The transition of Beamswap DEX to a v3 CLMM DEX was announced recently, including in Beamswap’s Moonbeam Grant Proposal.
In this post, you will learn what the upgrade will bring and how you can benefit from it in your day-to-day DeFi journey.
What is a CLMM DEX?
A CLMM DEX, also known as a v3 DEX, is a decentralized exchange that utilizes the concentrated liquidity market maker (CLMM) protocol to execute transactions.
CLMM was introduced as an upgrade to the automated market maker (AMM) and was first released by Uniswap v3. In its current state, Beamswap is still an AMM but, in its aim to deliver the best DeFi experience to its users, it will soon upgrade to CLMM.
Why does AMM need an upgrade?
In AMM DEX, liquidity is sourced from liquidity pools to perform peer-to-peer asset swaps. However, the uneven allocation of liquidity pool tokens makes them range in price from zero to infinity. This could mean that some (or most) tokens could never get utilized for swaps, except in pools with very low liquidity.
The situation when only a small part of the LP token pool generates revenue from facilitating swaps while the majority remains idle is known as low capital efficiency. It could indicate poor utilization of liquidity pools and low chances for liquidity providers to earn rewards for what they supply.
This is where CLMM comes in.
How does CLMM work?
A concentrated liquidity market maker, true to its name, concentrates the allocation of LP tokens within a narrow price range. This way, liquidity providers boost the capital efficiency of a DEX, resulting in more facilitated swaps and, ultimately, higher fees earned for their liquidity contribution.
So, similar to AMM, a CLMM DEX gathers liquidity from liquidity providers. But with CLMM, the supplied tokens are not spread out across a nearly infinite price range. Instead, they are supplied exactly at or around their current market value.
Liquidity providers decide where they want to allocate their LP tokens, for example, in a range from $10 to $20. That range is further split into ticks where every value has equal liquidity distribution, for example, a tick for $11 tokens, $12 tokens, $13 tokens, etc.
The LP tokens stay supplied in these ticks until liquidity providers decide to withdraw them. However, when the market value of the supplied tokens moves outside the set range, they earn no fees for supplying them to the liquidity pool.
What benefits will Beamswap v3 (CLMM) deliver?
In the newest upgrade, Beamswap will shed its reliance on AMM — be it standard or stable — and evolve fully to a CLMM-powered DEX, or v3, for short.
This will allow you to get the best of the DeFi world while boosting your liquidity provider earnings.
Beamswap v3 (CLMM) will deliver:
- Greater capital efficiency. With liquidity concentrated within a narrow price range, Beamswap v3 capital will be allocated more efficiently, with less TVL left unused. For example, USD 2 Mio in liquidity on a GLMR-USDC pair with a USD 2 Mio trading volume in a 24h period would mean a 100% efficient liquidity utilization rate.
- Lower slippage. Thanks to an optimal liquidity allocation, your transactions on Beamswap v3 will experience less slippage, and you will get better value for your trades.
- Higher yields for LPs. As a liquidity provider on Beamswap v3, you will be able to earn higher fees with fewer tokens deposited. For example, with only 10 tokens deposited in a CLMM liquidity pool, you could earn the same yield as with 1,000 tokens inefficiently deployed in an AMM. This also leaves you with more tokens to use elsewhere on Beamswap to generate yields.
In general, improved capital efficiency in DeFi helps the trapped TVL from AMMs to be put to use elsewhere. Beamswap v3 (CLMM) will unlock new opportunities for both traders and liquidity providers.
As a DeFi-er, you will get better trades with less slippage, and as a liquidity provider, you will be able to earn fees by depositing your unused assets as LP tokens.
Beamswap v3 (CLMM) about to launch
With the newest release, Beamswap v3 (CLMM) will become a Moonbeam-based CLMM DEX, boosting capital efficiency and serving the Beamswap community better.
Keep an eye on Beamswap announcements and ride the wave of innovation with Beamswap v3. 🚀
About Beamswap
Beamswap is a DeFi hub built on the Moonbeam Network featuring a decentralized exchange (DEX) and an automated market maker (AMM). It gives users the freedom of adding liquidity, performing peer-to-peer transactions, swapping fungible tokens, and earning passive income from staking and yield farming. Beamswap will support the growth of Moonbeam’s ecosystem and act as a launchpad for new projects developing on the network. Our team’s mission is to aid in the multichain vision to serve as a host for projects on the Moonbeam & Polkadot Ecosystem while working alongside projects with existing infrastructure looking to bridge into the multichain universe.
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