The use of AMM pools on DEX swaps is becoming the de facto way of swapping on-chain. Such swaps rely on liquidity provisioning by liquidity providers into AMM pools that are incentivized by farming. Simply reviewing the farming incentives offered to different pairs provides clues on what the market wants. Many traders want to be able to swap against stablecoins, however, such AMM pools are also ones that would be subjected to the most impermanent loss and few liquidity providers are willing to fund such a pairing. To address this, most chains will use their native token as the main AMM pairing so there is a greater degree of correlation with the target token. In Binance Smart Chain (BSC), this token is BNB. Thus, on BSE DEXes, the top pairs are: DOT:WBNB ADA:WBNB BAND:WBNB A key pair that is also funded is: WBNB:BUSD
The pair is key to enabling users that want to buy a token using a stablecoin such as BUSD. The drawback is that such swaps require 2 hops incurring double transaction fees. In most PancakeSwap's scenarios, a 2 hop trade would incur a transaction fee of 0.5%, not an insignificant amount (espiecially for larger size trades).
A secondary issue is that AMM pools are fragmented amongst multiple DEXes. On BSC, PancakeSwap dominates most pairs; specialized token pools can be found in other DEX's Aggregator. For example, 1inch attempts to address this through their "Smart Router" which enables 1inch to carry out trades using routes that can span multiple DEX's. However, such trades still do not address the high transaction fee and gas fee issues.
With the introduction of OpenSwap's Liquidity Queue concept, market makers and takers have a mechanism to carry out efficient spot-market trades on selected pairs, notably pairs involving stablecoins.
OpenSwap's Hybrid Smart Router takes the Liquidity Queues to the next level by enabling the coupling of swap trades from AMM pools with Queues to provide a clear advantage over existing 'AMM pool-only' approaches.
Transaction fees for a 2 hop swap using stablecoin & token
0.5 - 0.6%
Current DEX routers only work with their own AMM pools. Thus, as the below diagram illustrates, a 2 hop swap on Pancake would incur a transaction fee of 0.5% in addition to slippage on both pools.
The Hybrid Smart Router is set of a smart contracts that identify potential swap paths leveraging both AMM pool smart contracts and liquidity queue contracts. Based on the potential paths, it will be possible to identify the most cost-efficient routing based on the availability of liquidity queues and AMM pools. If no liquidity queues are present or required, then only AMM pools paths will be presented. Similarly, if a single liquidity queue is all that is required to perform a swap, then only liquidity queues will be used.
Since Liquidity Queues offer advantages on stablecoin pairs such as BNB:USDT, it is envisioned that the Hybrid Smart Router will demonstrate its ability the best when swaps based on stablecoins are requested. In such a scenario, whether a user wants to swap into a stablecoin or out of one, the hybrid router will set up a multi-hop swap leveraging both AMM and queues to provide the lowest cost scenario for the user.
It is envisioned that the Hybrid Smart Router serves as a gateway to Liquidity Queues and AMM pools and efforts will be made to integrate with additional partner wallets and aggregators to extend the reach of the on-chain liquidity options.
Ultimately the following vision is targeted:
A testnet version of the Hybrid Router that combines PancakeSwap AMM pools with initial versions of the Liquidity Queues has been available since late June 2021. A beta mainnet launch on BSC is expected towards the end of Summer 2021.
As additional Liquidity Queues get introduced, new versions of the Hybrid Smart ROuter will be released to take advantage of additional queue features.
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