Xave’s FX AMM receives support through the Balancer Grant Program
The Balancer Grant’s Committee has recently announced its support for Xave Finance’s innovative FX AMM. Read more about this here.
This is a follow up from our previous announcement on building Xave’s custom AMM on Balancer v2. See our first grant announcement here.
The Xave Finance and Balancer team have been working alongside each other the past 2 years to build stronger infrastructure for a more liquid stablecoin market. We aspire for this to drive greater adoption of local stablecoins as a base currency for investments and transactions.
Xave Finance is grateful for the support provided by the Balancer Grants SP team in bringing liquid foreign exchange (FX) trading pairs to the Balancer’s Boosted Pools. This involves upgrading our FXPools through pairing non USD asset backed stablecoin (such as XSGD, XIDR, EURS, etc) against the bb-a-usd BPT token of the Balancer Boosted USD Pool (our FXPool pairs against USDC). Our ultimate objective is to create EURS:bb-a-usd, XSGD:bb-a-usd FXPools as an alternative for creating EURS:USDC, XSGD:USDC FXPools on Xave.
Why the focus on stablecoins?
Globally, the total value of stablecoins on issue reached around US$185 billion as of April 2022, up from around US$30 billion at the start of 2021. As per CoinGecko’s market dominance data, USD-denominated stablecoins make up about 98% of all the stablecoin volume. For an industry that prides itself on decentralization, stablecoins seem to centralize around one fiat currency.
With the rise of various local stablecoins in countries such as Australia, Philippines and China, there is a growing need for greater liquidity in the on chain FX market. Xave Finance and the Balancer team take on the challenge of providing liquid FX trading pairs to the wider ecosystem. We envision this to be a core avenue for seamless currency flow between the traditional financial ecosystem and cryptocurrencies.
How does it work?
In the example given, XSGD is paired with bb-a-USD, which means that instead of just pairing XSGD with a single USD stablecoin, bb-a-usd indirectly allows XSGD to leverage the liquidity of its underlying tokens. This would be equivalent to Curve’s 3Pool and 4Pools but with the added benefit of enabling high volume FX trades on (non USD) stablecoin pools with low liquidity (as is the current nature of the non USD stablecoin space). And by using nested pool tokens, people can easily swap any stablecoin with any aToken in the Boosted Pool.
With this, LP providers of these pools can now look forward to earning both BAL rewards and trading fees by supplying liquidity in our pools here!
Why is pairing local stablecoins to Boosted Pools better than pairing with USDC
- Increased Capital Efficiency: BalancerDAO is keen to build liquidity against their Boosted Pool (bb-a-usd) and consolidate all USD liquidity into what is essentially a “3pool” equivalent in Curve or a Stable Swap type pool that holds DAI/USDC/USDT
- Ecosystem Alignment: BalancerDAO is keen to provide longer term BAL rewards against pools that pair tokens against bb-a-usd, helping to increase capital efficiency
- Increase Stablecoin Use Cases on Balancer: Xave will be aligned with BalancerDAO’s priorities to better compete against Curve’s stablecoin pools, which need roughly 3x greater liquidity for an “FX accurate” price range.
Where are we now with our FXPools?
It’s been 6 months since the deployment of our XSGD-USDC FXPool and we’ve swapped more than $10 million worth of currency with just $1.1 million TVL. Furthermore, we experienced a record $1.2 million daily swap volume during the USDC depeg despite our limited TVL. This highlights the capital efficiency via self balancing liquidity that our invariant has to offer.
With this new FXMetaPool upgrade, we’re confident that both our teams will be one step closer to capture the stablecoin market cap by providing optimized FX markets where none exist in DeFi.
