Wavelength Liquidity Pool Restructuring

3 min readApr 27, 2023

Introduction

Wavelength is an AMM protocol built on the Velas blockchain, designed to facilitate efficient decentralized trading and liquidity provision. The protocol relies on liquidity pools, where multiple assets are held in pre-defined ratios, allowing users to trade and provide liquidity for a range of tokens. To enhance the efficiency and profitability of Wavelength, it is necessary to restructure the current liquidity pool setup.

Current Liquidity Pool Setup

Wavelength currently supports seven liquidity pools, each with distinct asset compositions and allocation points:

Stable Trio: USDC/USDT/BUSD (33–33–33%);
Quad Core: BTC/ETH/BUSD/VLX (25–25–25–25%);
Velonian: VLX/BUSD (50–50%);
veWAVE: WAVE/BUSD (80–20%);
Stability: USDC/BUSD (50–50%);
EVM Quarter: AVAX/BNB/MATIC/VLX (25–25–25–25%);
DeepWAVE: WAVE/VLX (50–50%)

New Structure of Liquidity Pools

To optimize the protocol’s efficiency and profitability, a new setup is proposed, reducing the number of pools to four, with revised asset compositions and allocation points:

veWAVE: WAVE/ETH (80–20%)
DeepWAVE: WAVE/VLX (50–50%)
Velonian: VLX/USDT (50–50%)
Trinity: ETH/USDT/VLX (33–33–33%)

Rationale for the Proposed Restructuring

The restructuring aims to maximize the efficiency of each pool by focusing on a tight group of assets within the Velas ecosystem.. The reduced number of pools allows for a more focused approach to incentivizing liquidity provision and trading activity, ultimately driving higher returns for liquidity providers and the protocol itself.

The veWAVE pool, for example, is designed to isolate the stablecoin risk for the WAVE token by pairing it with ETH. The DeepWAVE and Velonian pools focus on the WAVE/VLX and VLX/USDT to generate increased trading volumes and fees for liquidity providers.

Finally, the Trinity pool concentrates the ETH/USDT/VLX trading pair, aiming to capture a significant portion of the trading activity within the Velas ecosystem as well as provide good arbitrage opportunities.

Details

The migration will begin on Saturday, April 29th 2023, at 14:00 UTC+2. The scope of the migration should be completed within a few hours since initiation. During the progress of the scope, the UI of the dApp will be brought down in order to allow the protocol ability to smoothly deploy new smart contracts and populate them with liquidity. Following the completion of the procedure, the UI will be switched-on and the protocol users and community members will be notified of completion and resumption of the standard operations.

Conclusion

The proposed restructuring of liquidity pools on Wavelength, an AMM protocol on the Velas blockchain, enhances the protocol’s efficiency and profitability. By reducing the number of pools and optimizing their compositions and allocation points, the new setup aims to provide a more focused approach to liquidity provision and trading activity, ultimately driving higher returns for liquidity providers and the protocol itself.

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