Democratization of orderbook liquidity
We learned at the last oracle why we use oracle-based execution to build perpetual trading exchange and how we built our oracle infrastructure around Pyth Network.
Today, I would like to share the other key component of Uniwhale Exchange — the Liquidity Pool.
Our Liquidity Pool democratizes orderbook liquidity by pooling liquidity providers into a single liquidity. Based on that pooled liquidity, Liquidity Pool acts as the central counterparty and clearinghouse to all positions.
But, hang on, Liquidity Pool acts as the counterparty to all positions?
Game you win
Our single-sided liquidity pool as the central counterparty to all positions at Uniwhale Exchange and its valuation proposition to liquidity providers are founded on the well-established academic research that demonstrates, over time, market makers win over short-term traders.
There are a number of academic literatures on this topic (for example, Jordan and Diltz and Barber et al.)
In their paper, Barber et al. summarizes:
the aggregate performance of day traders is negative, that the vast majority of day traders are unprofitable, and many persist despite an extensive experience of losses
The above is then illustrated clearly in the chart below.
Compared to providing liquidity to AMMs, we make it possible for liquidity providers to provide liquidity against a pattern of trading that has been extensively analyzed by the academia to show that liquidity providers will win!
An important point to note, however, is that this does not mean traders necessarily have to lose, quite the opposite. Liquidity providers take positions against all trades, whereas a trader takes one (or more) of the opposite of those positions. So liquidity providers are betting against the market, whereas a trader is betting against a specific event. So long as the market behaves as expected, the liquidity providers win (as the history demonstrates above). So long as specific events behave as expected, the trader wins!
Provide liquidity the way you want it and earn passive yield
You can provide liquidity to Uniwhale Exchange, either directly by posting limit orders (coming soon), or by pooling your assets with others into Liquidity Pool.
Liquidity Pool thus provides a convenient way to earn passive real yield (trading fees) from market making and leverage trading.
Provide single-sided liquidity with stablecoins
The design of the Liquidity Pool allows the market making of the orderbook at a fixed / pre-determined fee, with zero slippage, benefitting both traders and liquidity providers.
Liquidity Pool uses our oracle aggregator to determine its mid-price and apply a fixed fee based on a pre-determined rule to create bid and ask, which are then used to fill the market limit orders on the orderbook. We will go into more details on the transaction costs at Uniwhale in the next article.
The Liquidity Pool accepts a number of stablecoins. Liquidity Pool tokens can be minted using any of these stablecoins and burnt to redeem any of these. The price at which the Liquidity Pool token is minted or burnt is determined based on the total market value of the Liquidity Pool divided by the outstanding supply of the token.
Since the counterparty of all trades is the Liquidity Pool, this is a zero-sum game between liquidity providers and traders: the traders’ profit and losses will be directly transferred from/to the Liquidity Pool (resulting in a price increase/decrease of the Liquidity Pool token).
Adding liquidity
You can provide liquidity to Uniwhale Exchange either with BUSD or with other stablecoins. If other stablecoins are provided, they are swapped into BUSD using a third-party DEX (e.g. PancakeSwap), with the minimum amount of BUSD (i.e. maximum slippage) specified by you.
The number of Liquidity Pool tokens minted in return is proportional to the amount of BUSD you provide relative to the BUSD balance Liquidity Pool holds.
Removing liquidity
You can remove liquidity from Uniwhale Exchange any time either in BUSD or in other stablecoins. If in other stablecoins, the relevant BUSD is swapped into the stablecoin using a third-party DEX (e.g. PancakeSwap), with the mininum amount of the stablecoin (i.e. maximum slippage) specified by you.
Because Liquidity Pool balance must be sufficiently collateralized to meet all its obligations (more details in the next article), the maximum liquidity you can remove at any time is restricted to the excess balance available (i.e. the difference between the Liquidity Pool balance and the collateral requirement).
The amount of BUSD or the stablecoin received in return is proportional to the amount of the Liquidity Pool tokens burnt relative to the outstanding supply of the token.
What’s next
In summary, Uniwhale is an oracle-based decentralized on-chain perpetual trading exchange where
- You can trade, with up to 200x leverage, BTC, ETH, and many mainstream crypto assets, directly from your wallet.
- You can provide liquidity with stablecoins like BUSD, USDC, USDT, and more, to earn real yield from market-making and leverage trading.
So what’s next? Trade it!
We will be announcing soon our testnet launch on BNB Chain. We are very excited indeed, and, so I would like to explain in details at the next article what you should know before you test-trade Uniwhale 1.0!
To get involved and to stay updated on all Uniwhale related matters:
- Visit us on uniwhale.co
- Find our codes on Github
- Follow Uniwhale on Twitter
- Subscribe to the Uniwhale Medium
- Join the Uniwhale community on Discord
