What is Puzzle Swap

This article covers the basic vision of the new DeFi tool on Waves Protocol. I will explain the role of AMM exchanges and clarify how Puzzle Swap fits in with its features and growth strategy.

TL;DR
Puzzle Swap is a next generation AMM exchange enabling mega pools which will bring new light to the Waves DeFi ecosystem.

What is an AMM exchange

AMM is an exchange that allows instant trades using a math formula that calculates swap price. Unlike orderbook exchanges, this kind of tool makes it possible to swap any amount of tokens instantly.

There are two types of users: traders who buy and sell different assets and investors (liquidity providers) who put assets into the pool to be traded and earn fees for it.

The best examples of successful AMM exchanges are Uniswap and Curve powered by Ethereum and swop.fi which is a part of the Waves ecosystem. But! Puzzle Swap puts a completely new twist on AMM exchanges.

Why is Puzzle Swap different

In the classic AMM model (called CPMM) it’s allowed to trade only 2 assets in one pool. It basically means that liquidity providers can put a maximum of 2 assets that will be traded between each other, for example WAVES to USDN and backwards in the WAVES/USDN pool.

Puzzle Swap uses another AMM model which allows to trade up to 10 assets in one pool. At Puzzle, these pools are called mega pools. Currently there are two mega pools: puzzle.surf/farms and puzzle.surf/farms2.

What are the benefits of mega pools? First of all, traders can directly exchange an asset for one of the other 9 assets. Secondly, it benefits liquidity providers: they have less impermanent loss risk and earn more fees based on a bigger amount of trades due to the diversity of assets. Liquidity providing details will be explained in further publications but an important thing to note is that investing in mega pools turns out to be more efficient than in traditional pools.

Collaboration with Waves Ducks ecosystem

Puzzle Swap is already meeting the needs of Waves Ducks by enabling collective farm tokens trading. In the first weeks after launch it reached $200k trading volume with 190 trades daily.

There are three reasons why this was such a great match:

• traders can exchange share tokens for both EGG and USDN, or swap it with other collective farm tokens;
• no need to create a pool for each collective farm token (there are 15 of them) — thanks to Puzzle there are two mega pools instead which are traded very actively;
• it is much easier to provide liquidity since less USDN and EGG tokens are needed.

With time, Puzzle Swap features might be implemented into the Waves Ducks interface allowing users to trade share tokens directly from the collective farm page.

What to expect from Puzzle

Although Puzzle Swap has started as a tool for Waves Ducks users, it is destined to grow into a fully functional DeFi product boosting the robustness of the entire ecosystem. Waves Ducks is a perfect “launchpad” facilitating further development of the project.

Provided with sufficient organic growth, Puzzle Swap could be used to create other mega pools. Just imagine the possibilities of a mega pool trading WAVES+NSBT+SWOP+VIRES!

Flexible pool mechanics also make it possible to create pools suitable for IDOs and many other things. So, the fun is just beginning 😉

In the near future, Puzzle Swap is going to see rapid growth, and not only from a tech perspective. We’ve got some big announcements and publications coming soon:

• Product roadmap
• Liquidity Providing rules explanation
• Puzzle tokenomics

With an innovative approach, Puzzle Swap has a great chance of starting a new DeFi chapter in the Waves ecosystem by presenting new opportunities to investors and traders. Follow Puzzle Swap Twitter account to stay tuned!