Lifinity Protocol - The Basic Concept (II.)

harryji (79)adminYour Wizardin Harry Potter Library • last year

Rebalancing

Although concentration and the use of an oracle are sufficient for the protocol to efficiently market make, it lacks the simplicity of standard constant product pools where the total value of each asset in a pool are always equal. To add a similar property while maximizing profit, the protocol rebalances its pools by adjusting their liquidity.
This adjustment of liquidity occurs on every trade and/or change in oracle price according to the following formulae.

where K is the total amount of liquidity, p is the price of x provided by the oracle, and z is the parameter that determines the magnitude of the adjustment.

For example, when x comprises less than 50% of the total value of the pooled assets, the market maker will decrease liquidity for buyers of x and increase liquidity for sellers of x in an effort to regain balance. This will incentivize traders to sell against the pool while discouraging them from buying, ensuring that the pool balance regresses to the bonding curve.

Trading Fees

The base trading fee for each pool is set manually by Lifinity team with the aim of maximizing profitability. The optimal setting may frequently change due to shifts in liquidity provided by competing DEXs.

Lifinity also adjusts the base trading fee based on the current volatility of the market to optimize the spreads it captures as well as make front running more difficult. Currently, the volatility is detected using an off-chain bot. Later, Lifinity plans to implement it on chain.

Relevant Posts: Lifinity Protocol - The Basic Concept

Other Reliable and Efficient DEXs in Solana Ecosystem

Raydium (https://raydium.io/swap)
Orca (https://www.orca.so)
Jupiter Aggregator (https://jup.ag)

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