What is the Difference Between MEMO and Wrapped MEMO? (Simply Explained)

DCV - January 10, 2022

Hi, if you're familiar with the Wonderland DeFi project, then you're probably aware of some of the changes and rapid pace of innovation that's happening. Also, you're probably aware of a "promise" of huge investment gains due to the attractive APY. But there's been a lot of confusion on the mechanics of the system, specifically around the tokens of the project like TIME, MEMO, and wrapped MEMO (wMEMO).

This post will explain the difference between the MEMO and Wrapped MEMO tokens and dispel any misconceptions about them. One thing that I wanted to prove to myself was that I still get rebasing rewards even after wrapping my MEMO. This confused me because the amount of wMEMO I receive after wrapping remains constant even during rebases. So how does the wMEMO token still capture the rebasing rewards?

Before getting into all that, I want to just define MEMO and wMEMO first.

What is the MEMO Token?

MEMO is the staked version of the TIME token. MEMO has a 1 to 1 ratio to TIME so if I have 1 MEMO, I can unstake it and redeem it for exactly 1 TIME token. That's all it is. The problem with the MEMO token is that there's no market for it. You can't exchange it for anything since it has to remain staked.

What is Wrapped MEMO (wMEMO)?

This is where wrapped MEMO comes it. More generally in DeFi, wrapping a token pegs it to an underlying asset so that the wrapped version can be used on different blockchains.

For example, wrapped BTC is first pegged Bitcoin by locking it up in a custodial vault on the Bitcoin blockchain and then an equivalent amount is minted on the Ethereum blockchain in the form of wBTC to be used or transacted on the Ethereum network.

This definition of wrapping a token isn't entirely being followed with wrapped MEMO. wMEMO in this case isn't pegged to anything really. It's more like a voucher indicating that I have ownership of the staked MEMO tokens and staking rewards. At any time, I can redeem this voucher for MEMO tokens. Since wMEMO can be used on the Avalanche blockchain which is the network that Wonderland and TIME lives on, it's doesn't really have cross chain functionality.

The exception is wMEMO bridged to the Fantom blockchain which is possible using the bridge function on Wonderland. If I bridge wMEMO to the Fantom network, I can then use it on Fantom decentralized apps. So technically, in this case, it would be wrapped wrapped MEMO.

Converting Between MEMO and wMEMO

So what's the relation between MEMO and wMEMO? The confusing thing for me was understanding wrapping MEMO gives me a constant number of wMEMO token that forever remains the same number but still captures the rebasing rewards of the regular MEMO token. For example, if I wrapped my MEMO tokens and received 1 wMEMO, I will always have 1 wMEMO despite the rebasing rewards.

The way wMEMO still captures the rebasing rewards is with a price increase. For simplicity, let's assume the price of TIME stays constant in a day and that I start the day with 1 wMEMO token worth $10,000. At the end of the day after 3 rebases, I will still have 1 wMEMO token but the price would've risen to $11,000. The hypothetical change of $1,000 is the rebasing rewards.

That's not to say that the price of my wMEMO token can't go down. It is still subject to the market price of TIME but it reflects the original balance of my MEMO plus rebasing rewards.

I proved wMEMO still captures the rebasing rewards to myself in a couple of ways. The first is to actually wrap my MEMO and then unwrap it to see that my MEMO balance increased after periods of rebasing.

I started off with .843 MEMO tokens and after wrapping and unwrapping, I now have .848 MEMO tokens. This is proof that the rebasing rewards still count after wrapping.

The second way I proved this to myself was actually looking at the wMEMO and MEMO smart contracts to understand the equations and how they worked. Warning, there will be some math at this point.

If I look at the wMEMO smart contract, I can get the conversion function between MEMO and wMEMO. It basically says this. Wrapped MEMO is equal to the MEMO amount multiplied by some decimal scale factor divided by some number let's call it "MEMOINDEX" where the "MEMOINDEX" is calculated by a function called index().

So I set off to find what the index() function did and found this on the MEMO smart contract page. I won't bore you with the contract code but the index function returns this equation. Which says the MEMO index equals the all caps INDEX variable multiplied by the total supply of MEMO tokens divided by something called the "TOTALGONS". The "TOTALGONS" variable is a carry over from the Olympus DAO fork and I don't know what it stands for, but I don't need to.

If I substitute this equation into the wMEMO equation, I get that wMEMO equals the MEMO amount times the scale factor times the "TOTALGONS" divided by the product of the INDEX and the total supply of MEMO.

The scale factor, "TOTALGONS", and the INDEX variables are all constants. If the wMEMO amount stays constant, this must mean that the MEMO balance must increase at a rate equal to the total supply of MEMO which makes complete sense since rebasing is increasing the supply of the MEMO tokens.

I further proved this but plugging the numbers into the equation and was able to match the conversion rate between 1 MEMO and the equivalent amount of wMEMO displayed on Abracadabra. These numbers (TOTALGONS, INDEX, decimal scale factor, and total supply of MEMO) can be found on the MEMO and wMEMO smart contract pages on Snow Trace.

The Utility of wMEMO

I'll say one last thing and that's commenting on the utility of the wMEMO token. It allows me to effectively use my MEMO tokens as collateral and unlocks my funds for other investments. This is where the whole 9,9 stuff comes.

And that's it. I hope you got something out of this article and understood a bit more about what MEMO and wMEMO are and how they function. As always, stay safe and thanks for watching.

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