Concentrated liquidity from RAMSES: The future of liquidity provision | by RAMSES Exchange | June 2023

Blockchain trading traditionally requires a level of expertise beyond what is required for trading on centralized exchanges. A major factor in this disparity is liquidity. Most traders instinctively gravitate towards markets that offer efficiency, convenience, and most importantly, ample liquidity. While on-chain liquidity provisioning (LPing) is still in its early stages, it will increase significantly with the launch of RAMSES CL (concentrated liquidity). By combining the revolutionary concept of concentrated liquidity with a proprietary bribery infrastructure, RAMSES aims to unlock new levels of capital efficiency.

RAMSES CL is now on the market and more features and capabilities will be introduced upon completion. We invite you to dive into our unique implementation and find out how RAMSES can significantly improve Arbitrum’s liquidity dynamics.

Imagine Bob and Claudia both holding the same amount of ETH and USDC and trying to earn a return on their assets. Let’s consider two liquidity pools on RAMSES for the ETH/USDC pair:

1. v1 pool with 0.3% fees (excluding concentrated liquidity)
2. v2 pool with 0.05% fees (using concentrated liquidity).

Bob, lured by higher fees, opts for the v1 pool while Claudia chooses to strategically concentrate her liquidity within a 15 percent range in the v2 pool, undeterred by lower fees.

In a scenario where trading demand is comparable for both pools, Claudia’s position, which is strategically focused on market price, will generate higher volume and higher trading fees compared to Bob’s position, despite the lower fee structure. This is because Claudia’s liquidity is spread across a small, concentrated price area, rather than a potential area along the x*y=k curve.

This beneficial outcome is a direct result of the power of concentrated liquidity where, despite the lower fee structure, Claudia is able to facilitate more trades, earning her a higher volume of trading fees to offset the lower fee tier. Claudia’s only additional responsibility is to adjust her position to expected ETH volatility. RAMSES uses this dynamic to increase the competitiveness of the provision of liquidity and thus redefine the efficiency standards in decentralized trading.

RAMSES’ bespoke bribery infrastructure greatly improves liquidity efficiency, even within Uniswap v2-like pools. RAMSES currently has an average weekly turnover of over 100,000 US dollars. These operations result in a weekly net inflow destined for veRAM holders. RAMSES can generate fees and bribes in excess of $1 for every $1 of Total Value Lock (TVL). When this performance is coupled with the concept of concentrated liquidity, the role of LPing changes significantly and turns into a highly competitive activity.

LPing is basically similar to market making, which is why AMMs got their name. However, they lack the predatory competition of market making in traditional finance. In contrast, in RAMSES CL, similar to traditional exchange environments, market participants are forced to maintain tighter spreads in order to lock in a larger portion of profits. This competition creates an environment of high liquidity within these pairs and leads to an increase in trading volume beyond what is typically seen on decentralized exchanges.

Let’s consider a scenario where both Bob and Claudia decide to concentrate their liquidity in the ETH/USDC pool. In this case, both parties would receive emissions and a percentage of the fees. However, if Claudia chose to refine her strategy by condensing the same dollar amount of assets into a narrower/narrower range, her contribution would be a larger proportion of the liquidity pool. This would result in a higher return on fees and emissions.

This change in Claudia’s strategy would act as a catalyst, prompting Bob to re-evaluate his own spread to remain competitive, leading him to a narrower approach. This push-pull effect would persist as Claudia would then be motivated to further focus her dissemination in response to Bob’s actions. This constant cycle of adjustment and refinement reflects the competitive nature of market making on traditional exchanges. It drives the creation of deeper pools of liquidity, which in turn supports the growth of trading volume on decentralized exchanges.

In RAMSES CL pools, trading fees are split among the LPs and voters and optionally a percentage is dedicated to the ecosystem fund. Despite this change, veRAM voters still keep the lion’s share of the fees, namely 75-90% of them. LPs can earn anywhere from 10% to 25% of fees and the ecosystem fund will accumulate 0% to 5%. However, the fee structure of the v1 pools remains unaffected as veRAM voters continue to accumulate all trading fees. The mechanism for collecting bribes also remains consistent in v1 and RAMSES CL, with veRAM voters collecting all bribes.

Now let’s go back to Bob and Claudia. If Bob decides to vote for a v1 pool, assuming he could receive a larger portion of the fees and therefore earn more in an epoch, and Claudia chooses to vote for a RAMSES CL pool, will Claudia likely to realize: higher fee income. This is attributed to the fact that RAMSES CL pools are expected to generate higher fees due to their high liquidity and minimal slippage.

The importance of these changes cannot be overstated.

To date, ve(3,3) DEXs have made liquidity provision competitive through the introduction of issuance. RAMSES has gone one step further by integrating concentrated liquidity and modified fee scales, creating the most competitive liquidity provision market in the space. This opens up exciting possibilities – specialist market makers can provide liquidity, property developers can develop yield or asset management services and projects can incentivize greater liquidity by offering bribes to RAMSES CL pools. Meanwhile, the average liquidity provider can aim for higher returns.

For some time now, the user experience of DEXes has diverged from that of their traditional counterparts. RAMSES bridges this gap and increases the competitiveness of DEXes in a way that could lead to an increase in trading volume. This advancement would start the momentum of revenue for veRAM holders. LPs can also earn by providing tight spreads for traders who find high liquidity and therefore low slippage. The RAMSES ecosystem has always been based on the principles of sustainability and capital efficiency. With the eagerly awaited launch of RAMSES CL, this commitment remains at the forefront of our initiatives.

RAMSES is the native liquidity layer on Arbitrum and leverages a unique perspective on the ve(3,3) decentralized exchange infrastructure. RAMSES offers unparalleled capital efficiency and innovative tokenomics that enable protocols to increase liquidity and provide users with some of the best trading experiences while building a robust decentralized economy with the Arbitrum ecosystem.

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