How can an advanced concentrated liquidity DEX on Aptos act as a saviour in the current DeFi market?
After more than half-year of observation and engagement, many DeFi participants may be in the throes of crypto winter, suffering a dramatic loss under an unstoppable slump in the crypto market. ETH, one of the most significant tokens in Defi, has even lost three-quarters of its value, causing some prominent crypto lending and investment firms to collapse and go bankrupt. Starting from the collapse of the “algorithmic stablecoin” Terra in May and the failure of the crypto bank Celsius three months ago, the DeFi market has been under blustery, not to say the effect of the collapse of Three Arrow Capital due to the $400 million liquidations in crypto.
But to be fair, it’s also pretty wintry in traditional finance. Everything still needs to move on as long as blockchain technology and the economy keeps running. Although the DeFi market is undergoing a low sentiment, it is essential to bear in mind that DeFi offers an alternative to traditional centralized finance services, which may revolutionize the entire economy when the next bull market comes.
With low barriers to entry as compared to traditional finance, DeFi and Decentralised Exchange (DEX) around the world give more accessible access to cheaper credit, easy lending, and borrowing activities - changing the landscape of the traditional financial systems. Using the “Automated Market Makers” (AMM), users can provide liquidity of those assets in these liquidity pools and earn high passive incomes via trading fees. Because of its decentralized nature, some DeFi projects like Uniswap have become highly efficient global financial markets catering to individuals and institutions alike. Uniswap’s most advanced concentrated liquidity has even accounted for the lion’s share of the total fees with $4.4 million in July, landing at the top of the DeFi totem pole in such a bear market. On the other hand, when considering the price of UNI, Uniswap may not be a desirable DeFi platform that can withstand or at least become a shelter for DeFi users in the bear market. Despite it having the lead right now, it could very well change in the next year or so when there are more and more DeFi protocols providing comprehensive DeFi solutions in the market — Houston Swap, which keeps developing a revolutionary DeFi platform secretly under the bear market, may possible to take a seat in the subsequent DeFi market circulation.
What is Concentrated Liquidity?
Before the concentrated liquidity is introduced, liquidity providers (LPs) normally lend their assets into a swap pool like USDC or Ethereum and let other traders borrow and trade their assets to get the fees from those traders in return. The liquidity that the LPs provide is evenly allocated across all the price ranges from zero dollars to infinity dollars to traders, which reveals the original x*y = k formula underlying the standard automated market maker model.
Unfortunately, the price of the token cannot that fluctuate, meaning that the capital of LPs is not efficiently lent under that inadequacy formula. Within the new model, liquidity can be allocated to a price interval that the LPs preferred, resulting in what is called a commodity position. Under the control of concentrated liquidity, the capital is essentially multiplied while exposing far less capital to the risk of asset devaluation. Simply put, the tighter the range that is set for a concentrated liquidity position, the greater the fee revenue LPs will earn, and vice versa.
Though concentrated liquidity improves capital efficiency in Defi, it is necessary to identify that the risk of impermanent loss is also amplified. A study from the Bancor team gathered data from the Uniswap v3 and found out that the impairment loss (-$260.1M) out shadow the returns earned from trading fees ($199.3M). Those deciding to deploy positions in tight ranges can expect higher returns but at the expense of a higher risk of incurring more impermanent losses. Only the flash liquidity providers, who keep adjusting their concentrated liquidity range from time to time based on big trade data seen in the mempool can minimize the potential of impermanent losses.
Although there were 53.50% of the positions were profitable, only a minority with 48.25% of the wallet was gaining after the calculation of impermanent loss.
As such, the concentrated liquidity on Uniswap needs further improvement to offer an actual return to the LPs in the DeFi ecosystem. The impermanent loss is the biggest enemy in this innovative DeFi protocol which can only be tackled when there are native hedging tools with comprehensive data for analysis and management – that is the mission of Houston Swap.
Houston Swap: The 1st Concentrated Liquidity DEX with Automated Liquidity Management and Leverage Facility
Apparently, HoustonSwap dedicates to building a single DeFi platform that integrates concentrated liquidity, borrowing protocols, and automated liquidity management into one. HoustonSwap is like the integration of Uniswap, Arrakis, and Alpha Homora whilst emphasizing more the optimization of impermanent loss, liquidity rewards, and automatic strategies with excellent UI and facilities.
1. Automated Liquidity Management
HoustonSwap provides automated liquidity management to offer the best return and minimize impermanent loss through the calculation of price range. As mentioned, flash LPs will suffer less from the impermanent loss; thus, all the algorithms will automatically check and rebalance the liquidity position every 15 minutes to reassure the users.
IL-based Liquidity Algorithm
• Maximum IL% users could suffer = Magic number * APR of the trading fee + Yield that projects/HoustonSwap offers.
• Similar to the Curve factor, the Magic number is set by the owner from time to time.
• More suitable for stablecoin pairs.
Price Volatility Algorithm
• The initial price range will make reference to the IL-based liquidity algorithm.
• Rebalances if price trends change tremendously compared to past records.
• More suitable for general pairs.
2. Hedge Delta by Leveraged Yield Farming
Delta hedging is a defensive tactic to reduce the directional risk or exposure of the position. It is very usual for traders to utilize the Delta hedging to reduce the directional risk by reducing their position Delta without completely taking off the initial position. It sounds very complicated, doesn't it? Therefore, HoustonSwap helps the LPs to get away from all those mathematics behind the Delta and provides automatic bots to conduct the Auto Delta-Hedge LP and Auto-adjust leverage within a range. LPs can simply borrow tokens from the specific pools to maximize return and hedge their positions by borrowing those assets. With the assistance of HoustonSwap with leveraged yield farming, LPs can unlock the possibilities of hedging and minimizing impermanent loss while rebalancing positions without changing their price range. As a result, return maximization and equity stabilization can be achieved in HoustonSwap by the dynamic adaption of the concentrated liquidity market maker (CLMM).
Users can add new liquidity and choose to borrow from the lending pools/collaborated lending pools via the native UI of Houston Swap.
3. Liquidity Rewarders
Before participating in the DeFi ecosystem, people should know that token liquidity is highly associated with the token's price. In short, the more the liquidity of the token, the lower slippage of the token price. That being said, it is not easy for projects to attract the LPs among all the numerous tokens in the DeFi market. Committing to building a comprehensive DeFi platform, HoustonSwap meets the expectation not only of the LPs but also of the project team to stand out in the DeFi ecosystem by opening the door for tokenized projects to provide extra yields under the UI to valuable liquidity providers. Whether LPs receive DEX tokens, partner tokens, or project tokens as rewards, it is completely authorized by the project owner to manage the incentivization. In the coming future, yields that are distributed within a certain price range by the Liquidity Rewarders can be exchanged for a certain percentage of the trading fees to offer an extra incentive to the LPs and stabilize the token price to a larger extent.
4. Automated Strategy Vaults
The automated strategy vaults are designed for DeFi users to pursue their desired investment returns based on their goals and risk appetite. It provides a simplified way for users to provide liquidity with CLMM, without worrying about the impermanent loss of the value of the stablecoin or native token. Emphasizing risk control and management, there will be a detailed risk analysis of each vault and an automated stop-loss bot execution to protect users’ principles marked in fiat value, i.e. USD.
In the DeFi space, there are many projects providing different DeFi tools for users. Meanwhile, those tools are extensively separated which causes many barriers and inconveniences to users; beginners even don't have any clues to start their DeFi journey. But in Houston Swap, the aggregation for effective CLMM liquidity provision, accompanied by the comprehensive borrowing functionality, automated bots, and data analysis can offer a clear DeFi path to participants to maximize their gaining without any big concerns about impermanent loss.
Even so, these innovative and aggressive solutions are not the end for HoustonSwap being featured in the DeFi space; Apto, a new layer 1 Blockchain backed by the most famous VCs like a16z Crypt, FTX Ventures, Binance Lab, and Coinbase Ventures with 350m raised is selected by HoustonSwap to deploy those complicated DeFi algorithms. Crypto experts are already showing interest to discuss the Aptos blockchain after knowing the strong facebook-related background of the Aptos team and the backers.
Using the Rust-based Move programming language which was developed by the team in Facebook before, it’s flexible enough to handle the unique needs of Aptos developers with higher security to avoid malicious entities through copied or discarded resources on the blockchain. In order to reinforce the stability of the blockchain, Aptos adds redundancy to its network, rendering it less prone to failure. In addition, by leveraging the Block-STM Technology and the BFT Consensus Protocol, parallel execution is deployed to handle multiple transactions concurrently while reducing latency. A collaborative scheduler in Aptos also prioritizes certain transactions on the Aptos blockchain and handles essential validations efficiently. Ultimately, up to 160,000 transactions are processed simultaneously and securely. Therefore, when putting the conditions of other popular DeFi blockchains in comparison, Aptos should have higher reliability than Solana and faster TPS than Avalanche, Ethereum, and again, Solana. Not to mention the gas fee of Aptos is dramatically low on average.
As such, it can be foreseen that the deployment in the Aptos ecosystem of HoustonSwap will unlock the potential of liquidity provision, allowing the users to realize the actual power and value of DeFi under a scalable, reliable, secure, and usable ecosystem of Aptos.
A statistic comparison between different blockchains.
If people feel so confident about Aptos due to the background of the team in Meta, then this will be the case in HoustonSwap as well. The co-founders of HoustonSwap have very professional backgrounds in Fin-tech and financial institutions like JP Morgan and HKEX in Hong Kong. Not only in traditional finance, but the team also has a profound experience in the DeFi space through the launch of Single Finance, a leveraged yield farming platform from scratch which ranked No. 1 in the yield category of the Cronos chain and ranked No.22 among all chains together with a very significant TVL of 30 million USD previously. By inheriting the excellent achievements in Single Finance, HoustonSwap will be an eye-catching DeFi facilitator either in the winter or the summer time of the DeFi market. As long as the HoustonSwap team is dedicated to improving the DeFi ecosystem, Enzac Research is always supporting the team by providing valuable and professional advice and connections in DeFi development like what we were used to doing in Single Finance. So let's anticipate the coming progress of this revolutionary DeFi project!
"Houston…we have a problem…"