Introduction to Concentrated Liquidity Pools and MultiversX’s pioneer — AshSwap V2
Concentrated Liquidity
Concentrated liquidity pools (CLPs) are a relatively new concept in the decentralized finance (DeFi) space. These pools differ from traditional liquidity pools, as they allow liquidity providers to concentrate their funds in a smaller price range, rather than spreading them out across the entire price curve. This can result in lower slippage for traders, as well as higher yields for liquidity providers.
There are two predominant types of concentrated liquidity pools. One requires active participation from liquidity providers (LPs), while the other handles liquidity management automatically.
Uniswap V3 / iZiSwap
Uniswap V3 introduced a new type of liquidity pool that allows LPs to concentrate their funds in a specific price range, rather than spreading them out across the entire price curve. This can result in lower slippage for traders, as they can trade at prices closer to the current market price. Liquidity providers also benefit from higher yields as their funds are concentrated in a smaller price range.
iZiSwap follows the same philosophy but uses discrete ticks and prices.
With this type of pools, when prices fall out of the given range, LPs will no longer receive trading fees since their liquidity will not be used and requires active management to maximize yields, which is complicated and impractical for unsophisticated DeFi users or projects, thereby reducing liquidity attraction.
Another disadvantage is that for more exotic tokens with prices that are more subject to heavy fluctuations, price discovery cannot occur. In the example above, when the price of 1Inch falls more than 20%, there will be almost no liquidity, and no trades will take place. One possible solution is to provide liquidity for the entire range, which renders concentrated liquidity obsolete, making Uniswap V2 a better option for these tokens.
Curve V2
Curve Finance has been extremely well-known for its Stable-swap pools which facilitate trading between similarly priced assets. However, it has a less understood concept called Curve V2.
In Curve V2, LPs provide liquidity for the whole range and do not need to actively change their ranges. The liquidity then is concentrated around the current price to allow larger trades, yet there’s liquidity for the whole range, meaning price discovery can still occur, making it suitable for all types of tokens.
AshSwap V2
Having been launched on a young ecosystem like MultiversX where most tokens have small market caps and need price discovery, AshSwap understands the needs and believes Curve V2 is a more suitable concept to implement.
In the next section, we will list some of the concepts AshSwap V2 and the benefits of participation in AshSwap V2 for trading, liquidity provision, or token listing.
Capital Efficiency
By utilizing concentrated liquidity technology, AshSwap V2 can significantly reduce slippage when trading with the same volume, compared to constant-product AMMs. With certain configurations, capital efficiency can be increased several times over.
This is beneficial for all parties. Traders can trade with larger volumes, LPs will get more fees and projects can have more efficient markets for their tokens.
Dynamic Peg
What sets AshSwap V2 apart from other CLPs is the dynamic peg. When prices move, an automatic mechanism will kick in to rebalance the pool, concentrating the liquidity to the new price. Not only does this provide flexible price discovery, it also reduces LPs’ impermanent loss.
Dynamic Fees
Another improvement that comes with AshSwap V2 is lower fees for small transactions. AshSwap has implemented a new fee structure that reduces fees for smaller trades, making it more accessible for everyone to use the platform. The new fee structure is now based on a sliding scale that is determined by the size of the trade.
Token Listing
One of our goals is to eventually make AshSwap permissionless. This means any tokens can be listed on AshSwap and the DAO will decide the important metrics. Projects can leverage these tools to boost token liquidity and usage.
👉 If you want your tokens to be listed on AshSwap, feel free to connect with us via hello@ashswap.io
Multiple Rewards
AshSwap allows projects to conduct liquidity mining with any tokens. This means when a token AAA is listed on AshSwap, there can be a farm created that rewards LPs with the AAA token. This inevitably increases the flexibility for projects to conduct their liquidity programs.
AshDAO & Bribe
Projects also have the option to bribe veASH holders to vote for farms to receive ASH. This will considerably boost yields and liquidity for tokens.
Conclusion
AshSwap V2 is a major upgrade that brings a number of new features and improvements to the platform. The more efficient liquidity pool design, lower fees for small transactions, increased flexibility with new pools, improved user interface, and integrations with other DeFi protocols all make AshSwap V2 a more attractive platform for both LPs and traders. The tokenomics and governance structure should also help to increase demand for ASH and ensure the long-term sustainability of the platform.
Overall, AshSwap V2 is a significant step forward for the DeFi ecosystem on MultiversX, and it will be interesting to see how the ecosystem continues to evolve and grow in the coming months and years.
