Trader Joe XYZ launches new AMM Liquidity Book
This innovative design aims to enhance capital efficiency, decrease slippage, and reduce the effects of impermanent loss.
According to Trader Joe XYZ, the existing trading algorithm of the DEX operates on the widely-used x*y=k automated market maker (AMM) formula. The exchange has attracted thousands of daily active users and facilitated trading worth over $88 billion since its launch in July 2021.
What makes the Liquidity Book unique?
It offers a unique approach to stacking liquidity in pools. Liquidity providers (LPs) can deposit into specific price bins, with each bin assigned a special price.
LPs can provide liquefied assets to multiple bins and receive fungible token receipts for all assets deposited. This sets Liquidity Book apart from other solutions that lack non-fungible token receipts.
LPs can earn higher fees while minimising capital risk by providing liquefied assets through the Liquidity Book. This benefit also extends to traders, who can access better prices and reduce slippage on trades due to increased efficiency. Unlike traditional AMMs, where assets are spread evenly across all price ranges, users can provide liquefied assets at specific prices, resulting in fewer idle assets and significant efficiency improvements up to 20,000 times higher.
The discrete bin architecture also allows for issuing NFT receipts, which can be integrated with other DeFi protocols and products. The more composable the design, the greater the potential for growth in DeFi.
## Zero slippage swaps
The fresh AMM design employs a structure combining individual bins to form a liquidity Pool, aggregating liquified assets from all the bins.
Unlike existing AMM designs that utilise a constant product formula, the bins in this AMM act as constant sum pools with their reserves. This approach prevents traders from overpaying for fewer tokens, as often with pool reserve price calculations.
It uses an active bin to determine the price, which remains constant within that particular bin. Thus, there is zero slippage if the trade is executed using reserves from the active bin. However, a change in the bin occurs when reserves in the active bin are insufficient to fulfil the trade, resulting in a price impact. This feature is especially useful for swaps involving stablecoins and other pegged assets, whose prices are expected to be equal most of the time. Although the AMM model has undergone significant advancements, noteworthy drawbacks and challenges still require solutions and improvements.
Liquidity Book aims to provide traders with more efficient trades, offering asset providers increased efficiency, protection against impermanent loss, and maximum composability of their liquidity.
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