What Tops Concentrated Liquidity? Discover the Next Big Thing in DeFi
What Tops Concentrated Liquidity? Discover the Next Big Thing in DeFi
What Tops Concentrated Liquidity? Discover the Next Big Thing in DeFi
Jen Albert
Jen Albert
Jen Albert
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•
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Apr 24, 2024
Apr 24, 2024
Apr 24, 2024
It was long overdue — a leap into a fresh new era where the old rules of liquidity no longer hold sway, and the rigid boundaries of both conventional and concentrated liquidity AMMs are decisively shattered.
I recently attended an AMA that turned the spotlight on a game-changing concept: ‘asymmetric liquidity’. The latest brainchild of the innovative minds at Bancor, asymmetric liquidity is the technology underpinning their new product Carbon DeFi, a cutting-edge orderbook-like system.
Why is Asymmetric Liquidity groundbreaking? Because it marks a departure from the traditional AMM models that have shaped your trading — perhaps in ways you hadn’t even realized.
This shift is transforming the landscape of onchain market making and opening a new era full of opportunities for liquidity providers and traders alike. Let’s dive in.
Question from a Newcomer to Decentralized Exchanges
“As someone relatively new to the intricacies of decentralized exchanges, I’m curious about Carbon DeFi’s asymmetric liquidity feature. Could you break down how this differs from traditional liquidity models and how it empowers users to craft personalized trading strategies?”
A Paraphrased Summary of the Response
Bancor Project Lead, Dr. Mark Richardson:
Introduction to Traditional AMMs and Their Limitations
Traditional Automated Market Makers (AMMs), including those with concentrated liquidity, are designed primarily to keep liquidity close to the equilibrium price.
Historically, these models have adopted the Bancor model, introduced in 2016 and implemented in 2017.
Primary Goal:
Maintain liquidity near equilibrium to facilitate price stability.
Pricing Mechanism:
Bids and asks adjust based on market activity.
Advantages:
Effective for price discovery, particularly for new and long tail assets.
Disadvantages: The trading strategy it represents is not very profitable, and most of the time it loses money for those who subscribe to it.
The Shortcomings of Traditional Trading Strategies
On conventional AMMs:
The role of the maker is to provide tokens which will be traded in a very specific way (e.g., short straddle/short gamma strategies).
On a Concentrated Liquidity AMM:
Makers have slightly more choice as to the specific price ranges you want to commit to, but the trading strategy it represents remains the same as a conventional AMM.
In Both Conventional and Concentrated AMMs:
Makers are effectively quoting prices in both directions — which means that if your prices are taken, and you are happy with that trade, you may not get to keep it. A taker can back-run the trade of another taker (i.e. trade in the opposite direction).
For experienced traders, the strategies employed in traditional AMMs might resemble a short straddle or a short gamma option — strategies known for their potential for high risk and frequent losses.
A Paradigm Shift
Unlike traditional AMMs, Carbon DeFi does not strictly adhere to AMM principles but introduces a more flexible, user-controlled trading environment.
Making Markets on Carbon DeFi:
Specify price ranges and actively manage your trading strategies.
Buy tokens at one price, and sell them at a completely different price.
Set a single price, or a range of prices over which you want to trade.
Decide to only sell, or only buy.
Bids and asks are permanent once they are accepted, giving you full control over your trading decisions without the fear of being undercut by subsequent trades.
“Asymmetric liquidity” is the term we use to describe the fact that bidding and asking prices are independent of each other, and determined by the user. Whereas, on conventional AMMs and concentrated AMMs, the bidding and asking prices are “symmetric”, they are expressed as a function of each other, and under the exclusive control of the protocol (not the user).
Carbon DeFi offers a significant shift towards aligning trading tools more closely with the needs and strategies of active traders rather than just serving as a liquidity provider.
This approach demarcates a clear distinction between traders, who engage with the market with a strategic plan, and traditional liquidity providers, who often participate without knowledge of the trades occurring on their behalf.
For anyone who trades regularly by placing limit orders, Carbon DeFi will feel a lot like a fully-automated order book with built-in scaling and fading features.
Prior to the AMA, Dr. Richardson published an insightful blog that masterfully compares the mechanics of AMMs, Carbon DeFi, and eBay. I highly recommend his piece:
‘The 2023 Pre-Christmas PlayStation 5 (Blu-Ray Edition) eBay Bonding Curve'
His unique writing style, coupled with a profound grasp of DeFi principles and justified critiques of the industry, promises an enriching read.
A quote from the introduction reads:
There is a discernible demand for access to sophisticated financial protocols, coupled with a resistance to engaging with the educational efforts necessary to use these tools effectively. Users often seek the benefits of DeFi participation without investing the time to understand the underlying principles. This paradoxical expectation has led to a form of communication within the DeFi space that prioritizes social engagement and often deliberately overlooks the more substantive, albeit less glamorous, foundational aspects of DeFi protocols.
The irony is that, while mundane, the underlying concepts are not at all challenging. However, I suspect that the added level of abstraction afforded by their context inside of the blockchain narrative can make it difficult to see the forest for the trees.
To strip away the layers of ambiguity and social influence standing in the way of what should be accessible knowledge,
I am going to focus on a more comfortable and practical analogy: the eBay market for the PlayStation 5 Blu-Ray Edition. This comparison with respect to the “Buy It Now” feature for merchants on eBay is quite nearly perfect; however, for the bidding prices we are going to take some poetic license by imagining a restructuring of eBay that, quite frankly, would bring some interesting new functionality to their platform.
This approach aims to offer a more objective understanding of the core principles of exchange protocols, untangled from the tribalism and postmodern subjection of the communities that wield them.
For more on Carbon DeFi
Website | X/Twitter | Telegram | YouTube
Carbon DeFi is a product of Bancor and governed by the Bancor DAO.
For more on Bancor and its latest innovations
Website | Blog | X/Twitter | Arb Fast Lane Bot | YouTube | Governance
It was long overdue — a leap into a fresh new era where the old rules of liquidity no longer hold sway, and the rigid boundaries of both conventional and concentrated liquidity AMMs are decisively shattered.
I recently attended an AMA that turned the spotlight on a game-changing concept: ‘asymmetric liquidity’. The latest brainchild of the innovative minds at Bancor, asymmetric liquidity is the technology underpinning their new product Carbon DeFi, a cutting-edge orderbook-like system.
Why is Asymmetric Liquidity groundbreaking? Because it marks a departure from the traditional AMM models that have shaped your trading — perhaps in ways you hadn’t even realized.
This shift is transforming the landscape of onchain market making and opening a new era full of opportunities for liquidity providers and traders alike. Let’s dive in.
Question from a Newcomer to Decentralized Exchanges
“As someone relatively new to the intricacies of decentralized exchanges, I’m curious about Carbon DeFi’s asymmetric liquidity feature. Could you break down how this differs from traditional liquidity models and how it empowers users to craft personalized trading strategies?”
A Paraphrased Summary of the Response
Bancor Project Lead, Dr. Mark Richardson:
Introduction to Traditional AMMs and Their Limitations
Traditional Automated Market Makers (AMMs), including those with concentrated liquidity, are designed primarily to keep liquidity close to the equilibrium price.
Historically, these models have adopted the Bancor model, introduced in 2016 and implemented in 2017.
Primary Goal:
Maintain liquidity near equilibrium to facilitate price stability.
Pricing Mechanism:
Bids and asks adjust based on market activity.
Advantages:
Effective for price discovery, particularly for new and long tail assets.
Disadvantages: The trading strategy it represents is not very profitable, and most of the time it loses money for those who subscribe to it.
The Shortcomings of Traditional Trading Strategies
On conventional AMMs:
The role of the maker is to provide tokens which will be traded in a very specific way (e.g., short straddle/short gamma strategies).
On a Concentrated Liquidity AMM:
Makers have slightly more choice as to the specific price ranges you want to commit to, but the trading strategy it represents remains the same as a conventional AMM.
In Both Conventional and Concentrated AMMs:
Makers are effectively quoting prices in both directions — which means that if your prices are taken, and you are happy with that trade, you may not get to keep it. A taker can back-run the trade of another taker (i.e. trade in the opposite direction).
For experienced traders, the strategies employed in traditional AMMs might resemble a short straddle or a short gamma option — strategies known for their potential for high risk and frequent losses.
A Paradigm Shift
Unlike traditional AMMs, Carbon DeFi does not strictly adhere to AMM principles but introduces a more flexible, user-controlled trading environment.
Making Markets on Carbon DeFi:
Specify price ranges and actively manage your trading strategies.
Buy tokens at one price, and sell them at a completely different price.
Set a single price, or a range of prices over which you want to trade.
Decide to only sell, or only buy.
Bids and asks are permanent once they are accepted, giving you full control over your trading decisions without the fear of being undercut by subsequent trades.
“Asymmetric liquidity” is the term we use to describe the fact that bidding and asking prices are independent of each other, and determined by the user. Whereas, on conventional AMMs and concentrated AMMs, the bidding and asking prices are “symmetric”, they are expressed as a function of each other, and under the exclusive control of the protocol (not the user).
Carbon DeFi offers a significant shift towards aligning trading tools more closely with the needs and strategies of active traders rather than just serving as a liquidity provider.
This approach demarcates a clear distinction between traders, who engage with the market with a strategic plan, and traditional liquidity providers, who often participate without knowledge of the trades occurring on their behalf.
For anyone who trades regularly by placing limit orders, Carbon DeFi will feel a lot like a fully-automated order book with built-in scaling and fading features.
Prior to the AMA, Dr. Richardson published an insightful blog that masterfully compares the mechanics of AMMs, Carbon DeFi, and eBay. I highly recommend his piece:
‘The 2023 Pre-Christmas PlayStation 5 (Blu-Ray Edition) eBay Bonding Curve'
His unique writing style, coupled with a profound grasp of DeFi principles and justified critiques of the industry, promises an enriching read.
A quote from the introduction reads:
There is a discernible demand for access to sophisticated financial protocols, coupled with a resistance to engaging with the educational efforts necessary to use these tools effectively. Users often seek the benefits of DeFi participation without investing the time to understand the underlying principles. This paradoxical expectation has led to a form of communication within the DeFi space that prioritizes social engagement and often deliberately overlooks the more substantive, albeit less glamorous, foundational aspects of DeFi protocols.
The irony is that, while mundane, the underlying concepts are not at all challenging. However, I suspect that the added level of abstraction afforded by their context inside of the blockchain narrative can make it difficult to see the forest for the trees.
To strip away the layers of ambiguity and social influence standing in the way of what should be accessible knowledge,
I am going to focus on a more comfortable and practical analogy: the eBay market for the PlayStation 5 Blu-Ray Edition. This comparison with respect to the “Buy It Now” feature for merchants on eBay is quite nearly perfect; however, for the bidding prices we are going to take some poetic license by imagining a restructuring of eBay that, quite frankly, would bring some interesting new functionality to their platform.
This approach aims to offer a more objective understanding of the core principles of exchange protocols, untangled from the tribalism and postmodern subjection of the communities that wield them.
For more on Carbon DeFi
Website | X/Twitter | Telegram | YouTube
Carbon DeFi is a product of Bancor and governed by the Bancor DAO.
For more on Bancor and its latest innovations
Website | Blog | X/Twitter | Arb Fast Lane Bot | YouTube | Governance
It was long overdue — a leap into a fresh new era where the old rules of liquidity no longer hold sway, and the rigid boundaries of both conventional and concentrated liquidity AMMs are decisively shattered.
I recently attended an AMA that turned the spotlight on a game-changing concept: ‘asymmetric liquidity’. The latest brainchild of the innovative minds at Bancor, asymmetric liquidity is the technology underpinning their new product Carbon DeFi, a cutting-edge orderbook-like system.
Why is Asymmetric Liquidity groundbreaking? Because it marks a departure from the traditional AMM models that have shaped your trading — perhaps in ways you hadn’t even realized.
This shift is transforming the landscape of onchain market making and opening a new era full of opportunities for liquidity providers and traders alike. Let’s dive in.
Question from a Newcomer to Decentralized Exchanges
“As someone relatively new to the intricacies of decentralized exchanges, I’m curious about Carbon DeFi’s asymmetric liquidity feature. Could you break down how this differs from traditional liquidity models and how it empowers users to craft personalized trading strategies?”
A Paraphrased Summary of the Response
Bancor Project Lead, Dr. Mark Richardson:
Introduction to Traditional AMMs and Their Limitations
Traditional Automated Market Makers (AMMs), including those with concentrated liquidity, are designed primarily to keep liquidity close to the equilibrium price.
Historically, these models have adopted the Bancor model, introduced in 2016 and implemented in 2017.
Primary Goal:
Maintain liquidity near equilibrium to facilitate price stability.
Pricing Mechanism:
Bids and asks adjust based on market activity.
Advantages:
Effective for price discovery, particularly for new and long tail assets.
Disadvantages: The trading strategy it represents is not very profitable, and most of the time it loses money for those who subscribe to it.
The Shortcomings of Traditional Trading Strategies
On conventional AMMs:
The role of the maker is to provide tokens which will be traded in a very specific way (e.g., short straddle/short gamma strategies).
On a Concentrated Liquidity AMM:
Makers have slightly more choice as to the specific price ranges you want to commit to, but the trading strategy it represents remains the same as a conventional AMM.
In Both Conventional and Concentrated AMMs:
Makers are effectively quoting prices in both directions — which means that if your prices are taken, and you are happy with that trade, you may not get to keep it. A taker can back-run the trade of another taker (i.e. trade in the opposite direction).
For experienced traders, the strategies employed in traditional AMMs might resemble a short straddle or a short gamma option — strategies known for their potential for high risk and frequent losses.
A Paradigm Shift
Unlike traditional AMMs, Carbon DeFi does not strictly adhere to AMM principles but introduces a more flexible, user-controlled trading environment.
Making Markets on Carbon DeFi:
Specify price ranges and actively manage your trading strategies.
Buy tokens at one price, and sell them at a completely different price.
Set a single price, or a range of prices over which you want to trade.
Decide to only sell, or only buy.
Bids and asks are permanent once they are accepted, giving you full control over your trading decisions without the fear of being undercut by subsequent trades.
“Asymmetric liquidity” is the term we use to describe the fact that bidding and asking prices are independent of each other, and determined by the user. Whereas, on conventional AMMs and concentrated AMMs, the bidding and asking prices are “symmetric”, they are expressed as a function of each other, and under the exclusive control of the protocol (not the user).
Carbon DeFi offers a significant shift towards aligning trading tools more closely with the needs and strategies of active traders rather than just serving as a liquidity provider.
This approach demarcates a clear distinction between traders, who engage with the market with a strategic plan, and traditional liquidity providers, who often participate without knowledge of the trades occurring on their behalf.
For anyone who trades regularly by placing limit orders, Carbon DeFi will feel a lot like a fully-automated order book with built-in scaling and fading features.
Prior to the AMA, Dr. Richardson published an insightful blog that masterfully compares the mechanics of AMMs, Carbon DeFi, and eBay. I highly recommend his piece:
‘The 2023 Pre-Christmas PlayStation 5 (Blu-Ray Edition) eBay Bonding Curve'
His unique writing style, coupled with a profound grasp of DeFi principles and justified critiques of the industry, promises an enriching read.
A quote from the introduction reads:
There is a discernible demand for access to sophisticated financial protocols, coupled with a resistance to engaging with the educational efforts necessary to use these tools effectively. Users often seek the benefits of DeFi participation without investing the time to understand the underlying principles. This paradoxical expectation has led to a form of communication within the DeFi space that prioritizes social engagement and often deliberately overlooks the more substantive, albeit less glamorous, foundational aspects of DeFi protocols.
The irony is that, while mundane, the underlying concepts are not at all challenging. However, I suspect that the added level of abstraction afforded by their context inside of the blockchain narrative can make it difficult to see the forest for the trees.
To strip away the layers of ambiguity and social influence standing in the way of what should be accessible knowledge,
I am going to focus on a more comfortable and practical analogy: the eBay market for the PlayStation 5 Blu-Ray Edition. This comparison with respect to the “Buy It Now” feature for merchants on eBay is quite nearly perfect; however, for the bidding prices we are going to take some poetic license by imagining a restructuring of eBay that, quite frankly, would bring some interesting new functionality to their platform.
This approach aims to offer a more objective understanding of the core principles of exchange protocols, untangled from the tribalism and postmodern subjection of the communities that wield them.
For more on Carbon DeFi
Website | X/Twitter | Telegram | YouTube
Carbon DeFi is a product of Bancor and governed by the Bancor DAO.
For more on Bancor and its latest innovations
Website | Blog | X/Twitter | Arb Fast Lane Bot | YouTube | Governance
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