⚡Concentrated Liquidity
Last updated
Last updated
StellaSwap's concentrated liquidity engine at the core of our V4 AMM, users will access optimal asset prices, low-slippage and greater yield optimization for LP stakers! 💥
Concentrated liquidity has proven to be the most efficient DEX model so far, measured by a lower slippage rate for the same amount of TVL. In fact, centralised trading engines such as Binance and Coinbase is based on a concentrated liquidity model.
StellaSwap's V4 AMM is centered around a concentrated liquidity engine called the "core".
On StellaSwap, liquidity providers (LPs) are able to ‘concentrate’ their liquidity in specific price ranges to maximize capital efficiency. LPs who provide deeper liquidity for ranges where trades actually occur will earn a higher share of fees and rewards, thereby enhancing potential ROIs.
Here’s a quick summary of how concentrated liquidity is a beast of AMMs;
⭐️ LPs can provide liquidity with up to 4,000x capital efficiency relative to standard AMMs, earning higher ROIs on their capital
⭐️ Liquidity utilization rates beyond 100%, compared to an average of 5%-10% that StellaSwap currently has. This is good news for LPs as they’ll earn more fees for a given capital base
⭐️Capital efficiency results in ultra-low slippage trade execution that can surpass both centralized exchanges and stable AMMs
⭐️ LPs can significantly increase their exposure to preferred assets and reduce their downside risk
⭐️ LPs can sell one asset for another by adding liquidity to a price range entirely above or below the market price, approximating a fee-earning limit order that executes along a smooth curve️
⭐️ With greater ROI potential, STELLA emissions can be exponentially reduced. With a reduced inflation rate, we’ll be on the path of tokenholder-value maximization
StellaSwap has officially acquired the license for a variation of concentrated liquidity AMM from Algebra, the superstar team that has developed the V3 codebase. Algebra is behind the launch of Quickswap’s concentrated liquidity AMM (largest DEX on Polygon) that recently launched. We have finalized the agreement with Algebra, which would grant us exclusive usage of the concentrated liquidity codebase on Moonbeam.
One of the key proposition of Algebra in creating a more ‘user-friendly’ solution, relative to Uniswap, is their dynamic fee model. Though groundbreaking, Uniswap’s V3 had an Achilles heel; close to 50% of LPs on Uniswap’s V3 lost money due to impermanent loss. With Algebra’s dynamic fee model, yield optimization is inherent in the staking process. This mean users do not need to to actively move their liquidity between pools to earn the highest rewards.
Audits
There can be no doubt that security is the most important thing for StellaSwap, especially after what transpired with Nomad’s exploit. There can be no compromises when it comes to security. It is our responsibility to ensure that all security issues are addressed before launching. Algebra’s codebase has undergone two external audits, from Hexen and ABDK (Uniswap’s auditor). All critical and major issues have been addressed by Algebra. The audit will be shared with the community soon.
Additionally, we’re in the process of doing our own audit, beyond the two external audits.
A core vision of StellaSwap is to be the Schelling point of Polkadot, actualized via cross-consensus message format (XCM). For that to materialize, it is necessary for us to evolve past standard AMMs and launch an extremely capital-efficient DEX.
Not only that, the recent exploits of Nomad bridge and Acala’s aUSD has resulted in a less-than-ideal sentiment across the entire ecosystem, with aggregate TVL being at an all-time low. We are confident that things will pick up, albeit at a slower pace. That is why as the leading DEX on Moonbeam, it is vital for us to create a stronger foundation that will benefit the ecosystem.
In general here are the high-level benefits that will accrue to the ecosystem;
⭐️ Maximize Ecosystem Liquidity Utilization: The aforementioned exploits has resulted in dampening of TVL from value depegging and capital leakage. Not only would concentrated liquidity enable unification of liquidity across StellaSwap’s AMM, but it would also maximize liquidity utilization, allowing users to deploy their capital more efficiently and earn substantially greater yields. From a previous benchmark of 5%-10%, StellaSwap aims to achieve a utilization ratio of above 50% within the first 6 months.
⭐ Enable Sufficient Liquidity for Stakeholder Operations: Optimal capital efficiency results in requiring a fraction of TVL to achieve low slippage levels and better price discovery, which is vital for relevant stakeholders like money market protocols on Moonbeam — such as Moonwell — to facilitate liquidations. On StellaSwap, it would need only 1/10th of the original TVL target for token support on Moonwell. This enables relevant stakeholders to reduce the dependancy on a prerequisite liquidity depth.
⭐️ Effective Emissions Management for Ecosystem: Perhaps a core element for the long-term sustainability of any ecosystem is effective emissions management, especially in the midst of token inflation to achieve protocol bootstrapping (i.e. attracting liquidity). With higher liquidity utilization rates, the increased ROI would significantly bump up trade revenues, and wean off excessive spending incentives to attract TVL. This would be ideal for when Harvest Moon resumes across the board and incentives are required to attract ecosystem TVL; a fraction of the incentives are needed to achieve key metrics of TVL accrual and APR sustenance.
⭐️️ Improved User Experience: Users would be ecstatic to know that on StellaSwap, price discovery for token value would be the most optimal and there’ll be ultra-low slippage, thereby resulting in tremendous cost-savings. Given the fast confirmation times of Moonbeam network it would be much easier for user retention given a streamlined and optimized user experience. Happy users = stronger ecosystem!
More information would be released down the line. The team at StellaSwap will be hard at work with Algebra to ensure a perfect launch. In the meantime, if there are any feedback or suggestions, please join our Discord and approach our team!
Discord Link: discord.stellaswap.com
