Thread by @korpi87

1) I really like experiments. Especially the ones which can disrupt what we are currently used to. DeFi is the best example - an attempt to disrupt TradFi with a code. AMMs are already disrupting centralized exchanges and constantly evolve. What about the final form of AMM?

2) This is what @IntegralHQ tries to achieve - the final form of AMM, the one that eats other exchanges' liquidity. Sounds like a dream, doesn't it? So let's dive into it deeper. It's complex and I won't pretend I fully understand all the technical docs but I'll try to ELI5.

3) How will @IntegralHQ suck in all the liquidity? Technically it won't. But it will act as if it would have. This is due to its unique combination of AMM with orderbook (OB-AMM design). It allows them to mirror liquidity from other exchanges to become the cheapest one to trade.

4) Let's break down the term "liquidty" here. It combines 2 concepts:
- Capital: the actual amount of money liquidity providers (LP) put in OB or AMM
- Depth: the way how Capital is used for market making, which determines the slippage on the trades (OB depth, AMM shape)

5) After $UNI v3 announcement you should be familiar with the concept of concentrated liquidity. It means, that LPs can concentrate their capital for a given price range to create a bigger depth = low slippage even for big trades. Integral does a similar thing but automatically.

6) To achieve its first target, 3x Binance spot market liquidity, @IntegralHQ just needs to know what Binance's OB looks like (Depth). LPs supply the Capital to Integral which is allocated according to 3x Depth. This is the essence of automated concentrated liquidity at Integral.

7) The innovation here is to de-couple Depth and Capital in OB-AMM design. It allows Integral to achieve the same Depth with much less Capital. They can do it with any exchange. This is what they mean by "continuous vampire attack until all world liquidity is integrated by us".

8) Concentrated liquidity at Integral means very low slippage on large trades = lower total trading costs. Below table summarises total trading costs for $100k trade on Uniswap, Binance and Integral. Differences are substantial and very impressive, aren't they?

9) So whales should be happy with trading on Integral. What about average users? At the beginning, only large trades can beat other exchanges (>$30k) due to high gas costs on Ethereum. The Team claims to beat the world in small trades too when they move onto L2 later this year.

10) There are a couple of catches for traders though:
- They have to wait an extra 5 minutes on top of the usual time to mine transaction on Ethereum.
- The order is executed at the average Uniswap price over 5 minutes (TWAP).

11) From UX perspective it works this way:
1. You click "swap" button to send the order.
2. Order gets into a queue and waits 5 minutes for execution.
3. Order is executed at 5-minute TWAP + mining time.

Why is this friction needed?

12) The trade delay mechanism is implemented to protect LPs from impermanent loss (IL). I explained IL in detail in one of my threads where I focused on mitigation strategies. But my definition is correct only for traditional AMMs which follow x*y=k curve.

https://twitter.com/korpi87/status/1372634330451836929

13) But @IntegralHQ is not a traditional AMM. Price is not the outcome of the ratio of two tokens in the pool. Instead it uses price oracle aka 5-min Uniswap TWAP. This AMM design doesn't have "paper hands" as I mocked at traditional AMMs earlier.

https://twitter.com/korpi87/status/1372634336298696709

14) At Integral even if you (as LP) have less ETH when ETH price goes up, you have sold them at fairer price than in traditional AMM. But suprisingly, you could also have more ETH when ETH price goes up. Something unheard of in traditional AMM.

https://twitter.com/korpi87/status/1372634334381928449

15) How can this happen? It's called Cyclical Imbalance (CI) and means that pool ratio will not be fixed at 50:50 but fluctuate cyclically around it as LPs are incentivized to bound it between 40% and 60% at all times. CI is needed to achieve concentrated liquidity.

16) CI can affect LPs in a short term. Positively or negatively.

For example, you deposit 50:50 into ETH-USD pool and ETH price goes up.
- Positive CI: pool has > 50% ETH = profit
- Negative CI: pool has < 50% ETH = loss
Profit or loss are only realized at withdrawal.

17) If you stay longer in a pool, you will almost surely see the pool ratio revert to your initial ratio which means you will at least break-even as LP. At least because you will also earn fees, farming rewards and have ETH exposure (your benchmark return).

18) It's important to emphasise that CI is different from IL. With IL LPs are guaranteed to lose (if not actively mitigated). CI can cause short-term profits or losses but due its cyclical nature, profits/losses will be cancelled when CI eventually reverts to LP's initial ratio.

19) OK. Let's sum up the core elements of OB-AMM:
1. Price oracle aka 5-min Uniswap TWAP.
2. Trade delay.
3. Concentrated liquidity (LPs' Capital follows OB Depth modified by leverage factor)

It results in extremely low slippage for traders and no IL for LPs.

20) Although OB-AMM design is technically complex, you don't really need to understand all the details. You can just try it now on testnet or when it goes live on 29.03. This will also be a great opportunity to farm $ITGR token by LPing or trading.

https://twitter.com/ProfessorJEY/status/1375846348289765377

21) Is it safe? Well, nothing is safe in DeFi. This is still a highly experimental space. That's also why it's so rewarding if you take a risk. But it's definitely not a degen-risk play. The product has gone through 9 months of careful design & development and 3 completed audits.

22) The @IntegralHQ Team consists of exerts working earlier with top projects like ConsenSys, Compound or Maker. Advisors are top DeFi figures like @rleshner, @tarunchitra, Olaf Carlson-Wee from @polychaincap, @im_manderson and @pythianism. Sounds good, doesn't it?

23) If you want to learn more about @IntegralHQ dive into the below resources:
- Webpage: resist.integral.link
- Discord: discord.gg/GJYCF55Tb6

24) If you find this thread useful, like and retweet it to spread the word about potential last exchange! Thanks!