A long thread on the past and future of DEXs and how the crypto ecosystem in the next bull run can be 1000x~ bigger. #realyield #capitalefficiency
🧵👇Thread 0/19
🧵👇Thread 0/19
AMM is the defect standard of the exchange in the crypto economy. It started from Vitalik’s post and was given birth by @Uniswap
Here is the original post about how it started.
reddit.com/r/ethereum/com…
1/19
Here is the original post about how it started.
reddit.com/r/ethereum/com…
1/19
xy=k model is widely adopted and appreciated by the community because;
1) liquidity bootstrapping is easy
2) long tail asset support
3) easy integration with other protocols
2/19
1) liquidity bootstrapping is easy
2) long tail asset support
3) easy integration with other protocols
2/19
As a result, the formula has been adopted by many successful AMMs like @SushiSwap, @PancakeSwap, @traderjoe_xyz, etc.
However, those features are realized at expense of capital efficiency and low slippages.
3/19
However, those features are realized at expense of capital efficiency and low slippages.
3/19
There have been a few improvements in the dex space to solve the capital efficiency problem.
The first major iteration of improvement was @CurveFinance’s V1, which focused on stablecoin swaps and made a few changes xy=k model to concentrate liquidity around $1 price.
4/19
The first major iteration of improvement was @CurveFinance’s V1, which focused on stablecoin swaps and made a few changes xy=k model to concentrate liquidity around $1 price.
4/19
It wasn’t a coincidence that many CDP protocols were born with @CurveFinance. See @MIM_Spell @fraxfinance @AlchemixFi etc. They support leveraging the entire ecosystem and are also usually supported by Curve hugely.
5/19
5/19
Another major iteration is @Uniswap V3. Theoretically, it is up to 4000x capital efficient by concentrating liquidity around a specific price target.
6/19
6/19
However, capital efficiency in Uniswap V3 has been achieved at expense of retail user-friendliness.
To provide capital efficiency, LPers are required to concentrate the liquidity and manage IL risks, rebalance ranges, and so on.
7/19
To provide capital efficiency, LPers are required to concentrate the liquidity and manage IL risks, rebalance ranges, and so on.
7/19
These Additional requirements for LPers made liquidity bootstrapping and retail liquidity provision harder.
Liquidity providers can still provide passive liquidity to Uniswap V3 with a full range, but this kills the advantages of Uniswap V3.
8/19
Liquidity providers can still provide passive liquidity to Uniswap V3 with a full range, but this kills the advantages of Uniswap V3.
8/19
As a result, Liquidity providers prefer LPing to the Uniswap V2 model rather than Uniswap V3.
9/19
Source uniswap.org/blog
9/19
Source uniswap.org/blog
Solution? Use a liquidity manager.
There are mainly three types of liquidity managers,
1) passive managers,
2) active managers with a simple strategy,
3) active managers with sophisticated strategies.
10/19
There are mainly three types of liquidity managers,
1) passive managers,
2) active managers with a simple strategy,
3) active managers with sophisticated strategies.
10/19
Amongst all of them, I believe active managers with sophisticated strategies can provide and manage liquidity most effectively.
Unlike active managers with a simple strategy, they provide liquidity effectively and hedge the risky exposure to the market.
11/19
Unlike active managers with a simple strategy, they provide liquidity effectively and hedge the risky exposure to the market.
11/19
As far as I recognize, only @0xOrangeFinance is building such things. * Disclosure: I am a founder of Orange Finance
For the details of Orange Finance, you can see more on
12/19
For the details of Orange Finance, you can see more on
12/19
https://twitter.com/0xOrangeFinance/status/1607657985140232194
Along with the liquidity manager’s evolution, DEX itself is also evolving. Many DEXs are launching weekly on @arbitrum, and active discussions are going on every day.
13/19
13/19
https://twitter.com/defi_mochi/status/1610593809343336450
Fee tier switching and efficient codes that reduce gas costs are promising; they are what @CrocSwap on @berachain is developing, and Uniswap is rumored to be developing something similar as the V3 license is expiring.
14/19
14/19
I believe the concentrated liquidity dex model will soon flip the liquidity of the old xy=k model. When that time comes, the crypto market is ready to get 1000x~ bigger.
15/19
15/19
How is 1000x possible?
When the liquidity required for exchange is 10x less, the ecosystem can appreciate the remaining liquidity. They may flow into other crypto assets' dex liquidity. As there only needs to be 10x less capital, 10x more pools can be bootstrapped.
16/19
When the liquidity required for exchange is 10x less, the ecosystem can appreciate the remaining liquidity. They may flow into other crypto assets' dex liquidity. As there only needs to be 10x less capital, 10x more pools can be bootstrapped.
16/19
Do you remember many social tokens, SBT, and new utility projects launched in the last six months? They are all waiting for the time to mature. When the time matures with the return of the bull market, 10x efficient LPing will be there.
17/19
17/19
Assuming the liquidity to market cap ratio is 100x~ the market, that 10x efficiency in dex liquidity creates 10 x 100 = 1000x bigger market.
This is not just a hopium. The growth driver this time is not a ponzinomics like Luna/UST.
18/19
This is not just a hopium. The growth driver this time is not a ponzinomics like Luna/UST.
18/19
Did you enjoy anon? If interested, I might post an in-depth analysis of the current DEX market and the DeFi ecosystem.
If you are interested in being around the epicenter of DEX evolution, follow @0xOrangeFinance and me.
19/19
If you are interested in being around the epicenter of DEX evolution, follow @0xOrangeFinance and me.
19/19
• • •
Missing some Tweet in this thread? You can try to
force a refresh
