The use of Automated Market Makers (AMMs) have quickly supplanted orderbook matching as the primary method of providing liquidity to decentralised finance (“DeFi”) markets. Nevertheless, current AMM solutions are not without their problems and most existing solutions seek to achieve an optimal trade-off between minimising such problems.
At Centaur, we believe that an ideal solution should have the following characteristics:
minimal impermanent loss for liquidity providers;
low slippage for traders; and
high returns for liquidity providers.
This whitepaper will set out the current AMM solutions and examine the key improvements that Centaur Swap offers over its competitors.
In summary, Centaur Swap offers innovations in 3 key areas:
Price oracles to minimise impermanent loss;
Consolidated pools with single-side staking;
Unique curve design to minimise slippage when pools are in balance
Low Slippage. Traders will enjoy low slippage (due to liquidity maximisation) and liquidity comparable to centralised exchanges.
Arbitrage Profits. Arbitrageurs are incentivised to rebalance off-balanced liquidity pools by making a profit from a difference between the Internal Price and External Price[1].
Single-side Staking. LPs can choose to stake only one token which will prevent unnecessary exposure to other tokens.
High Returns. All tokens swaps will be charged a trading fee. LPs will receive a share of the trading fees that is proportionate to their share of the liquidity pool, if the trading fees results from a swap into the pool where they have staked their tokens. LPs will also receive a portion of the returns generated from the liquidity that has been lent or staked on other DeFi platforms.
No Impermanent Loss. The use of price oracles and the incentivisation of arbitrageurs will ensure that the risk of impermanent loss is kept to a minimum.
[1] See Single-side Staking for definitions of Internal Price and External Price