Algebra

This article delves into the topic of overall liquidity for decentralized exchanges (DEXes) &amp; proposes a solution to address this issue. By implementing this solution, the challenge of attracting liquidity for new DEXs and finding optimal trades can be partially resolved. The idea isn&#39;t implemented yet. Discover more about the Algebra Liquidity Layer.In the DeFi space, numerous DEX protocols leverage Automated Market Maker (AMM) technology. These DEXs compete fiercely, striving for swap efficiency, liquidity provider profitability, and overall operational excellence. This competitive landscape fuels innovation, leading to the emergence of more efficient solutions within the DeFi ecosystem. Globally, there are over 260 DEXs operating across various blockchain networks like Ethereum, Binance Smart Chain, Polygon, and Solana, as of January 2023. Ethereum remains a dominant platform for DEXs, hosting popular ones such as Uniswap, SushiSwap, Curve Finance, and Balancer.However, the presence of numerous AMMs leads to liquidity fragmentation and an inefficient market state. Traders face challenges in identifying the most profitable swap options, while LPs experience idle capital, and arbitrageurs seize missed profit opportunities. Furthermore, even when traders utilize aggregators, the routing process introduces additional overhead, further diminishing market efficiency.That is where we come to realize that Uniswap V3 implementations and the new generation of Algebra-built DEXs, including QuickSwap V3, StellaSwap ‘Pulsar’, THENA Fusion, Camelot, SpiritSwap, and others, represent the peak of the DEX evolution. Concentrated Liquidity emerges as a good solution to the above problems, but it doesn’t cover all the market participants’ needs. So, what lies beyond?<img src="https://miro.medium.com/v2/resize:fit:1106/1*ZxmJQ0WsXrQtQqUX_yi7dA.jpeg" />Example: While Treswap and Quattroswap may have higher overall liquidity, they are often overlooked in practice.On the other hand, the competition among numerous AMMs is evident through the utilization of various invariants (Uniswap V2, Curve, Balancer, etc.), diverse fee parameters, and additional methods to incentivize liquidity providers (liquidity incentivization). It is worth noting that the technology of concentrated liquidity, actively developed by Algebra, represents a natural extension of different invariants. A concentrated liquidity AMM serves as a universal AMM capable of approximating any invariant and price-reserve curve [1]. Distinct approaches to fees are implemented through dynamic fee management, as seen with Algebra, or by creating a set of separate pools, as demonstrated by Uniswap V3 and its derivatives.<img src="https://miro.medium.com/v2/resize:fit:1400/1*XdEd5dsLyNMAR4mlUWFQUg.jpeg" />Example: the reserves curve of StableSwap and corresponding CL position (from [1])Given the emerging challenges of liquidity fragmentation and overhead, the building of separate AMMs and pools, resulting in a tough competition for liquidity among them, ultimately leads to a decline in the overall efficiency of the entire DeFi ecosystem. In theory, the ideal scenario would involve the entire market operating as one highly efficient meta-AMM. However, practical obstacles prevent this from being fully realized, making the current state suboptimal. On the other hand, new protocols face the liquidity attraction dilemma, often intentionally falling behind larger competitors due to a substantial difference in liquidity depth.Introducing the Algebra Liquidity LayerAt present, the Algebra team is focused on research and development to address the mentioned challenges by introducing a novel solution — the base layer of liquidity, or the Algebra Liquidity Layer. Through the planned development of our protocol, which combines various DEX protocols, we aim to establish a new fundamental infrastructure layer that can be utilized by multiple AMMs. This layer will aggregate liquidity in one place, reducing overhead and facilitating the most efficient swap path.<img src="https://miro.medium.com/v2/resize:fit:1240/1*AQOzoPohdsssdOKPZfaDIw.jpeg" />When pooling liquidity in one place, our plan is to accommodate variations between protocols, allowing for different settings and approaches to fee management. This way, the protocols utilizing the liquidity layer will still have their own independence and remain separate, while benefiting from the collaborative synergy, enhancing their overall efficiency.<img src="https://miro.medium.com/v2/resize:fit:1400/1*GvJmNAsFJ9dnhvp51Zz6ZQ.jpeg" />Example: Ideally, multiple pools with varying fee structures resemble a comparable composition of positions in a concentrated liquidity AMM from the trader’s perspective.Moreover, traders will have access to an easy and profitable method for conducting efficient swaps. Building this underlying liquidity infrastructure also unlocks opportunities for various enhancements and functionalities, including seamless migration between AMMs and simplified liquidity management.Resources:[1] “Uniswap v3: The Universal AMM”, Dan Robinson, Paradigm https://www.paradigm.xyz/2021/06/uniswap-v3-the-universal-ammAbout AlgebraAlgebra is a Protocol enabling projects to integrate Concentrated Liquidity tech, alongside other groundbreaking features — Dynamic Fees, Built-in Farming, and more. Already seamlessly integrated into various DEXes across different chains, including Camelot, THENA, QuickSwap, StellaSwap, Zyberswap, Lynex, Magma, Swapsicle, Synthswap, eZKalibur, Glacier, SwapBased, and more, Algebra propels them to higher trading volume &amp; enhanced capital efficiency. Learn more on our website: <a href="https://algebra.finance/" rel="noopener noreferrer nofollow">algebra.finance</a>.$ALGB is the platform token of the Algebra Protocol, used for governance. Weekly buybacks &amp; burns are aimed to reduce the circulating supply &amp; increase the ALGB value. <a href="https://coinmarketcap.com/currencies/algebra/" rel="noopener noreferrer nofollow">ALGB on CoinMarketCap</a>.<img src="https://miro.medium.com/v2/resize:fit:1400/1*fXC0A5ma71kw_7F50xrd5g.jpeg" />About Algebra LabsAlgebra is a dedicated team that specializes in research and development within the Automated Market Makers (AMM) space. In 2021, as a DEX solutions team, we made a significant impact by launching the first decentralized exchange with improved dynamic fees and built-in farming features, distinguishing itself from other platforms.Algebra has established successful partnerships with more than 25 decentralized exchanges, encompassing notable names like QuickSwap, THENA, Swapsicle, Camelot, SwapBased, and others. This collaboration has resulted in a total TVL of $120 million, and they are continuously expanding their network of partners.<a href="https://algebra.finance/" rel="noopener noreferrer nofollow">https://algebra.finance/</a>At present, Algebra is a technology leader. Even before the launch of Integral, our prior iteration, Algebra V3, had already achieved remarkable success and held a prominent position on various networks, including Polygon, Arbitrum, Polkadot, BNB, and more.We have empowered over 60 projects, including ALMs, cross-chain aggregators, and more, with cutting-edge technology integrated via Algebra-powered DEXes. The Algebra ecosystem aims to bring innovation and healthy competition to the DEX market, offering modern DeFi solutions like the Concentrated Liquidity codebase, including V3 &amp; V4-like Integral, for reshaping any blockchain’s DEX landscape.<a href="https://t.me/cryptoalgebra_chat" rel="noopener noreferrer nofollow">Telegram</a> |<a href="https://twitter.com/CryptoAlgebra" rel="noopener noreferrer nofollow"> Twitter</a> | <a href="https://discord.gg/afkggeMMDC" rel="noopener noreferrer nofollow">Discord</a> | <a href="https://www.youtube.com/channel/UCCeQt4pAAQ-DDdRAEF2hwhQ" rel="noopener noreferrer nofollow">YouTube</a>

Solving the Core DEX Problem: the Algebra Liquidity Layer

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