AMM model DEXis currently the hottest track in defi. Uniswap and Sushiswap’s TVL ranks among the top five of all defi, and Uniswap’s daily trading volume is almost the same as Coinbase.
The largest potential market in the currency circle is always the trading platform. In Uni’s AMM model, LP is the core, providing basic liquidity and attracting traders to trade. At present, the main risk LP faces is impermanence loss, that is, the relative price changes of the two market-making assets may lose the principal. Regardless of whether the price rises or falls, liquidity providers will be close to impermanent losses, and falling prices will lead to potential risks. If the price drops to close to zero, the impermanence loss ratio may even approach 100%.
We see that the liquidity provider poses a great risk of impermanence loss, and it may be difficult to compensate for this part of the loss by relying on transaction fees alone. Many people are unwilling to do LP, and the LP mechanism is an important core of AMM, which is suffering from the development of DEX. At present, there are enough projects on the market that have put forward their own ideas to solve this problem, thereby optimizing the AMM pricing model, adding perpetual contracts or expenditures to hedge risks, but these methods are difficult to understand and use, so they can only partially reduce impermanence. The loss cannot be fundamentally resolved. Therefore, they cannot be universally applied.
UBISwap is a decentralized trading platform born to solve the risk of impermanent loss of LP. In simple terms, it compensates liquidity providers by collecting taxes on profitable traders. For every purchase made by a user on the UBISwap platform, the system will automatically mark its cost price. When selling, the contract will calculate whether the sale is profitable. If the user makes a profit for the transaction, the contract will automatically deduct 22% of the profit as profit income tax. 100% of the tax collected by the system will be returned to the liquidity provider in real time. The liquidity provider only needs to receive it when he wants to withdraw the reward, and the part of the income will be automatically sent to his wallet.
In the AMM model, the loss of the liquidity provider is essentially the profit earned by the trading user from the liquidity provider. In other words, when the market rises and the overall buying demand is greater than selling, the liquidity provider is actually playing the role of selling, and vice versa. This is a congenital defect in the mechanism of the automatic market-making model. In the form of profit tax, a part of the profit of the trader is automatically deducted through smart contracts and compensated to the liquidity provider, which may be the best way to solve this problem. In addition to the basic transaction fees, the liquidity provider has an additional considerable source of income, and this income does not come from the additional issuance of system tokens, will not cause inflation and harm the interests of other participants.
For trading platforms, liquidity is the most important lifeline. Only with better liquidity and users have a better trading experience will they stay on the platform for a long time and form a core barrier. But at present, a large number of small tokens, even on UNI, often only have dozens or even a few eth in the liquidity pool, let alone other centralized exchanges. And UBISwap will attract a large number of liquidity providers faster and easier by taxing profitable traders to subsidize liquidity providers. Since the platform can customize its parameters, those small and medium-sized projects with low flow and low liquidity can give more tax subsidies to liquidity providers, so that more funds can provide liquidity. If this model can develop smoothly, in the long run, a large number of small and medium-sized projects will gradually transfer from platforms such as Uniswap and Sushiswap to UBISwap, and at the same time, UBISwap will also be fed back to become a gathering place for the long-tail traffic of Defi projects, which will be born in the future. A few hundred times the currency is also very possible. As the platform currency of UBISwap, UBI’s value is full of imagination. Whether it is the dividend repurchase of the handling fee, or the pledge of the new project to join the platform, the platform currency will enjoy the full increase logic.
