Genius Yield AMM
Genius Yield is an AMM on the Cardano Blockchain that efficiently manages the liquidity and all required activities in the digital DeFi world.
In essence, AMMs are the protocols used to pool liquidity and manage demand and supply unbiasedly. The interest rates for the borrowers and lenders are calculated.
A prime objective of having an AMM is to replace banks with a digital pre-programmed algorithm to foster more transparency and trust in the ecosystem. It can be understood as a group of smart contracts that execute specific functions when appropriate conditions are met.
The importance of AMM is realized when other available formulas are considered. According to most other methods, the price of a digital asset is expected to remain in a specific bandwidth, leading to impermanent losses. Therefore, AMM use real-time data from oracles and allow users to make precise data-driven decisions as a more efficient method.
This white paper outlines the advanced implementation of AMM by Genius Yield for the sole purpose of providing efficient liquidity management and allocation for users of the decentralized world. It gives better control over liquidity to users and allows them to benefit from the eradicated liquidity fragmentation. In addition to this, Genius Yield offers smart liquidity management that further enables users to generate better yields.
Behind Genius Yield’s advanced approach:
1- Concentrated Liquidity - Genius Yield will provide high ADA liquidity. It should facilitate a powerful swapping and exchanging engine. Genius Yield will use the same feature as Uniswap V3 called concentrated liquidity. Ranges to which liquidity providers (LPs) can allocate their assets to custom price ranges. For example, Nearly 99% of all USDC/DAI trades occur in the $0.99-$1.01 range, yet in v2, liquidity would be reserved for all prices from $0infinity, meaning most of the liquidity in this pair is sitting unused. This change allows LPs to provide their coins where they are most needed and most helpful. With v3, LPs can devote 100% of their assets to earning fees in that $0.99-$1.01 range.
In Genius Yield, the liquidity is concentrated, and LPs get a justified price range according to their capital. They can put their money in different price ranges to diversify in terms of risks and profits. This allows a more flexible model where users can create their path of liquidity management. Additionally, users can choose automated management from Genius Yield by entering their desired results, and the Genius algorithms define the appropriate path them-self.
LPs can combine any number of distinct, concentrated positions within a single pool. For example, an LP in the ETH/DAI pool may choose to allocate $100 to the price ranges $1,000-$2,000 and an additional $50 to the ranges $1,500-$1,750.
Here, the Range order will also come into play. Users will be able to deposit a single token in a price range of their choice.
Another way to view it is to make an analogy with Roulette: In v2, you cover all the numbers with your liquidity from 0-36 ... you put $1 on every number, and you win on every spin (technically, you lose $1 on every spin but that is not important for the analogy) In v3 let's say you cover only half the board 0-18, but you put $2 on each. In this case, if the ball lands on your number, you get 2x than in v2, but if it lands outside, you get nothing.
The same is with providing liquidity in v3. In price ranges you didn't cover, you get 0 fees. In the price ranges you covered, you get multiple of your capital efficiency. The smaller the range you cover, the bigger the gain if the asset is trading in your price range.
Genius Yield uses a concentrated liquidity market maker (CLMM), a much more efficient market marking algorithm than a standard constant product market maker (CPMM) algorithm. There are 2 tokens in a pool token0 and token1. The price (P) of token0 is expressed in terms of token1. For example, 100UNI per 1ETH in a pool of UNI<>ETH. In CLMM the LPs have to choose a range of prices between which they are providing liquidity. If the price P moves outside the range of a pool, it gets inactive, and the swap is performed using the next available pool in the changed price range.
In CLMM the pool tracks the square root of the price (P) and the liquidity (L) in the pool. The amount of the tokens in the pool are not needed to calculate the number of tokens received in a swap.
Below are the formulas which define relationships between the number of tokens, price, and liquidity.
x is the amount of token 0, y is the amount of token1
price of token0 in terms of token1
P = y / x
Liquidity is the geometric mean of the number of tokens
L = sqrt(x*y)
the liquidity is defined as the change in the amount of token1 for a given change in square root P. Based on this concept the below formulas are used to calculate the amount of tokens you can get.
Δy = Δ(√P) L Δx = Δ(1/√P) L
The above formulas is used for movement of price per adjacent tick. A tick is an integer which represents the price using the below formula. P = 1.0001^i sqrt(P) = 1.0001^(i/2) i = log(sqrt(P)) * 2 / log(1.0001)
Each tick is 0.1% away from the adjacent one. If the price movement for the complete swap is beyond the adjacent tick then swap is performed in step functions moving from one tick to another until all the tokens are swapped. CLMM follows the constant product formula for the price movement within 2 adjacent ticks. CLMM is a variation of the constant product formula.
The liquidity pools are represented as NFTs since each pool is distinct from each other. A single swap might move from pool to pool based on the price impact of the swap.
2 - Multiple fee tiers - Rather than having a single compensation and enforcing it on all users, Genius allows everyone to get what they give. Making it more fair, Genius Yield allows LPs to get compensated based on their respective liquidity profile and the risk they take.
Genius Yield offers LPs 3 separate fee tiers per pair 0.05%, 0.30%, 1%. This array of options ensures that LPs tailor their margins according to expected pair volatility: LPs take on more risk in non-correlated pairs like ETH/DAI and, conversely, take on minimal risk in correlated pairs like USDC/DAI.
This will allow fees to be more transparent and justified as more stable pairs will automatically have a lesser fee of around 0.05%, while volatile pairs can go as much as 0.30%. Therefore, this will cause fragmentation in terms of liquidity, but it will provide a more transparent system to the end-users and maintain their trust.
3 - Non-Fungible Liquidity
Genius Yield also leverages the concept of NFTs in a unique way. Contrary to the standard implementations of NFTs, Genius Yield allows LP positions to be represented as NFTs and allows those positions to be monetized, taking liquidity to the next level. Even a 50 dollar change in the price range can affect capital efficiency, making each position unique and, hence, monetizable.
Since LPs can provide liquidity in custom price ranges, their liquidity positions in Uniswap v3 aren’t fungible anymore. ETH/DAI positions at $1,950-$2,050 and $1,900-$2,100 aren’t the same. The first one comes with higher capital efficiency but also more risk and the possibility of inactive liquidity.
LP positions will be represented by NFTs.
4 - Flexible Fees
0.05% – expected for stable-coin pools like DAI/USDC.
0.30% – for standard non-correlated pools like ETH/DAI.
1.00% – for exotic non-correlated pairs.
In the future versions of Genius Yield, it will be possible for users to vote to add more flexible fees.
To achieve this concept, Genius Yield use two concepts: (see: https://uniswap.org/blog/uniswap-v3/)
5 - SWAP ADA
Genius Yield delivers optimal swap service through a set of steps :
1 - Access to Genius Yield Swap/Trade menu
2 - Connect with your wallet
3 - Specify tokens which to swap
4 - validation of the Swap Transaction
5- Confirmation notification
6- Genius Yield Routeur processing
7 - Token available in the wallet
Last modified 30d ago
Copy link