LD Capital: Analysis on Customized DEX Mechanism for L2 Top-tier Liquidity

LD Capital Analysis: Customized DEX Mechanism for High Liquidity on L2

As Uniswap V3 license expires, many forked projects of centralized liquidity AMMs (CLMM) have started to emerge. LD Capital researcher Yilan analyzed the mechanisms of Trader Joe, Izumi, and Maverick, three DEXs that optimize pricing ranges based on V3 strategies.

Trader Joe v2 and v2.1 achieved: 1) no slippage trading within the bin. 2) The introduction of dynamic swap fees through a liquidity book, where the fees will apply to the swap amount in each bin and be proportionally distributed to the LPs in the bin to hedge against impermanent loss in high volatility markets. From the perspective of the perpetual options market built into the AMM, this setting is also reasonable, using the instantaneous price fluctuation function to price high volatility, similar to compensating option sellers (LPs) in the options market. 3) Auto pool automatically rebalances liquidity positions to maximize fee income. Later, Farming strategies similar to Izumi Liquidbox and liquidity incentive mechanisms for project teams to build pools will be introduced.

Izumi Finance achieved: 1) Accurate value range: LiquidBox allows project owners to set the value range of incentive LP tokens explicitly, meaning LPs can better understand the value range of the liquidity they are providing, thus better managing risks and receiving corresponding rewards. 2) Enhanced liquidity management: LiquidBox focuses liquidity better on a specific price, not just a price range, by setting the value range. This enhanced liquidity management makes the Izumi protocol easier to manage liquidity and supports more trading methods, such as limit orders. 3) Different liquidity reward models are good liquidity management tools for project parties.

Maverick adjusts the way liquidity changes with price by offering different modes. When the price changes, the bin can move and merge to maintain liquidity efficiency. This mechanism allows LPs to better manage impermanent loss and gain better returns in price changes. The AMM’s underlying automatic movement of native liquidity, custom central liquidity movement direction, LP fee automatic compound interest, and allowing project parties to incentivize specific price ranges provide Maverick AMM with the potential to maximize capital efficiency and the most accurate liquidity management tools for DeFi users such as LPs, DAO treasuries, and project development teams.

Reference: https://ld-capital.medium.com/trader-joe-izumi-maverick-l2头部流动性定制dex机制分析-162bc770e8e2

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