How Crescent solves liquidity inefficiency
Most often, liquidity is acquired through promise of high reward yield. But we ask, at what cost?
In a basic AMM, the liquidity within a pool is distributed from zero to infinity, but the highest trading volume takes place within a relatively narrow price range. Then why do networks forcibly lock users’ assets when they are not being put to use for trading?
Users are forced to lock assets within a pool, unable to effectively expand their investment positions, and DEXs attract users with high APR that are unsustainable for the network, which leads to fleeting liquidity. High liquidity providing APR within a pool means high inflation for farming rewards, which is not a sustainable method in the long-term.
The mission of Crescent Network goes beyond basic AMM, complementing the strengths of a DEX, while ensuring the longevity of the network through a method of securing sustainable liquidity that allows for smooth trading.
Existing basic AMM — inefficiently distributes liquidity among entire price range between zero and infinity
- Most of the liquidity within the pool is not utilized for trading
- Leads to liquidity that is not, and may never be used, whilst continuing farming incentivization for unused liquidity
Ranged Liquidity — Allows for efficient utilization of liquidity
- By providing liquidity within a finite range of the current price, the network can supply the same liquidity within the range as the basic pool with infinite range, resulting in the same trading experience for users
- Amplification of liquidity provided for trade within the designated price range
Advantages for the network’s longevity
- By utilizing orderbook and ranged liquidity, inefficient allocation of farming rewards is negated by focusing liquidity on proper price ranges with high volume
- The rewards can then be distributed to provide larger liquidity with given inflationary farming budget, enabled by enhanced efficiency from orderbook and ranged liquidity
- Currently, the bCRE/CRE ranged pool has the daily farming rewards of 4,684 CRE for the liquidity of $357k.
- As paired assets, the vast majority of the trading happens within a roughly ±2~6% price range. This means the liquidity outside of the price range between 1.063 and 1.15 is rarely used.
- Through the implementation of ranged pool with the price range between 1.063 and 1.15, this ranged pool has the liquidity amplification factor more than 50.
- This means, to provide the same amount of liquidity in the price range between 1.063 and 1.15, the basic pool with the price range between zero and infinity requires more than $18m.
- In order to attract $18m for the liquidity by using the basic pool, the amount of the required daily rewards is estimated to approximately 241,000 CRE for the same APR, while the ranged pool is only using 4,684 CRE.
- Then, the remaining rewards of 236,000 CRE can now be reallocated to other pools, utilized for providing new pools for users, additional ranges, and more. The possibilities are endless with sustainable liquidity.
In the perspective of the Liquidity Provider
- Liquidity providers can receive farming rewards with only a portion of liquidity provided compared to basic pools allows users to maximize capital efficiency
In the perspective of the trader
- Having liquidity focus in price ranges of high volume means traders are able to swap with alleviated slippage
Active Reward Focusing
- The inflation of allocated farming rewards is highly wasted in AMM pools, distributing inefficiently to prices that do not have volume. A large amount of farming incentives can be more effectively distributed among various farming plans, ultimately allowing for a variety of pools for users to trade with ease.
- Through farming v2, Crescent can actively adapt farming rewards according to the exact amount of liquidity provided at current price, giving even more strategic alternatives for users to dynamically contribute to the network.
Deposit Ratio Shift:
- The Deposit Ratio of a ranged pool shifts depending on pool price.
- Once the pool price is out of the range, only a single kind of coin remains in the pool.
More detailed information on Ranged Liquidity can be found at Crescent Docs