Introducing concentrated liquidity pools and the pioneer of MultiversX — AshSwap V2 | by AshSwap | March 2023

Concentrated liquidity pools (CLPs) are a relatively new concept in the decentralized finance (DeFi) space. These pools differ from traditional liquidity pools as they allow liquidity providers to concentrate their funds in a smaller price range rather than spreading them across the price curve. This can result in less slippage for traders as well as higher returns for liquidity providers.

There are two predominant types of concentrated liquidity pools. One requires the active participation of Liquidity Providers (LPs), while the other handles liquidity management automatically.

Uniswap V3 introduced a new type of liquidity pool that allows LPs to concentrate their funds in a specific price range instead of spreading them across the entire price curve. This can result in less slippage for traders as they can trade at prices closer to the current market price. Liquidity providers also benefit from higher returns as their funds are concentrated in a smaller price range.

iZiSwap follows the same philosophy but uses discrete ticks and prices.

When prices fall out of the predetermined range on this type of pool, LPs stop receiving trading fees as their liquidity goes unused and requires active management to maximize returns, which is complicated and impractical for inexperienced DeFi users or projects is reduction in liquidity attraction.

Another disadvantage is that more exotic tokens with prices that are subject to greater fluctuations cannot be priced. In the example above, if the price of 1 inch falls more than 20%, there is almost no liquidity and no trades take place. A potential solution is to provide liquidity across the range, making concentrated liquidity obsolete, making Uniswap V2 a better option for these tokens.

Curve Finance is well known for its stable swap pools that facilitate trading between similarly priced assets. However, it has a lesser-known concept called Curve V2.

Comparison of AMM invariants: constant product (dashed line), stable exchange (blue) and curve V2 (orange)

In Curve V2, LPs provide liquidity for the entire range and do not need to actively change their ranges. Liquidity is then concentrated around the current price to allow for larger trades, but there is liquidity across the range, meaning price discovery can still take place, making it suitable for all types of tokens.

AshSwap was launched in a fledgling ecosystem like MultiversX, where most tokens have small market caps and require price discovery. AshSwap understands the needs and believes Curve V2 is a more appropriate concept to implement.

In the next section we will list some of the concepts of AshSwap V2 and the benefits of participating in AshSwap V2 for trading, liquidity provision or token listing.

By using concentrated liquidity technology, AshSwap V2 can significantly reduce slippage when trading the same volume compared to constant product AMMs. With certain configurations, capital efficiency can be increased many times over.

This is beneficial for all parties. Traders can trade larger volumes, LPs receive more fees, and projects can have more efficient markets for their tokens.

What sets AshSwap V2 apart from other CLPs is the dynamic peg. When prices move, an automatic mechanism will kick in to rebalance the pool and focus liquidity on the new price. Not only does this offer flexible pricing, but it also reduces the temporary loss of LPs.

Another improvement coming with AshSwap V2 is lower fees for small transactions. AshSwap has introduced a new fee structure that reduces fees for smaller trades and makes the platform more accessible for everyone to use. The new fee structure is now based on a sliding scale determined by the size of the trade.

One of our goals is to eventually make AshSwap permission-free. This means that all tokens can be listed on AshSwap and the DAO decides on the important metrics. Projects can use these tools to increase liquidity and usage of tokens.

👉 If you would like your tokens to be listed on AshSwap, please feel free to contact us at [email protected]

AshSwap allows projects to perform liquidity mining with any token. This means if a AAA token is listed on AshSwap, a farm can be created that rewards LPs with the AAA token. This inevitably increases the flexibility for projects to run their liquidity programs.

Projects also have the ability to bribe veASH holders to vote for farms receiving ASH. This significantly increases yield and liquidity for tokens.

AshSwap V2 is a major upgrade that brings a number of new features and improvements to the platform. The more efficient liquidity pool design, lower fees for small transactions, increased flexibility with new pools, improved user interface and integrations with other DeFi protocols make AshSwap V2 a more attractive platform for both LPs and traders. The tokenomics and governance structure should also help drive demand for ASH and ensure the long-term sustainability of the platform.

Overall, AshSwap V2 is a significant step forward for the DeFi ecosystem on MultiversX, and it will be interesting to see how the ecosystem continues to develop and grow in the coming months and years.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers