In this write-up we will go over the reasons that inspired us to work on 3xcaliSwap, our improved features over Velodrome & Solidly as well as some cool UI/UX features.
- The Changing DEX Market
- The liquidity incentivization problem
- Why we built 3xcaliSwap
- 3xcaliSwap vs Velodrome
- 3xcaliSwap vs Solidly
- Algorithmic Minting
- 3xcaliSwap Features
- Improved UI/UX
The Changing DEX Market
DEXes are an important way for users and protocols to capture value within the ecosystem as well as being the fundamental financial primitive to generate the liquidity needed to power OpFi
Decentralized exchanges were some of the first OpFi products that found Product Market Fit. They are an important way for users and protocols to capture value within the ecosystem as well as being the fundamental financial primitive to generate the liquidity needed to power the OpFi Ecosystem.
However, the market has changed since the first iteration of AMMs launched. With this in mind it was important for us to recognize how the market has changed, and how AMMs can best serve their users.
First Generation AMMs
In the first generation of AMMs. They were built with Liquidity Providers as the end user. This was because LPs were the primary users and earned trading fees based on their share of a pool and the respective trade volume.
However, once token-based incentives launched, it changed the way in which participants use AMMs. The end user shifted from LPs to other protocols/projects.
Today, since the market has shifted, it means that AMMs are primarily needed for projects, either through token incentives, bootstrapping liquidity, or even protocol-owned liquidity.
With this shift, it means that instead of end users (traders or LPs) being the primary users, now other protocols are the new most important AMM end users.
The Liquidity Incentive Problem
Sufficient liquidity is the key to a flourishing financial ecosystem. OpFi primitives and composability amplify contract functionality; however, without liquidity, the entire OpFi vertical would not subsist.
The two largest use cases for OpFi, and by extension the products with the most product market fit (PMF).
- Borrowing & lending
In a highly competitive market, the fight to conquer and win market share was influenced by the utilization of aggressive emissions.
Projects scaled extremely quickly as a result, however in the search for attracting fast liquidity, they traded longevity for:
- Mercenary capital
- Speculation (greed & FOMO)
- Impatient userbases
- Incredibly high CAC (considering the % of total token supply spent to acquire users and attract liquidity)
With a multitude of products and services, there are many games to be played and rationale for accruing liquidity.
OpFi is often likened to playing a game, and how can it not? Considering the fact that game theory plays such an integral part of designing a product’s architecture and protocol mechanics.
The main game is obviously about how to attract and retain liquidity. Projects have gone through various stages of liquidity incentivization experimentation. The challenge for new OpFi projects is to incentivize liquidity and optimize the game theory mechanics which will have positive outcomes for users and still be a sustainable business model for the project.
So far, we have seen three main liquidity games. Each one fosters its own drawbacks, and problematic outcomes for all market participants.
Game 1: Pool 2
Promotes mercenary capital, by attaching a reward to staked LPs. Liquidity and users are fleeting and move on after Pool 2 has been farmed and dumped.
Game 2: Protocol Owned Liquidity
Protocol-owned liquidity in the bonds + the (3,3) model (popularized by Olympus DAO) is highly dependent on market psychology rather than sustainable economic incentives. Bonds mean (3,3) projects consistently buy assets below market value over time, while also inflating their own token supply. Meaning paying dollars on the cent to acquire assets. Results in running a debt deficit where the debt is the outstanding project token supply. During a macro market downtrend, these mechanics are not financially sound.
Game 3: Curve Wars
Building new protocols in order to direct and control liquidity via incentives/voting for the market-leading liquidity marketplaces e.g Curve. In this system, the incumbents hold a clear first movers advantage and hold a moat for entry into the CRV/CVX system. Bribing voters in the CRV/CVX system remains expensive by itself. The markets available to users are also limited based on the fact that this is a liquidity game.
The Holy Grail
Offering liquidity incentives and a sustainable business model for the longevity of a protocol.
Why we built 3xcaliSwap
As a protocol using an AMM, it is important to have the following functionality so that they can best leverage product:
- Must be able to easily add token incentives to your liquidity
- Must be able to easily bribe token emissions onto your liquidity
- Must be able to accrue fees from liquidity you incentivize
- Must be able to permissionlessly deploy your liquidity
Building a Product Catered to other Protocols/Projects
3xcaliSwap is a permissionless DEX that allows other protocols to easily acquire deep liquidity for their token, bribe emissions to their pool, and also accrue fees from the liquidity they incentivize.
Solving Liquidity Games
The 3xcaliSwap AMM is based on the original Solidly codebase. This means by design, our protocol is built to align emissions with fees generated, and not with liquidity.
Protocols and other large stakeholders lock their $XCAL to gain voting power and direct emissions to the pools they vote for. We have also improved several areas of the Solidly codebase, which we believe were mechanical issues that hindered its success.
With the Solidly design, any protocol or project can easily incentivize their own liquidity, be it for their token, their stablecoin, or even other derivatives, and while doing so, they fully accrue fees.
As a result, the liquidity attracted should be of higher quality and more sticky, thanks to the ‘protocol first’ nature of the design. Our token mechanics and emissions schedule is improved on the Solidly and Velodrome iteration.
3xcaliSwap Vs Solidly
3xcaliSwap is on Arbitrum. Case closed!
- A large majority of Solidly’s token supply was distributed in the first 8 weeks, causing too much voting power to early lockers and disincentivizing later buyers to lock.
To solve this issue, we will reduce the initial distribution to about 1.7% of the total liquidity mining emissions.
- Another flaw in Solidly mechanism was reaching tail emissions very quickly, because of double decay in the weekly emissions: in fact, they were subject not only to the 2% weekly decay but also to the previous week's locking proportion multiplier.
To prevent this issue, we set the weekly decay to 1%, only on the maximum weekly emissions, similarly to what Velodrome has proposed, but still using an adaptive algorithm to adjust the minting amount based on how much has been already distributed.
3xcaliSwap Vs Velodrome
3xcaliSwap is on Arbitrum. Case closed, again!
- Velodrome solved Solidly’s problems by changing the initial distribution and by keeping the weekly decay constant to 1%. This approach set the time length of the emissions to 4 years. However, adjusting emissions based on the locked amount incentivizes users to buy and lock more tokens to avoid being diluted.
For this reason, $XCAL weekly emissions are multiplied by circulating/total supply ratio as in Solidly.
- However, a consistent big amount of locked tokens (small circulating/total supply ratio) slows down emissions making the risk of being diluted (and so the incentive to lock) disappear.
3xcalibur solves this problem by adjusting the emissions algorithmically by checking the distance from certain milestones at each epoch (read below for more details).
In adjusting the emissions algorithmically via checking the distance from certain milestones at each epoch, we keep emissions length in the 3.5-4.5 years range by appropriately adjusting velocity.To tune velocity, every epoch two parameters will be adjusted:
- Max weekly decay: as mentioned above, the weekly decay of max weekly emissions is 1% as in Velodrome, but it will be automatically adjusted to 2% to eventually slow down emissions.
- Tail emissions: if emissions have been too slow, the tail emissions get boosted.
We ran several simulations for weekly emissions, with different average circulating/total supply ratios, obtaining the following:
These simulations took into account all the vesting tokens that will be released weekly, variating the probability of locking a percentage of them. They also consider the edge cases of everything locked/nothing locked for the whole duration.
X-axis, there are the amounts of tokens released each week, while on the
Y-axis there are the weeks.
simulations where the average circulating/total supply ratio was between 0 and 0.5.
simulations where the average circulating/total supply ratio was between 0.5 and 0.6.
simulations where the average circulating/total supply ratio was between 0.6 and 0.7.
simulations where the average circulating/total supply ratio was between 0.7 and 0.8.
simulations where the average circulating/total supply ratio was between 0.8 and 1.
Swaps are routed either through variable (uncorrelated assets) or stable pools (correlated assets).
Multiswap allows traders to do a one-to-many asset swap. The order will be directly routed through different pools to mitigate the gas fee as well as the slippage.
E.g 10,000 DAI swapped for ETH, DPX and XCALUsers can set the percentage distribution for the swap with a slider.
Stable & Variable Pools
- 3xcaliSwap is composed of 2 types of pools:
A "stable pool" which allows traders to trade between correlated assets with minimum slippage e.g. USDC-DAI.
x³y+y³x=kx³y + y³x = kx³y+y³x=k
A "variable pool" which allows traders to trade between volatile assets e.g. ETH-USDCUsing the standard constant product formula.
Zap & MultiZap
- Zap allows traders to directly exchange a digital asset for LP tokens.
- It will be possible to zap among a basket of assets whitelisted by 3xcalibur making user experience smoother.
- Stable Pools - 0.0369%
- Variable Pools - 0.27% (instead of 0,01% to better align R/R for LPs and price for traders)
Higher fees -> more liquidity -> less slippage -> better price for traders which might be better trade-off for price than lowering fees to 0.01%
A clean UI and a smooth UX are crucial to the success of any DApp. We took time to dive into UI/UX research with DeFi power users in order to port the best ideas and features over to 3xcalibur.
This is of course a perpetual work-in-progress.
Aside from MultiSwap and MultiZap (which are described above) - we have worked on some features that were low hanging fruit and we continue to deliberate over the implementation of several other UI/UX Nice-To-Have features.
Asset Performance Cards
Dropdown Nav Bar
"Popular Tokens" Card
If you have any questions/feedback/ideas - feel free to raise them on any one of our social channels and we will happily engage.
NB: The interface background art used in the screenshots in this article is bound to change.
In the meantime, we hope you are ready for the $XCAL Public Round in a few minutes!
Thank you for reading Insurgent!
🗡 ABOUT 3XCALIBUR
The 3xcalibur Protocol is a permissionless, liquidationless, oracleless liquidity marketplace, powered by Tri-AMM architecture to facilitate stableswaps, variable swaps and borrowing/lending.
The Tri-AMM architecture makes 3xcalibur a highly-capable and modular automated market maker.
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