DEX, AMM and bonding curve. Again, on this topic. I swear there is a lot of other innovation in the space too, but this week, I want to share something interesting with DEXes and their mathematical mechanism. You can guess that because we’re having another whiteboard session!
This week is a collaboration with block.science. And we will dive into Sifchain, a cross-chain DEX using Kosmos SDK that includes Layer 1 validation.
3 main things we will cover today:
1. Sifchain’s rebalancing model for validators and liquidity provider ecosystems
2. How transaction fees are calculated. Specifically, we reference Uniswap’s model (CMM, zero internal fee) and Thorchain (CLP, internal fees embedded) and learn about how it affects Sifchain’s onchain transaction.
3. Asymmetric addition of tokens into liquidity pool and how this is different from the other DEX out there
Specifically for fees, I want to stress that there are 2 types of fees — internal fees and external fees.
- External fees are basically zero fee swaps in Uniswap, with a fixed fee per transaction. This is good for traders.
- Internal fees are fees embedded into the DEX swap. This is good for liquidity providers. Can you think why? Hint: because of impermanent loss!
Supplementary reading:
1. More of the specific math models by Block.science https://sifchain.finance/wp-content/uploads/2020/11/The-Token-Economics-of-Sifchain-edited-2.0.pdf
2. Continuous liquidity pools by Thorchain (which I will do a video some day. It’s in the list!) https://docs.thorchain.org/how-it-works/continuous-liquidity-pools
EP 33: Derivatives and Repo to create interest-bearing USD