Understanding the DeFi protocol Elixir Protocol in one article: subverting the traditional market-making model

In recent years, the rise of DeFi has shifted the encrypted transaction volume from CEX to DEX. Both users and institutions have paid more attention to DEX, but the importance of CEX in encryption is undeniable. The vast majority of daily encrypted transactions occur in CEX, even DeFi Native tokens still need CEX pairs to obtain oracle machines for decentralized lending, perpetual Swap and other functions.

Market making is an important part of DeFi. The current market making contract will require the project party to provide a certain amount of tokens to financial entities in exchange for the liquidity supply of its CEX pairs. Market makers agree to provide high liquidity to the order book for at least 90% of the contract term, and in return they get 2-5% of the project's total token supply, putting so many tokens in the hands of one entity in the long run In the end, it will cause a decisive and even devastating blow to the price behavior of tokens, which will damage investors, users and the project itself.

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Elixir market making

Market making refers to the provision of encrypted market liquidity by buying and selling tokens to maintain market efficiency and depth. In TradFi, market makers are usually investment companies that take the risk of holding a certain number of shares of a specific security to facilitate its transactions. At the same time seek to profit from the difference between the bid and ask spreads. A market maker is an important part of the crypto market as it ensures that there is always liquidity available to traders looking to buy and sell tokens.

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Elixir CEX Market Making

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bond

Elixir's bonds allow projects to purchase Elixir LP tokens from the community, thereby enabling the project's centralized trading platform to make permanent market-making for token pairs. This process is also described as "purchasing liquidity."

The steps involved in creating a bond are: Projects set parameters for the bond, including the bond hardcap, reward amount, and duration of the swap period, but also choose the exchange and specific token pair they wish to deploy their liquidity to. After the bond is created and launched, the Elixir protocol will handle the rest and the project will start doing algorithmic market making for the centralized trading pair of their choice.

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Liquidity mining

Elixir enables projects to incentivize users to provide liquidity to their centralized trading pairs through liquidity mining. By connecting their personal trading accounts to Elixir through the API, users can receive subsidies on top of any profits they earn from actual market making APY. This process has been described as “rental liquidity” of crypto assets.

The process for the project to incentivize liquidity mining is simple. Users can select the desired trading platform on the front end of Elixir and confirm the specific token pairs that will provide liquidity to it. Elixir provides support for most major trading platforms. Additionally, they can add token rewards for liquidity mining activities and set deadlines for token emission. Token rewards will be distributed to liquidity providers according to their proportion of pool ownership.

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Elixir DEX Market Making

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On-chain CLOBs

Elixir applies the concept of active algorithmic market making to a CLOB (Central Limit Order Book) built on-chain. The protocol is able to make markets for specific token pairs on these platforms, just like making markets on CEX's order books. DeFi protocols that build CLOB infrastructure on the chain can integrate Elixir into their backend, allowing users to provide liquidity for trading pairs. The increased liquidity of users reduces slippage, tightens bid-ask spreads, and reduces volatility.

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Centralized Liquidity AMM

Data shows that centralized liquidity AMMs are one of the most powerful liquidity venues available to traders, even surpassing centralized exchanges in +/- 2% slippage for major token pairs.

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Elixir Architecture

Elixir's underlying infrastructure is decentralized and high-throughput, enabling consensus on every computational order on the exchange. The architecture is not very easy to understand, here are its components:

Exchange Feeds

The exchange stream holds read-only credentials for each exchange and subscribes to a single update stream, delivering data to the data aggregator.

data aggregator

Data aggregators collect data from multiple exchange streams, combine them into a deterministic data frame, sign it, and deliver them to validators and auditors. This part of the Elixir technology stack enables validators to act on accurate data related to exchange streams.

Validator Network (DPoS)

Elixir's validator network operates on a decentralized proof-of-stake system that requires 66% consensus and is enforced at relay nodes, where end users delegate their stake to validators, with the highest stake validators receiving the largest portion rewards.

relay node

The relay node holds the transaction key of each trading platform and counts the order proposal frame from each validator. After an order proposal expires, it is passed to an auditor to verify its correctness.

Dispute Resolution (Auditor + Controller Node)

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Elixir token ELXR

ELXR is the native utility and governance token of the Elixir ecosystem, driving consensus. Essentially, the Elixir ecosystem cannot function in an efficient and secure manner without the ELXR token.

The node and validator infrastructure at the heart of the protocol will be primarily powered by ELXR. All validators and nodes need to stake a certain amount of ELXR tokens to maintain their active infrastructure and good reputation. This requirement for validators and nodes to stake ELXR tokens plays a greater role in the overall security of the platform: keeping incentives aligned. Dishonest nodes and validators who try to damage the protocol will damage the value of their own token holdings (slashing the number of tokens they stake).

The ELXR token is also the governance token in the ecosystem, giving holders and network participants the ability to make and vote on proposals for future development of the protocol. Governance participants can autonomously determine the value generated by the Elixir protocol.

audit

audit

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In financial markets, lack of market liquidity is the biggest problem. Elixir Finance solves this problem from a new perspective, recognizing the importance of CEX to the market, and decentralizes their market-making through its infrastructure and token model. Elixir Finance is currently in the test network, and it will take some time before the main network is launched. Time to look forward to new actions after its mainnet goes live.