The Evolution of the DEX: from Kyber to InfinitySwap
Prior to investigating the ground-breaking features that InfinitySwap’s AMM will bring to market, it is important to look at the past to understand the evolution of the AMM.
Prior to investigating the ground-breaking features that InfinitySwap’s AMM will bring to market, it is important to look at the past to understand the evolution of the AMM. First, there was Kyber.
Kyber was arguably the first successful AMM. It was the blockchain-based exchange of the 2017 crypto boom, a time when centralized exchanges reigned supreme. The idea of a decentralized exchange (DEX) seemed novel, but as one of the earliest players, Kyber got a few things wrong about the evolutionary path DEXs would follow, including a poor user experience and limited liquidity-providing options.
Fast forward to the present day, and you can see that DFINITY’s Internet Computer is about to integrate Bitcoin and, later, Ethereum via chain key cryptography. Positioned on the platform, InfinitySwap is the only project uniquely positioned to meet DeFi needs, maintain a highly-functional platform on an ongoing basis, and continue innovating to meet the future needs of investors on the Internet Computer as well as across blockchains.
InfinitySwap will be among the first DeFi platforms on the Internet Computer, and it will also be the most advanced, blending cheap fees, lightning-fast transactions, and an inclusive SocialFi user experience.
As the first big AMM competitor, Bancor was the goliath of its time, second to none throughout 2018. It is much the same as your typical Ethereum DEX, but with a few dynamic features added to the main version, Bancor V2. In an attempt to reduce the drawbacks of AMMs, namely impermanent loss, and slippage, they introduced impermanent loss insurance and single-sided staking, giving more options for users to mitigate risk. Bancor remains a top player in the Ethereum DEX space but has since fallen below some of the newcomers in DEX rankings by market cap and volume.
Uniswap V2 - The Beginning of Defi in the Mainstream
Uniswap is the undisputed king of the DEXs and inspiration for a new generation of AMMs. It is an elegantly simple masterpiece—an almost blank UI with a brand revolving around a pink unicorn. There are only two tabs, swap, and pool. Under the swap tab are just three buttons: select token, switch (to/from), and swap. Under the pool tab, the same, except the swap button, has been changed to supply. Of course, external pieces like wallets and tokens complicate things, but this overall experience was something users could fall in love with.
Uniswap put itself ahead of the competition with a liquidity mining program that ended in November 2020, when Bancor began. This was followed by a surprise airdrop that handsomely rewarded every early user. Many projects followed in Uniswap’s footsteps, as it seems to have set the standard for airdrops and farming. Ever since that airdrop, Uniswap has been pulling volume that turns heads even in traditional finance and is considered by many to be the primary driver of the 2021 DeFi boom.
For a time, and perhaps still, the biggest AMM competitors came after Uniswap cemented its dominant position on Ethereum. They all offer slight variations attempting to address the shortcomings of UNI’s simple concept. The most notable case is Balancer, an AMM adding dynamic features that allowed balancing pools with up to eight assets. Pool weights were arbitrary, with fees set by the liquidity pool creator. This increased functionality came with higher complexity, giving opportunistic liquidity providers (LPs) an edge. Having more liquidity to play with, starting your own pool, and frequently switching pools based on fee tier and volume were all encouraged methods for extracting additional value from the protocol. Ranked outside the top 300 coins by market cap, Balancer today is a more humble project but its influence on the AMM space has spread far and wide.
Uniswap’s latest iteration makes it the “most flexible and efficient AMM ever designed.” It piggybacked off Bancor and Balancer’s previous attempts to tackle impermanent loss by introducing two significant features: Concentrated liquidity and multiple fee tiers. Now LPs choose the fee for market-making, generally charging more on swaps for volatile pools and less for stable ones. Concentrated liquidity means LPs must also choose asset proportions and price ranges where their liquidity is active and inactive.
Again, the consequence of this solution was more complexity and a disadvantaged everyday user. Like in Balancer, LPs should have a firm grasp on and actively keep pace with protocol rules and asset details of pools they’re in. The setup is ideal for institutional investors and bot makers, not so much the everyday crypto enthusiast anymore. The V2 to V3 transition demonstrated this exact disparity, as it was well-received by whales, but most Uniswap traders picked V2 following the “newly launched effect” of V3.
Today DEXs are ubiquitous. Pancake, Sushi, 1INCH, Serum, and Trader Joe are just a few examples of AMMs inspired by Uniswap. These new-age versions are generally UNI V2 clones with twists since there’s no more first-mover advantage for a run-of-the-mill AMM. The typical selling point of these others is greater efficiency than their Ethereum-based counterparts and convoluted tokenomics that grant large rewards for providing liquidity.
Ultimately, the theme across all successful AMMs is that simplicity reigns supreme. Not only does the simplest DEX attract the most users, but it stays close to the roots of what AMMs are for — allowing anyone to contribute and benefit as a market maker.
InfinitySwap - The next Iteration of DeFi
InfinitySwap’s design is based on what made AMMs great: Uniswap V2. We won’t fix what isn’t broken, especially since our focus is on what makes InfinitySwap a first mover in its own right.
Our DEX has the opportunity to simplify the external pieces that Uniswap couldn’t. Wallets and tokens will be a native part of the user experience, in some cases, with InfinitySwap’s homegrown standard not requiring the fees we’ve grown accustomed to.
Because of this ease of use and reduction in trading fees, InfinitySwap is merging DeFi with social media as the first social sharing DEX packaged in an already familiar UI.
Imagine sharing your wallet portfolio and earning extra for doing so or copying a friend or influencer you believe in.
Thanks to the power and performance of the Internet Computer, InfinitySwap is bringing technical ambitions like true cross-chain interoperability with our token standard to life. Imagine trading Ethereum tokens on the IC or having your IC tokens transferrable to other chains. We’ll do this all without ever jeopardizing the opportunity afforded to the smallest LPs by following a V2 architecture.
AMMs have clearly not finished evolving. DEX makers will continue to search for ways to reduce impermanent loss and complexity. We will remain open and capable of adopting new models that become a standard, but the next evolutionary branch of AMMs will not just come from another slippage solution.
They will come from a breakthrough in usability and interoperability. The AMM solutions we are exploring are of a different class, not on the radar of Uniswap clones. They include bringing UNI V2’s simplicity, not just to the UI but also to attached wallets, social sharing features, and bridges to other chains.
Our product is a blend of Uniswap, Balancer, and CoinMarket Cap. We want to be the Google for blockchain, making it easy and accessible for people to invest in new coins by making this information very transparent. This is the next major milestone for AMMs on the Internet Computer and beyond.
The IC has the potential to become the liquidity hub, not only for Bitcoin but also for Ethereum-based chains. The blockchain world should be extremely excited about the prospect of this latest evolutionary stage of decentralized finance.
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