Thread by @cyekmyster

VADER is a liquidity protocol that anchors a slip-based fee Automated Market Maker with the native stablecoin, USDV.
Confused about what that exactly means? Fret not. Let's understand what and how of @VaderProtocol
Or just read the full article here
everythingblockchain.substack.com/p/vader-protoc…

@OlympusDAO brought DeFi 2.0 to the fore-front. Liquidity changed from being owned by paper hands and degen farmers (pump and dump) to being protocol owned. While this gave birth to DeFi 2.0, some of the other problems of DeFi still persist.

@VaderProtocol is aimed to bring solutions to some of these problems. It brings the combined features of Terra, Thorchain, and Olympus all wrapped into Vader. Vader Protocol combines Stablecoin anchored AMM, Impermanent Loss protection and Synths with Protocol owned liquidity.

In the case of Vader, users mint USDV to burn VADER and burn USDV to mint VADER. To maintain the peg of USDV, the protocol experiences either expansion or contraction in the supply of VADER.

When the value of USDV > 1 USD (high demand), the protocol incentivizes users to burn VADER and mint USDV to increase the supply of USDV thereby stabilizing the price.

Similarly, when the value of USDV < 1 USD (high supply), the protocol incentivizes the users to burn USDV and mint VADER to decrease the supply of USDV thereby stabilizing the price.

A major drawback associated with providing liquidity on DeFi protocols is Impermanent Loss. Inspired by Thorchain, it tackles the problem of IL by deploying Continuous Liquidity Pools.

Vader offers IL Protection to encourage users to provide liquidity for long term (over 100 days).
By eliminating dependence on external price oracles, Vader ensures its CLP and AMM provide prices that align with what oracles report.

The use of USDV as the common settlement asset across all pools on Vader takes away any friction for requiring users to hold exposure to a particular asset. All Vader Liquidity Pools are anchored to its stablecoin (USDV), making Impermanent Loss easy to reason about.

Another existing problem with DeFi is the fixed-rate fee that is dependent on the size of the trade and does not capture the value of liquidity provided. To address this concern, a liquidity-sensitive slip-based fee mechanism is built within the protocol.

So a thinner pool provides LPs with higher fees and vice-versa. This mechanism makes it very expensive for a sandwich attack to be carried out on the Vader Protocol.

An added advantage of slip-based fees is its contribution to Impermanent Loss Protection by paying LPs the same rate at which the prices fluctuate since these are proportional to the pool size.

The creation of synthetic assets on Vader also protects against IL. Synthetic assets replicate the value of the asset being provided in the pool, however, they do not expose the LP to the price risk of the other asset in the pool.
An example of synth on Vader protocol is xVADER.

In essence, Vader markets itself as the Best AMM for LPs owing to the following-
- Continuous LPs maximizes fees generated for LPs via Slip-Based Fees
- IL Protection to protect long term LPs over 100 Days
- Synth holders are single-sided LPs that face no Impermanent Loss

Pioneered by @OlympusDAO, Vader is the first AMM to integrate Protocol Owned Liquidity making liquidity more permanent and sustainable within the protocol. POL through Bond Sales allows for long-term liquidity that is owned by the protocol and governed by VADER token holders.

@VaderProtocol may come across as complex but a closer look at its features will enable you to understand the rationale behind its creation and why it has managed to garner users' attention.
No wonder first Vader bonds were sold out in 30 minutes.

Vader is in the process of launching USDV where users can burn Vader to mint USDV. Keep your eyes on the social media announcements.