V3 DEX
While Uni-V2 style Automated Market Makers (AMMs) are great for passive liquidity providers (LPs), they suffer from capital inefficiencies. These AMMs lack the ability for traders to fine-tune execution rates and don't allow LPs to deploy strategies aimed at minimizing impermanent loss.
Uni-V3 style AMMs, though more complex and requiring active management, provide solutions to these challenges.
Key features of SparkDEX's V3 AMM include:
Concentrated Liquidity: Unlike the Uni V2 model where LPs must cover the entire price range from 0 to infinity, Uni V3 allows LPs to choose specific price ranges. This leads to higher fee accrual when the price remains within the selected range but increases risk if the price exits the range, converting LPs' holdings entirely into one of the assets.
Integration of Limit Orders for LPs: The boundaries set by LPs effectively function as limit orders. For example, an LP providing liquidity in the ETH/USDC pair between 1600-1800 USDC sees their liquidity convert fully to USDC below 1600 and to ETH above 1800. Should prices return to the designated range, the holdings revert to a 50/50 split, enabling LPs to resume earning transaction fees.
Non-Fungible Tokens (NFTs): Each liquidity position is uniquely represented as an NFT, emphasizing the distinct characteristics of each pool participation.
Multiple Fee Options for LPs: SparkDEX allows LPs to select from various fee tiers, accommodating different risk and volatility profiles associated with each liquidity pool.
These enhancements in SparkDEX's adaptation of the UniV3-style AMM model optimize both the profitability and strategic flexibility for active liquidity providers within the ecosystem.
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