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Single Sided Liquidity Pools
A sustainable way to earn yield on your assets with lower risk
GooseFX SSL v1: Revolutionizing Liquidity Provision
GooseFX SSL v1 heralds a new era in decentralized exchange and liquidity provision. This innovative design centers around single-sided liquidity pools, enhanced liquidity concentration, minimized slippage, and impermanent loss protection for liquidity providers (LPs).
Understanding Single-Sided Liquidity Pool
Single-sided liquidity pools allow users to provide liquidity using a single asset. This user-friendly alternative to traditional automated market makers (AMMs) simplifies liquidity provision. The design emphasizes liquidity concentration around the current oracle price, minimizing slippage.
Traditional Liquidity Provision: The Challenges
Traditional liquidity pools often require a specific ratio of two or more tokens. This necessity poses issues like inefficient liquidity distribution leading to high slippage, and it complicates the user experience for LPs.
GooseFX SSL v1: Reimagining Liquidity Provision
GooseFX SSL v1 offers a cutting-edge design wherein each token corresponds to a single-sided liquidity pool. LPs receive a g-token in return for depositing a token. Traders engage with two pools concurrently and pay a transaction fee.
This novel model elevates the user experience by:
- 1.Simplifying single-sided liquidity provision.
- 2.Enhancing liquidity concentration and reducing slippage through dynamic pool weight adjustments and a liquidity-focused curve.
- 3.Providing protection against impermanent loss by restricting trades more favourable than the current oracle price.
Advantages of GooseFX SSL
GooseFX SSL offers LPs a simpler, lower-risk avenue to earn yields on their assets. Its key benefits include:
- 1.User-friendliness: LPs can deposit a single asset without having to juggle complex ratios.
- 2.Enhanced liquidity and reduced slippage: Dynamic pool weight adjustments and a unique curve ensure minimal slippage during trades.
- 3.Protection against impermanent loss: By prohibiting trades more advantageous than the current oracle price, LPs are safeguarded.
Dynamic Weights
To best illustrate our design, it is helpful to start with the well-known constant-product market maker (CPMM), e.g. Uniswap v1/v2. In CPMM, each pool consists of two tokens, with reserves x and y that are governed by the following equation:
which can be expressed equivalently as the following differential equation:
Our first departure from the simple CPMM is that we add dynamic pool weights:
where w_x and w_y are pool weights determined by the amount of liquidity provided. As shown later in Section 3.1, dynamic weighting alone allows for single-sided liquidity provision without altering the pool price.
Oracle-Concentrated Swap Curve
Apart from the dynamic weights, our curve also contains an additional component that, as we show later in Section 3.2, has the property of concentrating liquidity around the current oracle price. Our final curve is as follows:
where p is the current oracle price and 𝐴 is a parameter that governs the shape of the curve.
The differential equation above gives the marginal price — that is, what is the price of x in terms of y when swapping an infinitesimal amount of x for y. To derive the amount of y to be received for any arbitrary amount of x, we solve the Initial Value Problem (IVP) of the differential equation.
Oracle-Tracking Swap Rule
On top of the curve above, we add a rule that, as we show later in Section 3.3, protects LPs from arbitrageurs. The rule is, in a nutshell, that swappers need to pay the worst of what our curve says and what the oracle says. For example, if the price derived by the curve is $100 for SOL/USDC, but the oracle currently says $110, we will sell SOL with the price of $110 to the trader instead of $100.
Single-Sided Liquidity with Less Slippage and More Protection
In this section, we illustrate why our AMM design achieves: 1) simple single-sided liquidity provision, 2) concentrated liquidity and low slippage, and 3) protection against arbitrageurs.
Single-Sided Liquidity Provision
How do we allow for single-side liquidity provision? The key is that our curve is not solely a function of the reserves but also of the pool weights that are dynamically adjusted. In CPMM, any deposits or withdrawals change pool reserves, which are the only inputs to determine pool prices. In contrast, in GooseFX SSL v1, deposits and withdrawals change both pool reserves and pool weights, which are adjusted so that pool prices remain invariant.
Mathematically, in CPMM, the pool price is simply y/x. Therefore, any deposits or withdrawals necessarily change pool prices, unless the amounts are in a very specific ratio (50/50 in value). In contrast, in GooseFX SSL v1, pool price is (y/w_y) / (x/w_x). Deposits and withdrawals change both the numerator and the denominator, and pool prices are kept unchanged, even if the deposits and withdrawals are in one token only.
Liquidity Concentration and Slippage
Our curve has the property of concentrating liquidity around the oracle price. Figure 1 shows swapping between a pair of tokens according to our curve (red lines), according to CPMM (black dashed line), and in a world with constant price (black solid line). We assume that the pool price is currently the same as the oracle price. The figure shows that, depending on the parameter 𝐴, GooseFX SSL price is near-constant for a large region around oracle price. In other words, there is very little slippage around the oracle price. In contrast, the CPMM price departs significantly from the oracle price even with small changes in reserves.
Figure 1: Swapping between two tokens
Figure 2 plots the distribution of liquidity across the price space, as defined in [4], which is basically the inverse of slippage:
It shows that GooseFX SSL v1 concentrates liquidity around the oracle price whereas CPMM spreads liquidity evenly across all possible prices. In other words, slippage is much lower with GooseFX SSL v1, compared to CPMM.
Figure 2: Distribution of liquidity across price space
LP Protection against Impermanent Loss
By requiring agents to trade at the worst of the curve and the oracle, GooseFX SSL v1 provides LPs with effective protection against impermanent loss.
First of all, we eliminate any impermanent loss due to changes in oracle price. In a traditional AMM such as CPMM, when the oracle price changes, arbitrageurs would trade with the AMM at the outdated pool price and make a profit at the expense of LPs. As a concrete example, suppose that token 𝑡 ’s market price increases by 10%. Arbitrageurs can make a profit by buying from the pool and selling on the market, thereby draining the asset that has appreciated in value. In GooseFX SSL v1, arbitrageurs can never trade at a price better than the oracle price, and therefore LPs are protected from this type of impermanent loss.
What if arbitrageurs have private information on future prices? If we only use current oracle prices, then pool assets can be quickly depleted. For example, suppose that an informed trader knows that token x’s market price is going to increase by 10%. She would buy the token as much as possible as long as the price does not appreciate too much. That means if a pool strictly follows the oracle price then its token x would be quickly depleted by the trader (i.e. the black solid line crosses the x-axis and the y-axis). This is where our curve comes in as the savior. As the informed trader trades in one direction, the curve price adjusts and becomes the binding price. Therefore, in our design, LPs are (partially) protected from private information, where the amount of protection follows a tradeoff with liquidity concentration governed by parameter 𝐴.
Conclusion
GooseFX SSL v1 is a game-changer in the DeFi space, transforming liquidity provision to be more user-friendly, efficient, and safe for LPs. This innovation makes GooseFX SSL an attractive option for those seeking to earn yields on their assets with minimized risk. Get started with GooseFX SSL today and witness the impact it brings to DeFi.
For more information check out our Medium: https://medium.com/goosefx/introducing-goosefx-ssl-v1-single-sided-liquidity-with-less-slippage-and-more-protection-50250e1f38c8
Last modified 3mo ago