Thread by @defipulse

1/ 🍇 DeFi Pulse Drop #21: @IntegralHQ 🍇

Imagine a liquidity pool like a magic Hot Pot with 2 flavors of soup: $ETH and $LINK.

This magical Hot Pot can convert LINK soup to ETH and vice versa.

As long as the conversion rate (price) is fair, the pot maintains its tasty ratio.

2/ Some traders will take a bowl of $LINK soup so now you have more $ETH soup.

And then, a few more traders come and take some ETH soup so now you have more LINK.

Each time, they give a little back to the pot for these conversions (similar to trading fees)...

3/ There may be more or less of one flavor shifting the pot or pool ratio in what's known as Cyclical Imbalance but the pot should stay tasty as long as conversions happen at a fair rate between the two soups.

So what happens when the soup conversion rate or price isn't right?

4/ When arbitrageurs make sure-profit trades, they take more than the rest and the pot loses some soup AKA the liquidity providers (LPs) suffer impermanent loss or pool leak.

This often happens due to front-running or having quicker access to information than other traders...

5/ To counteract front-runners and protect liquidity providers, Integral has a trade delay of 5 minutes.

So traders order and then wait 5 minutes for their soup which eliminates a front-runner's advantage and protects the pot of soup from being eaten up unfairly.

6/ This 5 minute trade delay enables Integral to concentrate liquidity and mirror other exchanges' depth as we've covered.

So traders willing to wait will benefit from cheaper liquidity for big trades on Integral, while front-runners and arbitrageurs aren't likely to wait.

7/ By design, Integral LPs suffer from Mean-zero Impermanent Loss. This means that IL will oscillate around and eventually converge on 0 over time.

Integral's trade delay mechanism and "trade deferment" strategy play a key role in achieving mean-zero IL but more on that later.

8/ Learn more about Integral and its goal to eat all AMMs to become the last exchange defipulse.com/blog/integral/

9/ This is paid promotion as part of our DeFi Pulse Drops series where DeFi Pulse works with projects to launch their new features and builds. If you want us to work with you, please get in touch!