In the last episode, we explored AMMs: their genesis, the benefits they bring, and their limitations. Long story short: they enabled on-chain trading, but are rife with inefficiencies. That’s why we need a better solution. That solution is Swaap Finance.

Swaap Finance: the third way

Vision

Swaap is an on-chain Market Maker with a superpower: resistance to Impermanent Loss. It enables everyone to provide liquidity and trade assets while limiting losses generated by arbitrage. This is good news for Liquidity Providers, who will save billions a year. It’s also great for traders, who will pay lower fees as LPs make more money. Essentially, our aim is to grow the pie and make both traders & LPs better off.

Key advantages

By using Swaap, Liquidity Providers maximize their returns. They earn competitive fees while enjoying reduced Impermanent Loss.

To accomplish this, Swaap imports mechanisms used on Order Book exchanges.

• Price discovery is efficient: decentralized oracles bring information from Centralized Exchanges in order to reduce arbitrage.
• Dynamic spread is used to limit the risk for LPs. Like market makers on order book exchanges do, trade prices depend on volatility and inventory of the pools.

Because Swaap runs on-chain, anyone can provide liquidity and LPs are the custodians of their own money. Traders benefit from lower fees as the pool does not need to compensate Liquidity Providers for their Impermanent Loss.

In short, Swaap allows anyone to trade & invest with peace of mind.

Key tradeoffs

Incorporating those features on-chain means that Swaap has to process more information.

For instance, our AMM uses stochastic calculation in order to compute the dynamic spread. It increases gas consumption compared to constant product AMMs.

We chose a blockchain (to be revealed soon), which enables swift and low-cost transactions while maintaining the highest security standards.

Last but not least, leveraging oracles means that Swaap has to focus on assets listed on Order Book exchanges.

Conclusion

Swaap enables on-chain trading while correcting some inefficiencies of AMMs. It is a mixed approach that leverages AMMs and Order Book properties and focuses purely on market making.

We see Swaap as complementary to traditional AMMs and to Order Books:

• AMMs are probably the best design to trade low cap tokens which could not be listed on Order Books
• Swaap is a more efficient model to invest & trade on-chain for higher cap tokens which are listed on Order Books.

This is the third part of a 3-piece story on AMM vs.Order Book. Check out episodes one and two. 😉