RAMSES’ Concentrated Liquidity: The Future of Liquidity Provisioning
Introduction
Blockchain trading has traditionally demanded a level of expertise exceeding that required for trading on centralized exchanges. A key driver behind this disparity is liquidity. Most traders, by instinct, lean towards markets that offer efficiency, convenience, and, most importantly– ample liquidity. On-chain liquidity provisioning (LPing), while in its early stages, is set for a significant uplift with the advent of RAMSES CL (concentrated liquidity). By intertwining the revolutionary concept of concentrated liquidity with a proprietary Bribe Infrastructure, RAMSES aims to unlock new levels of capital efficiency.
RAMSES CL is now launched, with additional features and capabilities rolling out as they are finalized. We invite you to delve into our unique implementation and discover how RAMSES is able to significantly enhance the liquidity dynamics of Arbitrum.
Understanding Concentrated Liquidity
Imagine Bob and Claudia, both holding an equal amount of ETH and USDC, looking to generate yield on their assets. Let’s consider two liquidity pools on RAMSES for the ETH/USDC pair:
- v1 pool with 0.3% fees (without concentrated liquidity)
- v2 pool with 0.05% fees (employing concentrated liquidity).
Bob, enticed by higher fees, opts for the v1 pool, while Claudia chooses to strategically concentrate her liquidity within a 15% range in the v2 pool, undeterred by lower fees.
In a scenario where trading demand for both pools are comparable, Claudia’s position, strategically concentrated around the market price, will generate superior volume and trading fees compared to Bob’s, despite the presence of a lower fee structure. This is due to Claudia’s liquidity being spread over a small, concentrated range of prices rather than any possibility range along the x*y=k curve.
This advantageous outcome is the direct result of the power of concentrated liquidity where, although the fee structure is lower, Claudia is able to facilitate more trades, earning her a higher volume of trading fees to offset the lower fee tier. Claudia’s only added responsibility lies in aligning her position with anticipated ETH volatility. RAMSES capitalizes on this dynamic to increase the competitiveness of liquidity provisioning, thus redefining the standards of efficiency in decentralized trading.
RAMSES and the Liquidity Revolution
The bespoke bribe infrastructure of RAMSES greatly enhances liquidity efficiency, even within Uniswap v2-like pools. As it stands, RAMSES is averaging over $100k in weekly revenue. These operations yield a net inflow weekly that is designated for veRAM holders. RAMSES can generate upwards of $1 in fees and bribes for each $1 in total value locked (TVL). When this performance is coupled with the concept of concentrated liquidity, the role of LPing undergoes a significant transformation, morphing into a highly competitive activity.
LPing is fundamentally similar to market making, which is where AMMs get their name from. However, they lack the cutthroat competition of market making in traditional finance. In contrast, with RAMSES CL, much like the environment of traditional exchanges, market participants are propelled to maintain tighter spreads to secure a larger slice of the rewards. This competition cultivates an environment of deep liquidity within these pairs, attracting a surge in trading volumes that surpasses those typically observed on decentralized exchanges.
Let’s consider a scenario where both Bob and Claudia decide to concentrate their liquidity in the ETH/USDC pool. In this situation, both parties would receive emissions and a percentage of the fees. However, if Claudia opted to refine her strategy by compressing the same dollar amount of assets into a narrower/tighter range, her contribution would represent a larger share of the liquidity pool. This would yield a higher return in fees and emissions.
This change in Claudia’s strategy would serve as a catalyst, prompting Bob to reevaluate his own spread to stay competitive, leading him towards a tighter approach. This push-pull effect would continue, as Claudia would then be motivated to further concentrate her spread in response to Bob’s actions. This perpetual cycle of adaptation and refinement mirrors the competitive nature of market-making in traditional exchanges. It drives the creation of deeper liquidity pools, which in turn supports the growth of trading volumes in decentralized exchanges.
Benefits for veRAM Voters
In RAMSES CL pools, the trading fees will be divided amongst the LPs and voters, and optionally a percentage will be dedicated to the ecosystem fund. Despite this change, veRAM voters will still retain the lion’s share of the fees, capturing between 75–90% of them. LPs stand to earn between 10–25% of the fees, and the ecosystem fund will accumulate 0–5%. However, the fee structure of v1 pools remains untouched, with veRAM voters continuing to amass all of the trading fees. The bribe collection mechanism also remains consistent across v1 and RAMSES CL, with veRAM voters collecting all of the bribes.
Now, let’s return to Bob and Claudia. If Bob decides to cast his vote for a v1 pool, under the impression that he could gain a larger portion of the fees and therefore earn more in an epoch, and Claudia opts to vote for a RAMSES CL pool, Claudia is likely to realize a higher fee income. This is attributed to the fact that RAMSES CL pools are expected to generate higher fees as a result of their deep liquidity and minimal slippage.
The Impact of RAMSES in DeFi
The significance of these changes cannot be overstated.
Until now, ve(3,3) DEXs have been making liquidity provisioning competitive by introducing emissions. RAMSES has taken this a step further by incorporating concentrated liquidity and modified fee gauges, thereby creating the most competitive liquidity provision market in the space. This opens up exciting opportunities — specialized market makers can provide liquidity, builders can develop yield or asset management services, and projects can incentivize deeper liquidity by offering bribes to RAMSES CL pools. Meanwhile, the average liquidity provider can pursue higher yields.
Looking Ahead
For some time, the user experience offered by DEXes has diverged from that of their traditional counterparts. RAMSES is closing this gap and enhancing the competitiveness of DEXes in a manner that could catalyze an increase in trading volumes. This advancement would set in motion the flywheel of revenue for veRAM holders. LPs can also earn from providing tight spreads to traders who will find deep liquidity and therefore, low slippage. The RAMSES ecosystem has always been rooted in principles of sustainability and capital efficiency. With the eagerly anticipated introduction of RAMSES CL, this commitment remains at the forefront of our initiatives.
About RAMSES
RAMSES is the native liquidity layer on Arbitrum utilizing a unique perspective on ve(3,3) Decentralized Exchange infrastructure. RAMSES offers unparalleled capital efficiency and innovative tokenomics that allow protocols to bootstrap liquidity, and users to have some of the best trading experiences while building a robust decentralized economic system with the Arbitrum ecosystem.
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