Enhancing capital efficiency and flexibility for traders and liquidity providers
Lightning-Fast Trades — Start Swapping Now!
Introduction
Decentralized exchanges (DEXs) have been gaining popularity over centralized exchanges due to their improved security, privacy, and control. One such DEX is zkSwap, a highly efficient decentralized exchange utilizing concentrated liquidity on zkSync to distribute liquidity more effectively across price ranges.
What is zkSwap?
zkSwap is an Automated Market Maker (AMM) that provides traders with greater control over the price ranges they provide liquidity to, enabling a more efficient trading experience. It leverages concentrated liquidity to improve capital efficiency and offers flexible fee structures, auto-compounding fees, and farming rewards.
Concentrated Liquidity
Traditional AMMs use a constant product formula (CFMM), distributing liquidity across the entire price range. However, providing liquidity to ranges with minimal price action is not the best use of capital. Concentrated liquidity allows liquidity providers (LPs) to focus their liquidity around custom ranges, increasing capital efficiency.
Capital Efficiency
Compared to constant product DEXs, concentrated liquidity DEXs like zkSwap can achieve significantly higher capital efficiency. This efficiency can be calculated using the formula 1 — pa/b, where a and b are the respective price ranges. For example, providing liquidity in a small tick range can be up to 20,002 times more efficient than providing liquidity in the price range (0, ∞) on a constant product DEX.
Auto-compounding Fees and Reinvestment Curve
Unlike most CFMMs, concentrated liquidity DEXs do not offer auto-compounding of trading fees into liquidity positions. zkSwap addresses this issue by reinvesting fees into a separate curve that acts as a regular CFMM, allowing fees to start earning immediately regardless of the current price. This combines the benefits of concentrated liquidity with the fungible nature of CFMMs.
Flexible Fees and Farming Rewards
zkSwap offers various fee structures, allowing LPs to choose lower fees for trading pairs with reduced volatility or higher fees for volatile pairs. Additionally, farming rewards are distributed based on the total time a liquidity position has been in range, ensuring that LPs who take on impermanent loss risk are properly compensated.
Future Improvements
zkSwap is continuously researching ways to improve the platform. Some areas of focus include:
- Dynamic fees: Implementing bid-ask spreads to combat impermanent loss, a significant issue faced by LPs, and improving overall PnL for users.
- Farming automation: Exploring off-chain keeper bots to improve the user experience around farming, as currently, staked NFTs need to be rolled over manually for the next round of rewards.
Conclusion
zkSwap represents a new generation of DEXs that leverages concentrated liquidity on zkSync to provide a more efficient and flexible trading experience. By continuously researching and implementing improvements, zkSwap aims to revolutionize the world of decentralized finance, ensuring democratized access for all.
Links
Website: https://zk-swap.xyz/
Twitter: https://twitter.com/_zkSwap
Discord: https://discord.gg/zkswap
Whitepaper: https://zk-swap.xyz/whitepaper.pdf
