hassle, is non-competitive, and known to be liked throughout various social circles.

But then DEFI 2020 rolled around.

And after studying MakerDAO, DAI, and various other AMM yield farming techniques I realized that the tokenomics could be so much more than I originally envisioned. Rather than distributing inflation in a very basic way (whoever bought NFT tokens that day) it could instead be done through yield farms, single staking pools, and various derivatives.

Of course with this revelation came the understanding that the project just got a whole lot more complex and harder to bring to life. Is this extra complexity worth it? Or should I just stick to the main idea and ignore all the other noise that comes my way? I must admit that DEFI is hard to ignore because I feel that pretty much nobody in crypto actually realizes what this toolkit can accomplish or how to actually reach those goals. Instead all we got was foolish bull-market thinking that led to terrible economic policy and instant hyperinflation. These things happen: still early.

The advantages of incessant planning and overthinking

There is a certain point of no return in crypto (and just development generally) where once you choose a certain path and walk far enough down it: you're completely locked in and there are certain things that just can't be changed. The one advantage of having not launched anything is that I still have the ability to change pretty much whatever I want, which is a nice consolation prize at this point.

For example one of the derivative tokens I wanted to create would have been designed like a collateralized stablecoin like DAI. However several months back I came to the realization that this is no longer necessary, as I originally had this idea back when HBD/SBD liquidity was just awful and the peg was constantly breaking. We no longer have either of these problems, so a second stable coin doesn't make that much sense.

Now I realize it should flip the opposite way. Instead of being a derivative that creates stability at the cost of governance token volatility (like Hive/HBD does) that same token could instead be used to purposefully create volatility to make the governance asset more stable. After all shouldn't the goal be leveraging DEFI to compete with fiat and eventually create something that is superior to fiat in every way? I tend to think so, but I don't see anyone in crypto even talking about this, let along actually try to create the kind of economic policy that could bring such magic to fruition.

Too many conversions

I also got it into my head that I could create some extremely complex systems that wouldn't be prone to unreasonable systemic risk. After seeing what happened in the 2022 bloodbath I know a lot better than to mess around with things I shouldn't be messing around with. The ability to convert one token for another (alchemy), while fun, should only be reserved for when absolutely necessary with several safety protocols implemented.

Yield targets

How much yield is too much, and how much is too little? What is unsustainable, and how much is not enough to get the job done? I'd say we learned quite a bit on this front looking at both Hive and a thousand DEFI projects that inevitably crashed to zero.

AMM yield target: 20% to 100%

When considering money paired in an automated market making pool, anything less than 20% is basically an insult. This makes sense because the risk of being allocated to that position in the first place is simply too high to accept a reward lower than 20% a year. While misunderstood, impermanent losses are a thing, even if manual DCA trading equates to exactly the same outcome. More importantly, any systemic risk associated with either token is inherited by the entire pool, and as we all know, liquidity pools (honeypots) are the primary target of all bad actors in crypto.

On the flip side of 20%, we have 100% maximum.

If any LP offers more than 100% yield, either the users are greedy idiot moonboys, or the systemic risks of the asset are so high that even offering 100% yield is not enough to make up for it. Either way that's a situation that no one should want to be in. Liquidity creates the highest risk and value across the board and should be rewarded as such.

Single staking pools: 5% to 25%

A pool with only one asset in it doesn't provide any liquidity so the yield should be way lower. The main thing these contracts can be used for is to create elasticity of the token. Increasing yield pushes price up temporarily and reducing it brings it back down pushing assets back into the LPs. Interestingly enough Hive Power yield (curation + APR) falls directly within this range. So does HBD in the savings accounts.

All risk is bottlenecked via exit liquidity.

Any new crypto protocol is taking extreme risk simply by the fact that it has not been field tested by definition. Existence itself is a risk when the asset in question is liquid value and hasn't had the chance to prove itself. In this regard there really is no substitute for "experience" in this regard.

The solution to this problem?

Don't be that liquid in the beginning. If a problem happens internally with the network it can be fixed or even frozen until it gets worked out. However, if liquidity is lost it can never be pulled back by the simple fact that the network in question has no power over other networks, only itself. If value is traded away for Hive or Bitcoin the party is over, but if that value is trapped internally bad actors can not escape with it.

Of course once all the kinks are worked out and the platform scales a bit more the expectation is that kill-switches and other inherently centralized means of control would be put to pasture. No easy feat for the creator to just give their baby away to the community, take a step back, and hope it works out without direct interference. We see these types of themes pop up in crypto over and over again on both sides of the coin. Some will not give up control while others that do end up regretting it.


Well I could go on for another 2000 words but I think I'll just tie myself off here and save it for some other time. I've been going over the code I wrote years ago wondering what the hell I was thinking when I wrote it, as often is the case. Making several changes and various tweaks to make it more digestible. The goal is always simplicity over complexity.