Since their inception in 2018, AMMs have grown to become a core piece of infrastructure in DeFi, allowing anyone to trade and market make in just a few clicks. Yet although TVL and trading volume have grown exponentially, the underlying technology has seen little improvement. Issues such as capital inefficiency, impermanent loss, and high fees remain unsolved, costing both traders and liquidity providers unnecessary fees that rarely exist in the world of traditional finance.
Enter Lifinity.
What is Lifinity?
Lifinity Protocol is a community-based decentralized exchange powered by a game-changing proactive market maker designed to improve capital efficiency and reduce impermanent loss.
This is achieved by:
1. Concentrating liquidity
2. Proactively market making using oracles
3. Implementing a rebalancing mechanism
Concentrated liquidity works to improve capital efficiency for liquidity providers while reducing slippage for traders. By using oracles as the key pricing mechanism, the market maker is able to reduce impermanent loss, as it does not rely on arbitrageurs to adjust the price. Lastly, the rebalancing mechanism ensures that the balance of pooled assets will regress to the bonding curve while generating profit by delaying the rebalancing process.
Concentrated Liquidity
Liquidity concentration is a method of adding depth to the market by concentrating capital within a certain price range. Unlike the standard constant product curve (x * y = k) where liquidity is provided across a price range from 0 to infinity, concentrated liquidity provides capital in a limited price range, thereby improving capital efficiency.
There are several ways of concentrating liquidity, but we take a simple yet unique approach of leveraging the value of k. This is achieved by simply multiplying x and y by L, the amount of leverage.
Proactive Market Making Using Oracles
Although concentrating liquidity improves capital efficiency, it also increases the risk of impermanent loss. To minimize this risk, the protocol proactively market makes using oracles.
Since our pools do not rely on arbitrageurs to adjust the price, this can greatly reduce impermanent loss. In fact, impermanent loss can even be reversed and turned into “impermanent gain” by buying low and selling high. Furthermore, oracles on Solana such as the Pyth Network provide data feeds every slot (currently about 0.5 seconds), making it impossible for arbitrageurs to front run.
Rebalancing Mechanism
While the above is sufficient for the protocol to efficiently market make, it lacks the simplicity that the standard constant product has where the value of the two assets are always equal. To add this property while maximizing profit, the protocol rebalances the pool by adjusting liquidity. This adjustment of liquidity occurs on every trade. For example, when the amount of x is less than the amount of y, the market maker will decrease liquidity for buyers of x and increase liquidity for sellers of x to maintain balance. This will incentivize traders to sell against the pool while discouraging them from buying, which ensures that the pool’s balance will regress to the bonding curve.
Are there risks?
Yes. Although our preliminary tests have shown positive results, liquidity providers may incur impermanent loss, just like any other concentrated liquidity protocol. The team will continue to perform comprehensive tests to ensure the safety of the protocol and will explain all the potential risks before opening the pools for deposits.
Core Values and Goals
At Lifinity, we aim to be fair and inclusive to all. This is why we are a DEX aggregator even though we’re a DEX ourselves, as this is the only way we can ensure that our users get the best price.
We believe that anyone should have access to professional market making strategies, which are currently dominated by institutional market makers from traditional finance. Lifinity enables anyone to provide liquidity and earn a yield on their assets without the need for specialized knowledge.
The name Lifinity comes from the words “liquidity” and “infinity.” By proactively market making, the protocol aims to provide virtually infinite liquidity, deep enough to facilitate all types of trading needs. The goal of the protocol is to build a sustainable AMM model with fees as low as centralized exchanges while maintaining profitability for liquidity providers.
Join us on our journey to make finance more open and fair!
- App: https://lifinity.io
- Discord: https://discord.gg/K2tvfcXwWr
- Twitter: https://twitter.com/Lifinity_io
