Decentralized exchanges (DEXs) have become a popular way for traders to buy and sell cryptocurrencies. These exchanges operate differently from centralized exchanges as they don’t have a central authority to regulate trading, making them more decentralized. With the rise of DEXs, many developers have started creating new protocols to compete in the market. One such protocol is Algebra, which is gaining traction due to its concentrated liquidity & dynamic fee model and other unique features. In this article, we will discuss why it is more profitable for DEXs to acquire the license for the Algebra’s code rather than fork Uniswap V3.
The Top-Tier CL Provider
Algebra’s reputation as a top-tier DeFi solution provider has been solidified through a series of strategic partnerships with various protocols — THENA, QuickSwap, Camelot, SpiritSwap, Zyberswap, StellaSwap, Ubeswap, to name a few. The industry’s increasing preference for our platform is no coincidence; it stems from the superior quality of our code and its enhanced forking resilience in comparison to that of Uniswap V3’s. Our robust support system, coupled with our comprehensive integration guides, have made us the go-to choice for teams seeking a dependable and seamless integration of our cutting-edge solutions.
Algebra’s innovative and dynamic concentrated liquidity solution has earned it a spot in the top 10 most forked protocols by Total Value Locked (TVL). In fact, if it weren’t for Pancake’s forking of Uniswap V3, Algebra’s solution could have outperformed Uni.
Dynamic Fees Model
The dynamic fees solution of Algebra is one of its standout features. It offers only one pool with a dynamic fee model that calculates the fee depending on various factors such as volatility and pool volume. Liquidity Providers (LPs) can choose custom price range options and find the best conditions for liquidity providing, minimizing price slippage and impermanent loss while maximizing their profits thanks to the higher fees obtained by Liquidity Providers. Thus, LPs can enjoy a more comfortable and easy LP experience. On the other hand, Uniswap V3 has four different pools for every pair with fixed fees, making it difficult for LPs to select the most profitable one. With Algebra, LPs are not required to select pools and transfer liquidity between them to earn the highest fee rewards.
Capital Efficiency & Returns
Algebra’s dynamic fee model allows LPs to take on more risk by investing in a smaller price range and be fairly rewarded by increasing their LP effectiveness. This approach is more capital-efficient and can provide greater returns to LPs, especially compared to the traditional “x * y = k” model. By concentrating liquidity on narrower price ranges and using liquidity more efficiently, LPs using Algebra’s V3 models with concentrated liquidity and adaptive fees can earn many times more from the same liquidity than those using the x * y = k model.
Custom Directional & Dynamic Volatility Fees
Algebra’s dev presented an updated version of its already popular Adaptive Fees approach, prepared specially for Camelot V3 on Arbitrum — the custom Directional & Dynamic Volatility Fees, which adjusts the fees of each pool to the underlying volatility, adding significant efficiency gains. These volatility-based fees can be set separately depending on the buy and sell direction, further boosting fees and volume. In periods of low volume, fees will adjust lower accordingly, and likewise, when the market is significantly volatile, the fees will increase to reflect it. This allows for much more effective value capture for LPs, where fees more accurately reflect the risk an LP takes.
Built-in Farming
Algebra also offers built-in farming, allowing users to provide liquidity and farm their crypto, all in one place and at the same time! Besides the fees earned as a liquidity provider, users can earn great APR from farming on any Algebra-powered DEX. The V2 Farming updates eliminate the need to wrap a liquidity provider’s NFT into another Farming-NFT, requiring fewer actions from a user and simplifying integrations with third-party protocols. Users can increase or decrease liquidity without exiting farming.
Limit Orders
Limit Orders is a feature enabling the automatic closing of orders at a specific price without the need for an intermediary. This feature is designed to reduce price impact and provide new opportunities for market makers and traders, making the Algebra Protocol even more attractive to aggregators and regular users. Adding orders with a fixed execution price is a valid continuation of the tick mechanism, and is probably going to be implemented by competing protocols in the future. By simply reducing the price impact, as well as adding new scenarios for market makers and traders, the presence of limit orders at a fixed price can increase the attractiveness of a DEX for basically all market participants.
Custom Features
Algebra’s latest update introduces several custom features, such as Tickspacing Adjustment, Elastic Supply Tokens’ support, and a reduction of flashloan fees, aimed at enhancing the user experience and increasing the attractiveness of its technology.
Of particular note is the ability for integrated DEXs to adjust the tickspacing for pools, a feature that improves the performance of stablecoin pairs and enables Algebra’s pools to compete more effectively with Uniswap V3. Previously, Algebra’s base tickspacing number was set at 60, but with this update, integrated DEXs have the flexibility to customize a pool’s tickspacing as desired.
This update employs a doubly linked list mechanism for storing and moving by ticks, which significantly reduces gas fees for swaps. Algebra’s V2 also allows for the configuration of every pool with its own tick spacing settings, providing tailored parameters and extreme flexibility for every pair, thus enhancing efficiency and capturing more volume and fees.
In conclusion, the Algebra DEX Engine offers a range of advantages over Uniswap V3, including Dynamic Fees, Built-in Farming, Limit Orders, custom features, a single pool with a dynamic fee model, and much more. These features make it more attractive to both liquidity providers and traders and highlight why it is more profitable for decentralized exchanges to fork Algebra code. Additionally, with technical support from our development team, the implementation of your DEX will go smoothly and be as simple as ever.
Don’t wait! Contact us to build the concentrated liquidity DEX of your dreams, here.
About Algebra
Algebra is a Protocol allowing projects to implement the Concentrated Liquidity tech, along with other groundbreaking features. Already integrated into Camelot, THENA, QuickSwap, StellaSwap, Zyberswap, SpiritSwap, Ubeswap, Nomiswap, SkullSwap, and more DEXs on different chains, Algebra helps them acquire higher volume & raise capital efficiency. Learn more on our website: algebra.finance.
$ALGB is the platform token of the Algebra Protocol, which can be staked, and used for governance, liquidity provision, and much more. The Algebra stakers get part of all fees acquired from the integrated DEXs in ALGB, while part of the commissions is used for buybacks, which strengthens the token itself. ALGB on CoinMarketCap.
