Reputation-based Automated Market Maker (RAMM)

To understand how Dextr's Reputation-based Dynamic AMM works let us understand the key differences between traditional CPAMMs and RAMM:

ComponentCPAMMsRAMM

Liquidity Pool Type

Dual Token based Collateralized Pools

Single Token based Liquidity Pools

Price Discovery Mechanism

Constant product formula (x*y=k)

Price Feeds from Price Oracles

Reward Mechanism

Split between LPs in the Pool based on their Price Range and percentage holding in the pool.

Rewarded to individual LPs based on their Ranking, Price Range, and Amount Settled.

In Dextr, Liquidity Providers create a Liquidity Position using a single token and earn from trading fees across chosen markets. A Liquidity Position includes:

  1. Primary Liquidity Token: The initial asset deposited to start a liquidity position.

  2. Secondary Liquidity Tokens: Tokens explicitly chosen by an LP to receive in exchange during active liquidity positions.

  3. Price Range: Users define USD price ranges for both primary and secondary tokens when setting up liquidity positions. Trade settlements for Liquidity Providers depend on these ranges for both outgoing and incoming assets.

Trade Settlement - When an order is placed, Dextr's protocol checks if the order price matches the Oracle price. If not, the order remains open until a price match occurs. Once there's a match, the protocol obtains eligible LPs (in batches of 5) based on their rank from the off-chain database synced with on-chain orders for order fulfillment. The Smart Contract validates order details, including price range, liquidity balance, pair, and minimum liquidity balance threshold. It also considers the REP score, settling the trade with LPs having the highest REP score in the batch and, if necessary, with remaining LPs in descending order of their rank.

Tokens in Liquidity positions, whether primary or secondary, are exchangeable. This exchange happens only when the tokens being swapped adhere to the price ranges set by the LP for each token.

Illustration

Example: Suppose a user selects ETH as the primary liquidity token and includes 4 secondary tokens (USDC, MATIC, BTC, and BNB). In this scenario, there is an opportunity to earn trading fees from the trading volume of all possible pairs among the 5 tokens within the pre-defined ranges. To calculate the number of pairs, we use the combination formula C(5,2), resulting in 10 pair combinations.

LP Ranking Mechanism: Dextr employs a Dynamic LP ranking system, prioritizing trade settlements for LPs with higher REP scores. LP rankings are updated every 24 hrs.

Liquidity Mining Rewards: Individual LPs earn liquidity mining rewards and swap tokens on successful trade execution. Rewards are based on the LP's share percentage of the protocol fee. Liquidity Mining Rewards are calculated using the below-mentioned formulas:

LPReward=OrderQuantity×(ProtocolFeePercentage×LPsShareofProtocolFee)LPReward=OrderQuantity×(ProtocolFeePercentage×LP ′ sShareofProtocolFee)

LP Reward per settled trade is automatically compounded to the LP's existing liquidity position.

To illustrate: consider an LP with 1 ETH as the primary token and USDC, BNB, BTC & ZETA as secondary tokens. In trade for the ETH/USDC pair, where 2000 USDC and trading fees are swapped for the LP's 1 ETH, the LP's position updates as follows:

As shown, +4.20 Fees (70% of 0.3% of 2000 USDC) is added to existing LP Position

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