French DeFi exchange Mangrove DAO raised $7.4 million in series A funds recently for its order book-based platform that allows digital asset traders to execute smart offers of liquidity pre-emptively, underpinned by digital contracts.
The Parisian company is investing the proceeds to actively pursue research leads and enhancements to its product.
The round was co-led by Cumberland and Greenfield Capital, with participation from CMT and gumi Cryptos Capital.
Mangrove's decentralised finance platform executes smart contracts between DeFi liquidity providers and buyers. The main benefit of these smart contracts is that DeFi market participants can advertise agreed liquidity assets in their portfolio as soon as a deal has been promised.
Mangrove envisages market trading with promised DeFi, tied down by smart contracts, enabling liquid assets to be shared, borrowed and loaned out, remaining registered on the decentralised ledger until a matching offer has been identified.
The concept has roots in the traditional financial exchange model. Mangrove's founders discovered exchange market "makers" didn't use their own capital, instead choosing to borrow liquidity from the market, and they wondered — why not replicate this in decentralised finance?
An estimated $50 billion is locked into DeFi agreements, leading to "inefficiencies in capital utilisation". The dispersed nature of blockchain should mean capital serves multiple functions and exists on multiple books, simultaneously, but the standard practice until now has remained to "lock capital across multiple unconnected liquidity pools".
Mangrove says this means yields are failing to reach their full potential, with the costs for utilising capital remaining stubbornly high.
"The collapse of FTX showed that users appreciate the capital efficiency of an order-book exchange, but should not be required to trust a centralised provider," it said in a press announcement.
"By replicating the capital efficiency of a centralised exchange in a trustless exchange, Mangrove helps address fundamental problems in the market."
Gleb Dudka, Greenfield Capital principal, said: "Mangrove solves these inefficiencies as the liquidity/collateral does not have to be on the CEX/DEX itself but can be sourced from another pool or DeFi protocol once the order in the order book is hit.
"And yield can be generated elsewhere until the offer is taken. That way Mangrove is disrupting one of the core notions of DeFi – having to lock your liquidity in one protocol compromising on capital efficiency."
The round follows a seed capital call made in July 2021. Mangrove DAO's investors on that occasion included Wintermute Ventures, QCP Soteria Node, Monday Capital, Noia Capital, Zeeprime, Atka Capital and Stake Capital.