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Forex AMM

Introduction

The Forex AMM is an innovative Automated Market Maker (AMM) designed for stablecoins and crypto assets. It integrates a variety of cutting-edge concepts, making it more advanced than traditional AMMs like Uniswap. Its architecture significantly minimizes impermanent loss (IL) while maximizing capital efficiency, resulting in higher risk-adjusted returns for Liquidity Providers (LPs) and lower swap costs for traders. The Forex AMM achieves this through several key features:

  • Low Slippage: In conventional AMMs, slippage can be substantial, especially with large swap volumes impacting the effective exchange rate. The Forex AMM employs a unique pricing and slippage mechanism that minimizes slippage, even during high-volume trades.

  • Proactive Oracle-Informed Pricing: Exchange rates are determined using external oracle data from off-chain markets. This approach almost eliminates impermanent loss since market price shifts do not result in economic value loss to arbitrageurs; instead, the exchange rates adapt in real-time.

  • Separation of Asset Provision from Risk Management: Liquidity providers can choose between low-risk, single-sided Swap Pools or a specialized Backstop Pool. The Backstop Pool offers higher returns but also covers residual IL and other system risks.

  • Low-Risk Single-Sided Swap Pools: LPs in these pools face minimal exposure to IL and other market-making risks, as these are absorbed by the Backstop Pool. As a result, these pools have a risk profile more akin to lending protocols than traditional AMM pools. Additionally, the Forex AMM operates without a pairing asset, which further reduces the capital required to provide substantial swap liquidity. This allows the system to attract deep liquidity at a lower cost.

The following sections outlines the problems the Forex AMM architecture addresses and the benefits it offers compared to conventional AMMs:

Problems

  1. Impermanent losses

  2. Lack of optimization for stablecoins in general AMMs

  3. Reliance on on-chain pricing alone, lacking an off-chain pricing component (a critical aspect for stablecoins)

Benefits

  1. For Liquidity Providers: Improved risk-adjusted returns

  2. For Traders: Reduced slippage

  3. For Token Issuers: Significantly reduced liquidity costs

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