Zainuddin’s presentation began by contextualizing the revolutionary impact of AMMs in DeFi, contrasting them with traditional finance’s order book systems. AMMs enable any user to become a market maker by providing liquidity, a role traditionally reserved for entities with substantial resources in centralized finance.
V1 and V2 AMMs
In the early days, V1 AMMs required one of the tokens to be ETH, leading to inefficiencies for users needing to swap between other tokens. V2 introduced the flexibility of ERC-20 token pairs, improving user experience by reducing the number of necessary transactions.
V3 AMMs and Concentrated Liquidity
The introduction of V3 brought concentrated liquidity, allowing liquidity providers to choose their liquidity range, thereby maximizing efficiency and earning potential. However, this increased complexity, requiring users to manage their liquidity actively to avoid impermanent loss.
StellaSwap’s Approach to V3 AMMs
To address the complexities of V3 AMMs, StellaSwap transitioned to using Algebra’s V3, which includes adaptive fees. These dynamic fees adjust based on market conditions, simplifying the process for users by abstracting away the need to understand different fee structures.
Off-Chain Reward Distribution
One of the significant challenges in integrating Active Liquidity Managers (ALMs) with V3 AMMs is the need for separate economic models for rewards distribution. StellaSwap tackled this by developing an off-chain reward infrastructure. This system ensures streamlined and secure reward distribution from a single point, mitigating security risks associated with potential hacks of third-party ALMs.
Enhancing User Experience
The off-chain reward system also simplifies the user experience. By eliminating the need for a separate farming step, users can start earning rewards immediately after creating LP tokens. This reduction in steps aligns with StellaSwap’s philosophy of making DeFi more accessible and user-friendly.
StellaSwap Partnership with Beefy Finance
StellaSwap‘s collaboration with Beefy Finance exemplifies the benefits of its new infrastructure. Beefy’s automated vaults will manage liquidity provisioning and auto-compound rewards, enabling users to earn optimal returns with minimal effort. The integration of single-asset zaps further simplifies the process, allowing users to provide liquidity with a single token.
StellaSwap Future Prospects
With the impending launch of the off-chain reward infrastructure and Beefy’s automated vaults, StellaSwap is set to roll out a million DOT incentives campaign, promising to attract substantial liquidity and enhance user participation in the Polkadot ecosystem.
In summary, Aziz Zainuddin’s presentation at Polkadot Decoded 2024 highlighted StellaSwap’s innovative approach to simplifying liquidity staking on Polkadot. By addressing the complexities of V3 AMMs and enhancing user experience through strategic partnerships and technological advancements, StellaSwap continues to lead in the DeFi space on Polkadot.
