DX25 is a decentralized exchange built on top of the MultiversX network. There is no denying the ingenuity of the DeFi ecosystem. However, despite its rapid growth, three major issues are hampering DeFi’s growth:
- Operational complexities.
- Rigid fees.
- Illiquidity of long-tail tokens.
In this article, we will see how DX25 solves these problems.
Problem #1: Operational complexities
The original automated market maker (AMM) model followed the x*y = k formula. This model worked, but offered poor ROI since the liquidity provided was spread across the entire price range. AMMs have since evolved to adopt the Concentrated Liquidity Market Maker (CLMM) model. In CLMM, liquidity providers (LPs) provide liquidity within a specific range. While this increases the ROI, it also increases the LP’s workload. This is because LPs must constantly maintain their liquidity provision ranges to ensure their offering contains the current swap rate.
This active liquidity management has scared off non-professional passive LPs. Therefore, DeFi must be simple enough to attract both professional and non-professional LPs.
Solution
DX25 reduces operational complexity for non-professional investors by allowing LPs to ysubmit their tokens into a liquidity management pool. This pool provides the DeFi equivalent of a funds management layer in TradFi. This liquidity management pool takes care of activities such as:
- Choosing the token pair wherein the traded tokens will be submitted.
- The price ranges wherein the token orders will be allocated.
- The fees that should be applied for the trades
Problem #2: The fee problem
The profit collected by an LP is the difference between the fees charged and the impermanent loss suffered. If a protocol provides static fees, an LP’s profit is determined purely by impermanent loss. This is why LPs should use protocols that offer multiple fee levels.
Protocols like Uniswap V3, tried to offer multiple fee levels by providing multiple pools with a specific fee level. However, this approach made LPing inefficient and split liquidity into multiple pools.
Solution
DX25 offers multiple fee levels for every single position within the same pool. Every pool has the following 8 levels, with fees ranging from 0.01% to 1.28%. This approach has multiple advantages:
- The liquidity doesn’t get segmented across multiple pools.
- LPs achieve maximum profits for their liquidity pairs.
- Traders get efficient swaps since they access liquidity from all fee tiers.
Problem #3: Illiquidity of long-tail tokens
Not all tokens will attract the same level of interest and liquidity. Tokens like ETH and USDC will always attract more liquidity than other less popular tokens. As such, liquidity tends to get concentrated in certain pools, leading to unequal distribution. These illiquid token pools can be easily price manipulated by whales with sudden injection and withdrawal of liquidity.
Solution
DX25 will help illiquid pools with an auction mechanism. Usually, projects are forced to provide continuous liquidity to AMMs to mitigate illiquidity. The auctions have been designed to remove this burden. It is a normal process that allows price formation and exchange of assets.
Here is how the auction works:
- At the time of calling, the auction orders can be placed in a limit order fashion for the asset, denominated in stablecoins. Orders can be placed at any point up to the auction time.
- The auction gets settled at an “indicative clearing price.”
- At the allotted time, the auction processes and swaps are settled at the auction rate.
- Following the auction, DX25 conducts a “follow-on trading,” wherein the assets can be traded at the auction rate.
Overall, the auction feature will provide an effective AMM market for illiquid tokens.
In Closing
DX25 provides a DEX solution that suits the current DeFi environment. DeFi needs a functional yet practical DEX to solve the many problems plaguing this space. If you want to know more, then check out the DX25 website.
