Tuesday, November 29, 2022
 

Avalanche-Based Trader JOE Introduces a Fix for Impermanent Loss

  • Avalanche base DeFi Protocol Trader JOE claims to have found a solution to mitigate impermanent losses
  • JOE v2 introduces a new liquidity book approach, replacing the traditional AMM
  • The upgrade is also expected to provide better rates for traders

The risks of impermanent loss have long plagued the decentralized finance (DeFi) market. However, Trader JOE, a decentralized finance (DeFi) protocol based in Avalanche, claims to have found a way to alleviate these.

“TraderWaWa,” “Hanzo,” and software engineer “Louis MeMyself” released a whitepaper on August 23 titled “JOE v2 Liquidity Book,” in which they detailed the use of Liquidity Book (LB) with a variable fee swap feature to “provide traders with zero or low slippage trades.”

The new approach, according to Trader JOE, would help prevent the impermanent loss “suffered by so many liquidity providers (LPs) on other DEXs during market turbulence.”

For JOE v2, the developers of the Liquidity Book opted to create separate “price bins” for the various liquidity pools. Unlike typical AMMs, which pool all assets for a given token pair into a single pool, Trader JOE creates a larger market out of many smaller pools of bins containing pairs that are segmented according to price.

Trader JOE asserts that the design enables sophisticated and new strategies for liquidity providers while minimizing slippage for traders, suggesting that they will receive better pricing when trading. According to Trader JOE, their price bins facilitate “discretized concentrated liquidity,” a phrase used by Izumi Finance’s iZiSwap AMM architecture.

Most AMMs have liquidity pools that include two different assets, but in JOE v2, only the bin corresponding to the current market price includes both assets in a pairing.

Bins receive one asset at a price higher than the market and another asset at a price lower than the market. Whenever a bin is “depleted,” or when all but one asset has been purchased by traders, the exchange will advance trading to the next bin while simultaneously changing the asset’s price.

The Liquidity Book architecture also implies that JOE v2 does not need to poll third-party price aggregators like Chainlink for its data. According to the Trader JOE team, arbitrageurs will step in to take advantage of price disparities between assets traded on JOE v2 and other exchanges, thus ensuring that fair market value is maintained.

As soon as the whitepaper was published, Trader JOE’s native token, JOE, spiked. At press time, it was trading at $0.28.

  • Avalanche base DeFi Protocol Trader JOE claims to have found a solution to mitigate impermanent losses
  • JOE v2 introduces a new liquidity book approach, replacing the traditional AMM
  • The upgrade is also expected to provide better rates for traders

The risks of impermanent loss have long plagued the decentralized finance (DeFi) market. However, Trader JOE, a decentralized finance (DeFi) protocol based in Avalanche, claims to have found a way to alleviate these.

“TraderWaWa,” “Hanzo,” and software engineer “Louis MeMyself” released a whitepaper on August 23 titled “JOE v2 Liquidity Book,” in which they detailed the use of Liquidity Book (LB) with a variable fee swap feature to “provide traders with zero or low slippage trades.”

The new approach, according to Trader JOE, would help prevent the impermanent loss “suffered by so many liquidity providers (LPs) on other DEXs during market turbulence.”

For JOE v2, the developers of the Liquidity Book opted to create separate “price bins” for the various liquidity pools. Unlike typical AMMs, which pool all assets for a given token pair into a single pool, Trader JOE creates a larger market out of many smaller pools of bins containing pairs that are segmented according to price.

Trader JOE asserts that the design enables sophisticated and new strategies for liquidity providers while minimizing slippage for traders, suggesting that they will receive better pricing when trading. According to Trader JOE, their price bins facilitate “discretized concentrated liquidity,” a phrase used by Izumi Finance’s iZiSwap AMM architecture.

Most AMMs have liquidity pools that include two different assets, but in JOE v2, only the bin corresponding to the current market price includes both assets in a pairing.

Bins receive one asset at a price higher than the market and another asset at a price lower than the market. Whenever a bin is “depleted,” or when all but one asset has been purchased by traders, the exchange will advance trading to the next bin while simultaneously changing the asset’s price.

The Liquidity Book architecture also implies that JOE v2 does not need to poll third-party price aggregators like Chainlink for its data. According to the Trader JOE team, arbitrageurs will step in to take advantage of price disparities between assets traded on JOE v2 and other exchanges, thus ensuring that fair market value is maintained.

As soon as the whitepaper was published, Trader JOE’s native token, JOE, spiked. At press time, it was trading at $0.28.

 

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