Zenlink Hybrid AMM Coming Soon! Offering Users a Better DeFi Trading Experience
*We have tweaked the base stablecoin of 4pool, UST is not in the scope of 4pool, but its fundamentals remain the same, you can read this article to understand the fundamentals of Hybrid AMM.
We are pleased to announce that Zenlink Hybrid AMM will be launched soon! Hybrid AMM is a combination of Stable AMM and Standard AMM, which aims to use the smooth curve of Stable AMM as the middle layer of the trade path, thus compensating for the illiquidity and high slippage of long-tail assets in Standard AMM and providing users with a better DeFi trading experience.
The official launch of Zenlink Hybrid AMM will be in April (exact date TBD) and we will launch it on the Moonbeam network first, followed by the Moonriver network. Read on for more details about Hybrid AMM.
Why adopt Stable AMM?
So, let’s start by talking about the reasons and intentions behind the planned launch of Stable AMM, and then we’ll answer what unparalleled benefits Hybrid AMM enhanced with Stable AMM will bring.
As we all know, there is no official USDT and USDC issued by Tether and Circle in the Polkadot ecosystem, and there are no widely adopted decentralized stablecoins (until recently we knew that aUSD was coming), so with the rapid development of EVM-compatible smart contract platforms like Moonriver and Moonbeam, the only way to bridge the stablecoin assets we need is through Bridges from external ecosystems like Ethereum, BSC, Terra, etc.
This introduces a new problem dynamic for us, as there is no Moonbeam run official bridge, we have seen a large number of bridges announcing support for the Moonbeam network during the time it was launched, so we get a variety of stablecoin assets from different bridges, including anyUSDC, madUSDC, ceUSDC, etc. that you see on Zenlink today. In this case, platforms like Zenlink that allow full free-for-all without forcing the designation of a stablecoin from a particular bridge as the default paired stablecoin asset face an obvious liquidity fragmentation. Liquidity fragmentation often means high slippage, which greatly affects the user’s trading experience.
So the team started thinking about how to solve this challenge, and we came up with the idea of launching Stable AMM and combining it with Standard AMM. With Stable AMM, we can fully aggregate the liquidity of all stablecoin assets and enable it to act as a middle layer for transactions between all stablecoin and non-stablecoin assets. In simple terms, Stable AMM is equivalent to doing conversion between all tokens with a contract pool, which greatly reduces the slippage of related transactions and improves the user trading experience. (We will explain how this process is implemented in the next section)
At the same time, Stable AMM will span a range of correlated assets, where a correlated asset is primarily a token, including but not limited to different manifestations of USD within USDT, USDC, DAI, FRAX, UST, and the upcoming aUSD, but also multiple versions of ETH, BTC, DOT, KSM or other cryptocurrencies. Users will be incentivized to provide liquidity to the correlated assets in Stable AMM with little to no impermanent loss (as is often the case), which will undoubtedly increase the incentive for users to provide liquidity, thus improving the user trading experience and enhancing network TVL.
What benefits will Hybrid AMM bring?
As mentioned above, Hybrid AMM is a combination of Stable AMM and Standard in one, which combines the two with intelligent algorithms to calculate the best trade path for the user, enabling them to trade any asset on Zenlink DEX at the best price and with the lower slippage. In order to achieve this goal, the Zenlink team will need to accomplish two key things.
The first step is to tweak and optimize all pairs on Zenlink DEX. Specifically, Zenlink will centralize the incentives as well as liquidity and volume of all stablecoins pegged to USD to one of the most commonly traded stablecoins in the Moonriver&Moonbeam ecosystem (such as USDC, which is currently widely used on both chains), and gradually adjust all non-correlated assets to be paired with GLMR or MOVR.
Secondly, Zenlink Smart Order Routing needs to be upgraded to connect Stable AMM with Standard AMM. In order to enable users to efficiently trade different assets with correlated values and benefit from correlated to uncorrelated assets with the help of Smart Order Routing, we have upgraded Zenlink Smart Order Routing. We will not go into the technical implementation details of Smart Order Routing here, as users can better understand the principles of its implementation through the final routing adoption form:
correlated assets→USDC→GLMR/MOVR→non-correlated assets
Based on these two steps, Zenlink will centralize liquidity and enable support for multiple correlated assets (any asset, mad asset, FRAX, UST, aUSD) through Moonbeam/Moonriver’s native asset GLMR/MOVR. This means that users can trade smoothly using different bridged versions of the same asset without having to worry about illiquidity.
For example, a user who uses Multichain to transfer USDC from Ethereum to Moonbeam will receive anyUSDC on Moonbeam, and by using Stable AMM, he can now convert anyUSDC to related assets like madUSDC, FRAX, UST, etc. on Moonbeam at a very low slippage, and with the help of smart order routing, he can even convert to other non-correlated assets at an even better price.
The following figure will help users better understand the process and the benefits of Hybrid AMM.
Through the above figure, we can clearly see the huge difference between users trading with Standard AMM and Hybrid AMM, Hybrid AMM and the new smart order routing will help users save on transaction fees, get better prices and thus greatly improve the capital efficiency and trading experience.
Summary and Outlook
As the first native cross-chain DEX protocol on Polkadot, Zenlink has been working to combine Polkadot’s native cross-chain interoperability to build the most suitable cross-chain DEX for the Dotsama ecosystem and provide users with a better DeFi experience. We are very grateful to Moonbeam, Bifrost and other eco-partners for their support. Since the launch of Zenlink, the team has not let up and has kept innovating and building, introducing Farming v2, Bootstrap v2, Market, Limit Order beta, X-Transfer, and many other new features.
Thanks to the excellent conditions created by Moonbeam&Moonriver, we are about to launch another of our major features and one of the milestones in the Zenlink roadmap — Hybrid AMM.
It is worth noting that while traditional Stable AMMs have adopted the same 3pool model as Curve, Zenlink will adopt a new standard of 4pool in Stable AMM, with the base stablecoins tentatively set as anyUSDT+anyUSDC+FRAX+UST (please refer to the actual adoption after launch). On the other hand, Zenlink Hybrid AMM is equipped with upgraded smart order routing, which will connect Stable AMM with Standard AMM and calculate the best trading path for users to enhance capital efficiency.
By now, you may already have some ideas about the Zenlink Hybrid AMM, and more details about the launch of the Hybrid AMM will be announced soon, so stay tuned!
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