StableSwap Benefits on Wingriders DEX
Hey Riders,
With the launch of StableSwap pools on WingRiders and following on from our last blog regarding the StableSwap mechanism, we are going to take a deeper dive into how these pools benefit different stakeholders, namely;
- Swappers/Traders
- Liquidity Providers
- The entire Cardano ecosystem
WingRiders has taken the best of Curve Finance and Uni Swap V2 and combined them into one platform to make trading and liquidity provision of pegged assets and Cardano native assets highly efficient.
We implemented StableSwap on top of our existing audited contracts. They have been in production since our mainnet launch and make a perfect foundation for this. We kept all the trusted and secure parts and only changed the AMM function used in the contracts to the StableSwap invariant. That enabled us to speed up our development and make relatively few and easily auditable changes. If you want to dive deeper into the mathematics behind it, check out the StableSwap whitepaper.
The StableSwap contracts have now been fully audited by Certik, and no issues were found at any level.
Stableswap Benefits to Swapper and Traders
The most obvious beneficiary of stableswap pools is the trader, who receives substantially better pricing. But DEXes, their liquidity providers, and the entire Defi ecosystem benefit as well.
Apart from the general benefits of why traders use DEXes, cited above, StableSwap pools bring other advantages to traders.
Diversification is a key strategy used by seasoned traders and investors to minimize risk and reduce the volatility of the portfolios they hold. It entails investing across or within many asset classes to reduce the volatility of the crypto markets. In other words, diversification means not putting all of one’s eggs in one basket. Although a diversified portfolio does not eliminate risk, a well-considered diversification plan or strategy can help lower risk and produce more consistent results over time. Being able to swap between various stable assets and stablecoins helps achieve this very purpose. Imagine you are holding different types of stablecoins, such as algorithmic, collateral-backed, and crypto-backed ones. If one is depegged and lost, you still have others in your portfolio with different mechanisms that mitigate the loss.
There are times a trader may require a stablecoin or stable asset they don’t hold, and using a stableswap pool allows seamless transition between pegged assets that can be used on various DeFi services and platforms without going through ADA, which is more volatile in terms of price movements.
Stableswap Pools Significantly Reduce Price Impact
Stablecoins, which are a cornerstone of DeFi, can be traded with little impact on price thanks to stableswap AMMs. Price impact is the effect of a user’s trade on the market price of an underlying asset pair. It is directly proportional to the pool’s or Automated Market Maker’s (AMM) liquidity. The price effect can be more severe for illiquid markets or pairs and may result in a considerable loss of capital. This means that, in a healthy stableswap pool, even large trades do not greatly move asset prices because the stableswap curve concentrates the majority of pool liquidity in the range of expected correlation.
Finally, Stableswaps help to reduce slippage. Price slippage refers to the change in price produced by external, wide market movements unrelated to your trade, whereas price impact refers to the change in price caused directly by your trade. Slippage, like price impact, is heavily reliant on the liquidity of a pool. If the token pair has little liquidity, smaller collective market movements can cause significant changes to the pool’s rate.
Benefits for Liquidity Providers
Liquidity providers can use StableSwap pools, which dramatically reduce the risks associated with impermanent loss and market volatility, which could lead to benefits resulting in deeper liquidity, higher volumes, and an overall larger pool of fees from which liquidity providers benefit. Important to note: this is only true while stablecoins maintain their peg.
An added bonus of providing liquidity into stablepools is that you can continue to receive the benefits of farming rewards, making your crypto really work for you by increasing capital efficiency.
Using StableSwap pools’ Zap-in functionality gives you complete control and efficiency over how you provide liquidity. Users can always deposit tokens of the same kind without worrying about the pool compositions or size of the pool. To provide the best possible user experience, liquidity providers add liquidity for StableSwap pools with any ratio of tokens they have in their wallet (including using only one of the tokens in the pool) using the transaction settings. This mechanism performs a swap on the pool before adding liquidity in the same ratio as the pool after the swap. The swap fee is still paid from this swap, however, both swap and add liquidity happen in one transaction only, therefore saving you one transaction fee and batcher fee
Stableswaps are not just for stablecoins, and any 1:1 ratio pegged asset, such as a pool for a synthetic Ethereum (iETH) and a wrapped Ethereum (wETH), can use this innovative algorithm, leading to the composition of popular non-Cardano native pools and bringing diversity for liquidity providers.
Benefits of StableSwaps for the Cardano Ecosystem
Bridged and wrapped non-native Cardano assets, such as Ethereum, Bitcoin, and highly traded stablecoins such as USDT, USDC, and DAI put into stableswap pools, increase the liquidity of the Cardano ecosystem.
Stableswap pools encourage users of other networks to bridge assets from those ecosystems and gain exposure to Cardano assets like iETH and iBTC, driving adoption of Cardano.
The use of a pioneering protocol such as StapleSwaps drives innovation in the Cardano ecosystem as a whole.
The Cardano Defi ecosystem and its users gain access to cheaper, more effective stablecoin liquidity. As a result, protocols may provide better pricing without spending as much on incentives, creating a virtuous loop that benefits all members.
Other Benefits of Using a DEX
DEXes also offer many general benefits for traders who want to exchange one token for another.
The tokens available on DEXs range from the well-known to the obscure and completely random. Due to the fact that anybody may mint a Cardano-based token and build a liquidity pool for it, there is a broader variety of both verified and unvetted applications. (DYOR)
Because all funds in any DEX trade are stored in the traders’ own wallets, they are potentially less vulnerable to hacking or other fraudulent causes of loss. (In addition, DEXs lower what is known as “counterparty risk,” which is the probability that one of the participating parties would default, including the central authority in a non-DeFi transaction.)
Finally, no personal information is necessary to use the majority of popular DEXs, thereby maintaining the users’ anonymity.
Buyer Beware (DYOR)
It should be firmly noted that, similar to any asset, protocol, or type of stablecoin (synthetic, algorithmic, or currency-backed), carries inherent risks! All users should DYOR and realize that, at the same time these projects empower DeFi, they also carry risks, and we are all responsible for our decisions and their consequences. It should also be noted that we have not audited Indigo, Djed, Emurgo, or Multichain Bridge, and we are not responsible for their code quality or their solution’s robustness. Always fully study and understand the risks before getting involved with any project. At the same time, WingRiders welcomes all of these stablecoins and what they will bring to Cardano, but is not responsible for any of their successes or failures as they are all independent projects.
If any of the stablecoins we have discussed fail, be it through depegging or for any other reason, in pools exposed to those assets on WingRiders, all swapping will be automatically halted to safeguard the portion of the other asset locked in that pool. In the case of a 15% depegging of a stablecoin, the halting mechanism described will automatically occur on the transaction execution level.
WingRiders
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