OxChange Finance ✅ Gasless DEX on Polygon Chain!

6 min readApr 17, 2023

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Oxchange Finance is a Gasless Decentralised Exchange on Polygon Chain

Introduction

Automated market makers (AMMs) are agents that pool liquidity and make it available to traders according to an algorithm. Constant function market makers (CFMMs), a broad class of AMMs of which OXCHANGE is a member, have seen widespread use in the con-text of decentralized finance, where they are typically implemented as smart contracts that trade tokens on a permissionless blockchain

CFMMs as they are implemented today are often capital inefficient. In the constant product market maker formula used by v1 and v2, only a fraction of the assets in the pool are available at a given price. This is inefficient, particularly when assets are expected to trade close to a particular price at all times.

Prior attempts to address this capital efficiency issue, such as Curve and YieldSpace, have involved building pools that use different functions to describe the relation between reserves. This requires all liquidity providers in a given pool to adhere to a single formula, and could result in liquidity fragmentation if liquidity providers want to provide liquidity within different price ranges.

In this paper, we present OXCHANGE v3, a novel AMM that gives liquidity providers more control over the price ranges in which their capital is used, with limited effect on liquidity fragmentation and gas inefficiency. This design does not depend on any shared assumption about the price behavior of the tokens. OXCHANGE v3 is based on the same constant product reserves curve as earlier versions, but offers several significant new features:

• Concentrated Liquidity: Liquidity providers (LPs) are given the ability to concentrate their liquidity by “bounding” it within an arbitrary price range. This improves the pool’s capital efficiency and allows LPs to approximate their pre-ferred reserves curve, while still being efficiently aggregated with the rest of the pool. We describe this feature and its implementation.

• Flexible Fees: The swap fee is no longer locked at 0.30%. Rather, the fee tier for each pool (of which there can be multiple per asset pair) is set on initialization. The initially supported fee tiers are 0.05%, 0.30%, and 1%. OXCHANGE governance is able to add additional values to this set.

• Protocol Fee Governance: OXCHANGE governance has more flexibility in setting the fraction of swap fees collected by the protocol.

• Improved Price Oracle: OXCHANGE v3 provides a way for users to query recent price accumulator values, thus avoiding the need to checkpoint the accumulator value at the exact beginning and end of the period for which a TWAP is being measured.

• Liquidity Oracle: The contracts expose a time-weighted average liquidity oracle.

The OXCHANGE v2 core contracts are non-upgradeable by de-sign, so OXCHANGE v3 is implemented as an entirely new set of contracts, available here. The OXCHANGE v3 core contracts are also non-upgradeable, with some parameters controlled by governance as described.

What Is OXCHANGE?

Protocol, Interface, Labs

To begin, we should make clear the distinctions between the different areas of “OXCHANGE”, some of which may confuse new users.

OXCHANGE Labs: The company which developed the OXCHANGE protocol, along with the web interface.

The EXCHANGE Protocol: A suite of persistent, non-upgradable smart contracts that together create an automated market maker, a protocol that facilitates peer-to-peer market making and swapping of ERC-20 tokens on the Polygon blockchain.

The OXCHANGE Interface: A web interface that allows for easy interaction with the OXCHANGE protocol. The interface is only one of many ways one may interact with the OXCHANGE protocol.

OXCHANGE Governance: A governance system for governing the OXCHANGE Protocol, enabled by the OXCHANGE token.

The following is a brief overview of the OXCHANGE protocol

Introduction

The OXCHANGE protocol is a peer-to-peer1 system designed for exchanging cryptocurrencies (ERC-20 Tokens) on the Polygon Blockchain. The protocol is implemented as a set of persistent, non-upgradable smart contracts; designed to prioritize censorship resistance, security, self-custody, and to function without any trusted intermediaries who may selectively restrict access.

How does the OXCHANGE protocol compare to a typical market?

To understand how the OXCHANGE protocol differs from a traditional exchange, it is helpful to first look at two subjects: how the Automated Market Maker design deviates from traditional central limit order book-based exchanges, and how permissionless systems depart from conventional permissioned systems.

Order Book VS AMM

Most publicly accessible markets use a central limit order book style of exchange, where buyers and sellers create orders organized by price level that are progressively filled as demand shifts. Anyone who has traded stocks through brokerage firms will be familiar with an order book system.

The OXCHANGE protocol takes a different approach, using an Automated Market Maker (AMM), sometimes referred to as a Constant Function Market Maker, in place of an order book.

At a very high level, an AMM replaces the buy and sell orders in an order book market with a liquidity pool of two assets, both valued relative to each other. As one asset is traded for the other, the relative prices of the two assets shift, and a new market rate for both is determined. In this dynamic, a buyer or seller trades directly with the pool, rather than with specific orders left by other parties. The advantages and disadvantages of Automated Market Makers versus their traditional order book counterparts are under active research by a growing number of parties. We have collected some notable examples on our research page.

Permissionless Systems

The second departure from traditional markets is the permissionless and immutable design of the OXCHANGE protocol. These design decisions were inspired by polygon’s core tenets, and our commitment to the ideals of permissionless access and immutability as indispensable components of a future in which anyone in the world can access financial services without fear of discrimination or counter-party risk.

Permissionless design means that the protocol’s services are entirely open for public use, with no ability to selectively restrict who can or cannot use them. Anyone can swap, provide liquidity, or create new markets at will. This is a departure from traditional financial services, which typically restrict access based on geography, wealth status, and age.

The protocol is also immutable, in other words not upgradeable. No party is able to pause the contracts, reverse trade execution, or otherwise change the behavior of the protocol in any way. It is worth noting that OXCHANGE Governance has the right (but no obligation) to divert a percentage of swap fees on any pool to a specified address. However, this capability is known to all participants in advance, and to prevent abuse, the percentage is constrained between 10% and 25%.