AMM is everywhere. How does Bancor V2 solve the DEX slip-point problem?

Source: Blue Fox Notes

原标题：《 Bancor V2：引入可降低滑点的 AMM 》

Author: Notes by Blue Fox

Bancor was the first to introduce the AMM model in practice, but Uniswap really started it. Since then, AMM has blossomed almost everywhere. Bancor, after a hiatus, has launched The Bancor V2, which addresses AMM's current weaknesses. A breakthrough could be another coup for The DEX.

Bancor V2 addressed volatile losses, liquidity scrip exposure, and even integrated lending agreements to boost liquidity providers' returns. However, the concerns of trading users should also be addressed. Traders are most concerned about whether there is a convertible token pair and whether the slip point is low enough.

AMM mode is based on constant product algorithm.It requires a lot of liquidity to provide users with a low-slip trading experienceAs opposed to the order book model, it was seen as a natural disadvantage.

So, how does Bancor V2 solve the DEX sliding point problem?

Liquidity amplification

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(Source: Bancor V2)

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From this figure, Bancor V2 wants to realize that its sliding point is only higher than the stability coin DEX Curve, which is very competitive in THE DEX. Of course, it's only a plan at the moment, but it hasn't been implemented yet.

Users often complain that the slippage in Uniswap is too high to be cost-effective. Indeed, with the exception of a few liquid pools that are fairly liquid, most of the scrip pools are not suitable for larger trades.

If the AMM liquidity pool is small, the price slide could be quite dramatic as the volume of conversions rises. The diagram below:

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The mere exchange of 100ETH has a price impact of more than 50%, which is a very large slippage and almost no one would exchange it.

At the same time, high sliding point is also related to competition. People can directly choose DEX or CEX with low sliding point to trade. For example, Curve may be chosen instead of Uniswap in stability currency trading. Even if you're not using Curve, you might opt for DEX's aggregators (1inch, DEXAG, etc.) to find the best trading price.

In order to solve the problem of excessive sliding point, Bancor V2 tried to adopt the mechanism of "liquidity amplification" to improve it.The so-called "liquidity amplification" mechanism is mainly achieved by changing the AMM's pricing curve to reduce sliding points within a specific price range. The liquidity amplification mechanism is often used in stability currency and packaging assets (such as weth, etc.), such as in Cuvre. And what Bancor is going to do is introduce it into a more volatile pool.In other words, Instead of providing an unlimited market-making price range, Bancor V2 focused liquidity within a specific price range.This is different from the "unlimited" scrip exchange of the first AMM. That is, it no longer offers an unlimited market-making price range, as AMM did before it. In order to balance the token pool, the original AMM model may have sky-high exchange prices.

So far, the AMM model for Bancor V2 is less detailed. The following figure shows the difference between the two types of AMM, with blue representing the current standard AMM model and red representing the AMM model to amplify liquidity. You can see that the slide point has dropped quite a bit.

(Source: Bancor V2)

The New AMM model of Bacor V2 One of the most important designs from present data is to dynamically update the pricing curve of the liquidity pool with a Chainlink price prediction machine so that the index price of assets (asset prices in the AMM pool) can track their market price. By tracking the market price, we can significantly reduce the slippage points within a certain price range. Of course, there will be some slippage points, which can maintain the incentive for arbitrageurs.

(Chainlink provides BNT/USD predictive machine feed)

In other words, Bancor V2 will dynamically update the liquidity pool to provide sliding-point costs equal to changes in market prices. Based on this,Arbitrageurs still have a chance to arbitrageTo achieve parity in token prices. Overall disclosure is still limited. Bancor plans to disclose more details in July, and its technical code will be open source and deployed to the home network.

conclusion

Bancor V2 proposed to solve the biggest problems on the DEX, including volatile losses, scrip exposure, sliding points and so on. If it does significantly improve those issues, it has a chance to make waves in future battles over THE DEX and give it a boost.

Text link:https://mp.weixin.qq.com/s/4p6v8EfbEeHWaJa1A1Z63A

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