Technical interpretation of how Bancor V2 avoids impermanent losses
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Chain News ChainNews (ID: chainnewscom)
Chain News ChainNews (ID: chainnewscom)
, Author: Lin Ming FirstPool, published with authorization.
Market maker level: Bancor V2 innovates AMM, why it can avoid free loss.
The power of Bancor V2 has already begun to show in terms of trading volume and market maker returns.
first level title
Principle understanding
secondary title
How to avoid unpaid losses at the market maker level
Why is there a free loss
How to Avoid Unpaid Loss
Bancor V2 broke the traditional AMM and introduced the oracle machine to feed the price of AMM. From then on, the value of the tokens on both sides of the AMM does not have to be equal. V2 uses the oracle machine to feed the price to adjust the weights on both sides of the token, that is, the number of A tokens * A price does not have to be equal to the number of B tokens * B price, and the arbitrage opportunity is smoothed out by the oracle.
However, it must be noted that the oracle machine only feeds the price to the flow pool, adjusts the values on both sides of the flow pool, and then the flow pool feeds the parameters back to the formula, and then the formula determines the transaction price in V2. It is very important to understand this.
How to amplify liquidity and reduce slippage at the transaction level
The solution to the problem of liquidity amplification is to reduce slippage. Uniswap must have a large enough liquidity pool to reduce the amount of slippage. For most assets, slippage is very unfriendly, and large-value exchanges are even more unbearable. Bancor V2 borrows from Curve at this point and introduces stable curve. Bancor's curve is between Curve and Uniswap, and the algebraic formula is between X*Y=K and X+Y=K. Take advantage of smoother curves to reduce slippage. A simple understanding is that it is 20 times larger than Uniswap with the same liquidity.
first level title
The principle of avoiding gratuitous loss is explained in detail
Ordinary investors here can already evacuate, and I will explain it at the formula level below.
Oracle quotes to drive away arbitrageurs
The core key point is to allow AMM to be unbalanced, and adjust the asset ratio in real time through the price feed of the oracle machine to prevent arbitrageurs from arbitrage.
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Introducing SMA in oracle quotes
Because the oracle machine quotes once every 10 minutes, SMA is introduced in the middle, and the price average within ten minutes is used. After the oracle machine re-quotes, the SMA will be adjusted and recalculated again, thus maintaining the continuity and accuracy of the price.
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Balance the trading pool so that the assets on both sides are balanced most of the time
Why would it still attract arbitrageurs? Bancor V2 drives away the arbitrageurs under the AMM formula, but for the imbalance between the price generated by the transaction on Bancor V2 and the market price, this part will still be profitable.
Under the current conditions, a trader initiates a transaction worth ￥5000, exchanging 250 lends for 12.5 BNTs, resulting in a price difference of 1%, that is, in the Bancor V2 market, you can exchange 1 lend for 19.8 BNTs, But in other markets you can exchange 1 lend for 20 BNT, and the 1% imbalance caused by the transaction here will be quickly equalized by external arbitrageurs.
If there is a major imbalance in the value of the pools on both sides, that is, the ratio of assets in the pool deviates far from 50%:50%, then Bancor will also introduce a funding rate adjustment similar to the perpetual contract to make the pool rebalanced. Now Bancor has opened the V2 pool of BNT/LINK, which gives the highest value that can be added to the liquidity, and then the high market-making income will quickly make the liquidity pool reach the highest value, which also indirectly promotes the balance of the liquidity pool. The official test of Bancor V2 also reflects the continuous convergence to 50%/50%.
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Unilateral market making
Here is an explanation of the principle of unilateral market making. In some AMMs, you are also allowed to join a single asset, but behind it is an automatic 50%/50% exchange. The exchange pool must be equal, but in Bancor V2, you have added For an asset, you only need to increase the corresponding ratio of the asset.
