Shell Protocol: An Internet Monetary System Based on Stablecoins

What is Shell Protocol

Friends, imagine in the vibrant digital world of blockchain, we often need to swap between different digital assets, such as exchanging one stablecoin (a cryptocurrency with relatively stable price, like the digital version of the US dollar) for another. This process is like being in an international market, needing to exchange US dollars for euros, or Japanese yen for Chinese yuan. Traditionally, you might have to go to different exchange windows, each with its own rates and fees, and the process can be a bit complicated.

Shell Protocol (SHELL) is like a "super exchange center" and "universal toolbox" in this international market. It is a decentralized finance (DeFi) protocol aiming to build an "internet monetary system" based on stablecoins. Its core function is to enable users to efficiently and cost-effectively swap between various digital assets (what we call "swaps" or "exchanges"), and provide liquidity (putting your digital assets into a pool for others to exchange, earning fees yourself).

For regular users, Shell Protocol offers a unified entry point, allowing you to complete swaps, provide liquidity, and other DeFi operations all in one place—like a "DeFi super app"—saving you the hassle of switching between multiple applications. For developers, it provides a composable smart contract foundation, making it easier to build new DeFi applications.

Project Vision and Value Proposition

Shell Protocol's vision is to create a borderless, programmable "internet monetary system" that everyone can easily use. Just as Bitcoin's original dream was to become internet money, Shell Protocol believes stablecoins are the key cornerstone to achieving this goal.

The core problems it aims to solve include:

• Fragmented liquidity: In the DeFi world, many digital asset pools are scattered across different platforms, resulting in insufficient liquidity and inefficient swaps. Shell Protocol, through its unique architecture, aims to aggregate liquidity and offer better swap prices.
• High transaction costs: Especially on blockchains like Ethereum mainnet, transaction fees (Gas fees) can be high. One of Shell Protocol's design goals is to improve gas efficiency and lower user transaction costs.
• Complex user experience: For non-technical users, DeFi operations often have a high barrier to entry. Shell Protocol is committed to providing a more intuitive and convenient interface, making DeFi accessible to all.
• Stablecoin depegging risk: Although stablecoins aim to maintain price stability, there is still risk of depegging from their underlying assets. Shell Protocol's liquidity pool design includes protection mechanisms against stablecoin depegging, aiming to reduce risk.

Compared to similar projects, Shell Protocol stands out with its unique "composability" and "universal algorithm" design. It's not just a swap platform, but more like a "Lego factory" for DeFi, allowing financial engineers to flexibly build various trading strategies and liquidity pools.

Technical Features

The technical core of Shell Protocol can be likened to a "digital aircraft carrier" composed of two main parts:

• Proteus AMM Engine (Trading Logic Layer)

  This part is like the "engine" of the carrier, responsible for determining exchange rates between digital assets. It uses a new type of bonding curve, which can be understood as a mathematical formula to calculate the relationship between asset price and quantity. Shell Protocol's bonding curve design is highly flexible, enabling concentrated liquidity and greater capital efficiency than some existing protocols (such as Uniswap v3 and Curve). Its goal is not to create the most capital-efficient curve, but to provide a universal algorithm that can represent any curve—just as a "video game engine" helps designers render any game scene, Shell Protocol's algorithm helps financial engineers implement their trading strategies via smart contracts.

• Ocean (Accounting Layer)

  This part is like the "cargo management system" of the carrier, responsible for tracking and managing asset balances and transfers in all liquidity pools. It is an internal ledger that can connect to any type of liquidity pool and is designed to be highly efficient, significantly reducing the gas fees required for multiple swap operations. The team likens it to an "ocean"—just as containers, once loaded onto a ship, can be efficiently transported worldwide, once funds enter the "liquidity ocean," they can be exchanged for any currency at low cost.

An important technical philosophy of Shell Protocol is separating accounting logic from business logic. This means it separates asset recording and management (accounting logic) from specific trading rules (business logic), allowing developers to build new DeFi applications more simply and securely, lowering the development threshold, improving efficiency, and reducing gas fees.

Tokenomics

Shell Protocol's governance token is $SHELL.

• Token Basics

  Token symbol: SHELL
  Issuing chain: Primarily runs on the Arbitrum network.
  Total supply: Initial allocation of 200 million SHELL.
  Issuance mechanism: Shell DAO has the authority to mint additional tokens, but this requires approval via governance vote.
  Inflation/Burn: The whitepaper and public materials do not specify concrete inflation or burn mechanisms, but the DAO's minting authority implies potential inflation, controlled by community governance.

• Token Utility

  $SHELL tokens are mainly used for decentralized governance of the protocol. Holders can lock $SHELL to obtain veSHELL (Vote-Escrowed SHELL), thereby participating in Shell DAO voting and influencing key protocol decisions, such as:

  • Setting protocol fees.
  • Transferring tokens from the DAO treasury.
  • Minting additional $SHELL tokens.

  This design aims to ensure the protocol's long-term sustainability, incentivizing token holders to actively participate and contribute to the protocol's growth.

• Token Allocation and Unlock Information

  The initial allocation of 200 million $SHELL is roughly as follows:

  • Investors, core team, and development company: 80 million.
  • Initial airdrop: 40 million.
  • TGE incentive activities: 50 million.
  • DAO treasury: 30 million.

  Regarding unlock information, some sources mention that team and investor tokens may have lock-up periods and linear release plans, but specific details were not fully obtained in this search. Before the official release of $SHELL tokens, Shell Protocol rewarded early users through a "Shell Points" system; these points could be converted to $CRAB tokens and then exchanged 1:1 for $SHELL after $SHELL was launched.

Team, Governance, and Funding

• Team

  The core development team of Shell Protocol is Cowri Labs. Cowri Labs is a for-profit company, independent from Shell DAO and Shell Foundation. Team members work remotely, but sometimes collaborate at "Shell Hale" in Hawaii. They began building Shell v1 in October 2020.

• Governance

  Shell Protocol adopts a decentralized governance model, managed by Shell DAO (Decentralized Autonomous Organization). Shell DAO is controlled by veSHELL token holders, who manage the protocol's on-chain activities through voting. Voting is usually conducted via off-chain platforms such as Snapshot.

  Additionally, there is a Shell Foundation, a Cayman Islands-registered entity aimed at promoting Shell Protocol's growth and adoption, and advocating for the protocol in the off-chain world. Shell Foundation is also responsible for the creation of $SHELL tokens.

• Funding

  Cowri Labs has raised $3.6 million from external investors, including Blueyard, IDEO, Stani Kulechov, and others.

Roadmap

The development history and future plans of Shell Protocol can be summarized as follows:

• Historical Milestones

  • October 2020: Shell v1 whitepaper released, project launched.
  • September 2021: Shell v2 roadmap announced, plans to release Bonding Curve and Ocean whitepapers.
  • February 2022: Ocean whitepaper officially released.
  • September 2022: Shell Protocol "controlled launch" on Arbitrum One mainnet, completed Trail of Bits security audit.
  • November 2022: First Proteus AMM contract deployed. Community voted to include Shell Points in future $SHELL airdrop considerations.
  • January 2023: ETH+USD and wBTC+USD fractal pools deployed.
  • February 2023: Shell app supports mobile devices.
  • April 2023: $SHELL tokenomics part one announced.
  • May 2023: $SHELL tokenomics part two announced, 40 million $SHELL to be used for airdrop.
  • September 2023: $SHELL tokenomics part three announced, target TGE date December 2023.
  • January 2024: $SHELL token and DAO launched, Shell v3 released, SHELL+ETH pool launched, Curve 2pool integration live.
  • May 2024: Cross-chain DeFi Zaps launched, supporting direct deposits into Arbitrum DeFi protocols from Ethereum mainnet, Base, or Optimism.

• Future Key Plans

  • Q2 2024: Plans to integrate with more protocols such as Pendle, Beefy, etc.
  • Q2-Q3 2024: Lending functionality supported within Shell app, full support for cross-chain DeFi-to-DeFi transactions.
  • Q4 2024: Launch of Intents system, aimed at optimizing MEV (Miner Extractable Value).

Common Risk Reminders

Investing in any blockchain project comes with risks, and Shell Protocol is no exception. Here are some common risk reminders, some of which are prevalent in Web3 projects and not unique to Shell Protocol:

• Technical and Security Risks

  Smart contract vulnerabilities: Although Shell Protocol has undergone security audits (such as with Trail of Bits), the complexity of smart contracts means potential vulnerabilities still exist. If a vulnerability occurs, it may result in loss of funds.
  Code immutability: Once smart contracts are deployed on the blockchain, they are usually immutable. This means that if a vulnerability is discovered, it is very difficult to fix, and may even require redeploying the protocol.
  Oracle risk: If the protocol relies on external data sources (oracles) for price information, oracle attacks or failures may cause abnormal protocol behavior.

• Economic Risks

  Market volatility: Although Shell Protocol focuses on stablecoins, the overall crypto market is still highly volatile, which may affect user confidence and usage of DeFi protocols.
  Liquidity risk: If the protocol's liquidity is insufficient, users may not be able to execute large swaps or withdraw assets at expected prices.
  Competition risk: The DeFi sector is highly competitive, with new protocols and innovations emerging constantly. Shell Protocol needs to keep innovating to stay competitive.

• Compliance and Operational Risks

  Regulatory uncertainty: Global regulatory policies for cryptocurrencies and DeFi remain unclear, and future policy changes may impact project operations.
  Centralization risk: Although Shell Protocol strives for decentralized governance, there may still be some degree of centralization risk in early stages or certain aspects, such as team control over the protocol.
  Team operational risk: Recent announcements show that Cowri Labs (the development company behind Shell Protocol) no longer has resources to continue developing and maintaining the core protocol and dApp. This may bring significant uncertainty to the project's future development and maintenance.

Please note: The above risks are not exhaustive and do not constitute investment advice. Be sure to conduct thorough due diligence and risk assessment before participating in any blockchain project.

Due Diligence Checklist

To gain deeper insight into Shell Protocol, you can refer to the following information:

• Block explorer contract address: Look up Shell Protocol's smart contract addresses on Arbitrum and other chains to view transaction activity, token holder distribution, etc.
• GitHub activity: Visit Shell Protocol's GitHub repository (such as Cowri Labs' GitHub) to check code update frequency, number of contributors, issue resolution, etc., to assess project development activity.
• Official documentation and whitepapers: Carefully read Shell Protocol's official whitepapers (including v1, Proteus, and Ocean whitepapers) and developer docs to understand its technical details and design philosophy.
• Community activity: Follow its Discord, Twitter, and other social media platforms to gauge community discussion, team-community interaction, etc.
• Audit reports: Review completed security audit reports for Shell Protocol (such as Trail of Bits' audit) to understand the protocol's security status.

Project Summary

As a DeFi protocol, Shell Protocol aims to provide a more efficient, flexible, and capital-efficient infrastructure for stablecoin swaps and the DeFi ecosystem through its innovative bonding curve (Proteus AMM engine) and efficient accounting layer (Ocean). It is committed to solving pain points in DeFi such as fragmented liquidity, high transaction costs, and complex user experience, and empowers the community through decentralized governance (Shell DAO).

The project is developed by the Cowri Labs team and has received external investment. The historical roadmap shows continuous iteration and feature expansion from v1 to v3, including future plans for cross-chain interoperability. However, Cowri Labs recently announced it no longer has resources to continue developing and maintaining the core protocol and dApp, bringing uncertainty to the project's future development and requiring close attention from the community and potential contributors.

Overall, Shell Protocol demonstrates innovation in technical design, especially in its AMM engine and composability, offering new ideas for the future of DeFi. But any blockchain project carries technical, economic, and operational risks, especially considering recent changes in the development team. Therefore, for those interested, it is strongly recommended to conduct in-depth research and follow the latest project and community developments to make informed decisions. This is not investment advice.