OpenSwap Liquidity Queues

An Introduction to OpenSwap Liquidity Queues

OpenSwap liquidity queues offer a new approach to on-chain liquidity that offers traders and market makers a novel and efficient mechanism for carrying out on-chain trades that complement and enhance the current DEX ecosystem.

On-chain trades have grown exponentially since the introduction of AMM (Automated Market Maker) based DEXs due to the ease of listing new trading pairs and a straightforward pricing mechanism. However, all is not perfect with ‘impermanent loss’ and a lack of control for market makers (liquidity providers), ‘high transaction fees’ and ‘price slippage’ for market takers.

Rather than simply refine AMM formulas for modest improvements, OpenSwap has taken a new approach that removes the one-size-fits-all approach of current DEXs. OpenSwap introduces trading through newly purpose-defined liquidity queues that bring benefits to both market makers (LPs) and market takers (retail swappers), all within a decentralized platform.

To make it easier for users to understand the concept, a good analogy would be that liquidity queues are like checkout lines at your local grocery store. Now imagine that each line is optimized for a particular way of making the purchase. For example, one line is an ‘express checkout’ line but you are limited to 5 items or less, another is a self-check-out line, another offers priority to bulk goods and yet another is ‘cash only’. Similarly, liquidity queues all lead to a swap trade, but each queue is optimized for different use cases.

Lastly, OpenSwap’s liquidity queues are designed to complement existing DEX AMM pools as queues can be routed with AMM pools to create a truly ‘open’ swap experience.

A Few Definitions

To ensure alignment in understanding, we will use the following definitions for key participants:

Market Taker - This is someone that carries out a trade based on currently available pricing or offers. On DEX’s, these are the retail swappers using DEXs such as Uniswap and pancake swap.

Market Maker - This is someone that provides liquidity for a specific digital asset for takers to purchase. On DEX’s, liquidity providers contribute their funds in a pool. We consider such a liquidity provider to be a market maker.

Marketing Making Traders/Arbitrageurs - This is someone that carries out trades (taker & maker) for a specific digital asset with the goal of profiting off of price differences. We will use the generic term ‘trader’ to encompass those that will take on both market taker and maker roles.

We will use the generic term 'trader' to encompass those that will take on both market taker and maker roles.

A Revolutionary Choice for DEX participants

At the core of all DEX swaps are the pricing mechanism. AMM DEX’s base pricing off of predefined constant product formulas (i.e.: x*y=k) and arbitrage traders are incentivized to trade off the pool to keep it pegged to market prices. Although such a mechanism will reflect market pricing, it will only work for small volume trades due to the inherent slippage in the mechanism.

As noted above, instead of a single pricing mechanism, OpenSwap believes that pricing should be based on the use case.

To enable this, OpenSwap introduces Liquidity Queues. OpenSwap will initially offer Liquidity Queues categorized into 3 broad categories, each based on a different pricing mechanism.

  1. Spot Price Queues: Trades will always occur based on Oracle-based market prices

  2. Restricted Group Queues: Special priced offers that are restricted to specific groups of users

  3. Pegged Queues: Assets will always be priced based on a fixed ratio to another asset

  4. Offer Price Queues: Assets will be priced based on market maker offers

For market takers, the end goal is to provide them with the opportunity to carry out a trade with the lowest costs and best prices.

For market makers, the queues open up the door to control over how to deploy and gain through their liquidity in ways as of yet unavailable in the DeFi space.

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