Trader Joe Launched Liquidity Book
Trader Joe Launched Liquidity Book, a new design for automated market maker (AMM) to improve capital efficiency, reduce slippage, and minimize impermanent loss.
Liquidity Book providers (LPs) deposit liquidity into discrete pricing bins, each with a specified price. All bin deposits now get fungible token receipts. Trader Joe Launched Liquidity Book, LPs using Liquidity Book can earn more fees, while putting less capital at risk, and get better prices and lower slippage on their trades.
Liquidity Book tries to solve this problem by allowing users to choose at what prices they want to provide liquidity. Liquidity Book provides more flexibility, by letting liquidity providers select any number of bins. Much less liquidity is sitting idle and efficiency improvements can scale up to as much as 20,000x higher.
Existing AMM’s typically have a flat fee for all trades. Liquidity Book introduces a fee structure that has two components, a base fee and a variable fee. The base fee represents the minimum fee rate for all trades, and the variable fee is adjusted to account for volatility. The more volatile the assets are in a Liquidity Pool, the higher the variable fee will be. This feature is what Trader Joe calls Surge Pricing.
The Volatility Accumulator allows surge pricing (VA). The VA calculates instantaneous volatility for each Liquidity Pool by monitoring bin transactions. Volatility Accumulator count determines Surge Pricing variable cost for Liquidity Book transactions.
Discretized Bins Make Zero Slippage Swaps Possible
Liquidity Book combines bins into one structure, aggregating liquidity from all of them to form a Liquidity Pool. Individually, bins act as constant sum pools with their own liquidity reserves, as opposed to existing AMM designs that use a constant product formula. This model uses pool reserves to calculate prices, which often result in traders paying more for less tokens.
Liquidity Book’s pricing remains stable inside an active bin. If the deal uses bin reserves, there will be no slippage.
Liquidity Book’s new design hopes to unlock active liquidity provisioning, without compromising the needs of key stakeholders. This is an exciting step forward for Avalanche DeFi that will unlock a new wave of composable deployments on-chain.
About Trader Joe
Trader Joe is a one-stop-shop decentralized trading platform native to the Avalanche blockchain. Trader Joe offers a comprehensive DeFi platform where you can Trade, Lend and Leverage, participate in a Launchpad and shop for NFTs. Visit Trader Joe and discover what DeFi can really offer.
