Since the last two years, a significant upsurge has taken place in the Defi space. Gone are the days where you had limited options for what you can do with your crypto.
Today, we see all kinds of different protocols and platforms for DEXES, lending, borrowing, derivatives, market making, liquidity pools, liquidity mining, yield farming, etc., the kind of platforms and protocols that we would have never imagined a few years ago.
According to DeFi Pulse, one of the leading aggregators of Defi protocols providing the latest analytics and rankings, more than $10 billion worth of value in digital assets has been locked in various Defi apps and protocols.
This growth is nothing but extraordinary, and it reminds me of the initial days of bitcoin, where the growth followed the same trajectory. However, unlike a currency or an ERC-20 token, the Defi space is huge and diverse.
Defi covers almost everything that the centralized traditional financial industry offers — lending, borrowing, securities, interest backing products, equities, credit derivatives — you name it!
Within every single niche, we see different platforms and protocols that emerge to solve a specific set of problems faced by the community and the ecosystem.
In this article, we will be discussing our platform called DEXToken that aims to build the next-gen DeFi ecosystem with its one of a kind automated market making algorithm called Speculative AMM, that can establish pricing power and tackles the issue of over-speculation.
Let's dive in!
DEXToken Protocol — What is it and what problems does it solve?
DEXToken protocol is a Defi infrastructure that uses Speculative AMM, a brand new automated market making algorithm that can establish pricing power in a completely decentralized manner.
With its Speculative AMM, DEXToken will soon launch a new product called DEXToken Swap Exchange, which is Uniswap on fire!
To put it simply, DEXToken protocol provides a suite of different technologies that can be used to build products and services in the Defi space. As of today, three products are currently in the pipeline — Token Swap Exchange, DEX (with fast order book), and a Staking Pool.
At the heart of DEXToken protocol are the following three main components:
- Speculative AMM
- Off-Chain Issuance
- DEXG — DEXToken Governance token
Moving forward, we will be discussing each one of these components in detail to get a better overview and understanding of what DEXToken protocol is all about!
The most significant innovation by far is the Speculative AMM algorithm, which we will be discussing the most. Speculative AMM is what makes the DEXToken protocol so much powerful, versatile, and relevant in the Defi space.
To put this in perspective, the Total Value Locked (TLV) in the Defi space is more than $10 billion, and just over 22% of this value is captured and dominated by Uniswap, which is essentially one of the many automated market makers in the Defi space.
Speculative AMM will directly compete with the likes of Uniswap, Balancer, Curve Finance, and Kyber Network. It comes with enhanced set of features, including a more accurate universal pricing valuation model for both inflationary and deflationary tokens.
Speculative AMM
In most simple terms, AMM or an Automated Market Maker helps measure the price of a digital asset using a predefined set of mathematical formulas. It solves a critical problem known as the ‘pricing oracle problem’ in the decentralized finance ecosystem.
Why Automated Market Makers?
Centralized and many decentralized exchanges run on traditional order books, having large amounts of buy and sell orders. In order to have a successful trade, you need to find a buyer or a seller, and your request becomes part of the order book which is later executed by your exchange.
There are two main problems with this traditional order book approach:
- Liquidity
- Market Manipulation
Exchanges, specifically the decentralized ones, suffer from massive liquidity problems because of two reasons — there are not enough liquidity providers, and technical constraints, that include limitations like Ethereum’s low throughput (since most DEXES are based on Ethereum) where you would have to spend gas fees and wait for block confirmations.
Market manipulation is another major problem, and it all comes down to ‘pricing power’ that is controlled by big exchanges, market makers (liquidity providers) and speculators who own the largest share of the order books.
The pricing power should be democratized and held by the community, and it should be purely driven by the supply and demand of a particular token. However, the community actually holds a very tiny fraction of the pricing power.
Automated Market Makers (AMM) solve both of these problems in a very sophisticated way. The traditional order book is replaced by pre-funded liquidity pools, and the price of a particular digital asset is calculated by a mathematical algorithm.
The pre-funded liquidity pool of the trading pairs provide instant liquidity as you won’t have to rely on limit order books mechanism to place buy and sell orders. The liquidity will be there whenever you need it.
What’s special about Speculative AMM?
Automated market makers were first popularized by Hanson’s Logarithmic Market Scoring Rule (or LMSR), to be used for the prediction markets. In AMMs, people lend their idle assets to the underlying asset pools to provide liquidity, and those assets are priced via a scoring rule. The most popular scoring rule is Hanson’s logarithmic market scoring rule (LMSR).
LMSR was famously used for prediction markets and online ad auctions. The cryptocurrency community took it a step further and launched Constant Function Market Makers (CFMMs) as an alternative to LMSR. Uniswap, Balancer, and Curve are a class of these constant function market makers.
These Constant Function Market Makers (CFMMs) strictly keep track of the latest market price, and they depend on the on-chain price oracle.
On the contrary, instead of using any of the known constant product functions, Speculative AMM uses Volatility Effect function proposed by the Flowchain Foundation and does not depend on the on-chain price oracle.
Also, the traditional AMMs in the market only cover specific types of tokens, while Speculative AMM uses a ‘Universal Price Valuation’ model that caters for various token types and derivatives.
Instead of relying on technical indicators that are inconsistent, this price valuation model takes into account the properties of the blockchain network itself, by adopting the methods proposed in a paper published by Cong, Li, and Wang (2019).
In constant product algorithm (used by Uniswap), the price slippage is exponential and depends directly on the order volume. Whereas in the Speculative AMM using the Volatility Effect Function, the price slippage is smooth and the resulting volatility is much lower.
Speculative AMM also comes with a Deflation Token Valuation Model which takes into consideration the appreciation of the tokens which are deflationary. With its volatility effect function and a universal price model, Speculative AMM will serve as a breakthrough in the world of AMMs, and many products will be built in the Defi space that will utilise the power and versatility of Speculative AMM.
Off-Chain Issuance
The DEXToken protocol comes with the enhanced functionality to issue off-chain tokens which are regulated by the on-chain smart contracts.
These off-chain tokens can be points, coupons, flight miles, or any fungible assets, that can be issued and redeemed in an off-chain network. The price of these off-chain tokens is determined by the Universal Price Model in Speculative AMM.
Off-chain tokens can also be minted, but through a different smart contract and in this case, the on-chain smart contract can be used to regulate the circulating supply of the off-chain tokens.
In other to mint the off-chain tokens through the off-chain minting smart contract, the executions happens after a signed message of the token issuer and the minting transactions should be registered on the on-chain network for issuing token rewards.
In the coming future, the DEXG token holders will be able to mint these off-chain tokens through staking, getting more rewards for their assets. The same DEXG tokens can also be used in an off-chain network, and offered to the market to create loyalty, attention or consumption.
Off-chain token issuance process
The off-chain token issuance process is very neat and straight forward. Below are the steps involved in the off-chain token issuance process.
In the given example, we will be issuing FLC off-chain token.
- First step is the deposit of the collateral (DEXG tokens) and the off-chain tokens (FLC tokens in this case) as this will ‘proof stakes’ before minting.
- A stake contract (off-chain issuance contract) should be deployed on the Ethereum blockchain to be audited publicly.
- After the public auditing, the stake contract can issue new off-chain tokens (FLC tokens) and also holds off-chain minted tokens.
- Another smart contract should be deployed (cFLC contract in this case) that can provide a withdraw function to redeem and withdraw off-chain tokens.
Stakers can withdraw the off-chain tokens by sending a signed message to the cFLC smart contract, and the stake contract will update the circulating supply of the off-chain tokens.
DEXG is the community governance token in the DEXToken protocol, and is actually an ERC-20 token on the Ethereum platform. The DEXG token rewards the stakers with a share of the profits from the DEXToken exchange, and ensures token liquidity.
The DEXToken protocol aims to make DEXG the ‘perfect token’ with low volatility characteristics, and along with the Universal Price Model in the Speculative AMM, the properties of the blockchain network will impact the price of the DEXG token in the future.
This is an excellent proposition for the investors because they can stake DEXG tokens to reap the rewards and when they need cash flow at a future date, they can actually avoid the ‘over-speculation’ losses since the DEXG token model is based on a low volatility AMM model.
Staking and liquidity
The DEXG token holders can provide liquidity to the network by staking their tokens in the Staking Pool, along with other collateral tokens. However, it should be noted that the collateral tokens are required prior to staking DEXG tokens in the staking pool.
They token holders can also vote on the network for future specifications of Speculative AMM.
Token Distribution
The maximum theoretical supply of DEXG tokens will be capped at 200,000 and for providing initial liquidity, a total of 20,000 DEXG tokens will be distributed to the community via Uniswap. The following table shows the DEXG token distribution and minting plan.
One awesome thing about the DEXG token is that 100% of the initial liquidity is locked by Flowchain for a period of 2 years, which means that DEXG/USDT trading pair is a safe trading pool, resulting in a higher trust score.
DEXToken ecosystem — Complete picture
So here is a complete picture of the DEXToken ecosystem. One thing we didn’t explain is the staking pool.
According to the whitepaper, ‘The Staking Pool is a basket of diversified digital assets. DEXToken protocol allows stakers to deposit multiple assets based on the volatility of each asset. Additionally, the Staking Pool can ensure token liquidity by employing the Speculative AMM swap algorithm.’
In their roadmap, Flowchain foundation will launch different products that include Token Swap Exchange, a Decentralized Exchange with Fast Orderbook and a Staking Pool.
Conclusion
Defi space needs the proper infrastructure to flourish and enable different companies and individuals to launch a variety of Defi products and services.
Flowchain foundation is one of those companies that is working to improve and provide an underlying infrastructure that can help build a complete Defi ecosystem.
With Speculative AMM having Universal Price Model, off-chain minting and issuance, and the DEXG community governance token, it is safe to assume that the DEXToken protocol is a complete powerhouse that can help push the Defi space beyond its current boundaries.
To know more about the Dextoken protocol, don’t forget to visit our website where you can also participate in staking, which will go until the end of January.