Convexus — automated market maker with concentrated liquidity on the ICON blockchain
Introduction
Convexus introduces concentrated liquidity, giving individual liquidity providers (LPs) granular control over what price ranges their capital is allocated to. Individual positions are aggregated together into a single pool, forming one combined curve for users to trade against. Multiple fee tiers will be baked into the protocol allowing LPs to be appropriately compensated for taking on varying degrees of risk.
Convexus empowers developers, LPs and traders to participate in a financial marketplace that is open and accessible to all.
These features make Convexus a flexible and efficient automated market maker:
- LPs can provide liquidity with more capital efficiency, earning higher returns on their capital through more frequent trades and associated fees.
- This capital efficiency will pave the way for low-slippage trade execution that could surpass the liquidity of both centralized exchanges and stablecoin-focused automated market makers such as Curve.
- LPs can significantly increase their exposure to preferred assets and reduce their downside risk.
- LPs can also sell one asset for another by adding liquidity to a price range entirely above or below the market price, similar to a limit order on an exchange, while also earning the trade fees for that trade.
Concentrated liquidity
Most automated market makers (AMMs) have their liquidity distributed evenly along an x*y=k price curve, with assets reserved for all prices between 0 and infinity.
This is simple to implement but it means the liquidity is aggregated inefficiently where most of the assets held in a pool are never touched.
LPs only earn fees on a small portion of their capital, which can fail to appropriately compensate for the price risk (“impermanent loss”) they take by holding large inventories in both tokens. Additionally, traders are often subject to high degrees of slippage as liquidity is spread thinly across all price ranges.
With Convexus, LPs can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices. In doing so, LPs construct individualized price curves that reflect their own preferences.
Trading fees collected at a given price range are split pro-rata to LPs, proportional to the amount of liquidity they contributed to that range.
Capital efficiency
By concentrating their liquidity, LPs can provide liquidity depth within specified price ranges while putting far less capital at risk. The capital saved can be held externally, invested in different assets, deposited elsewhere in DeFi, or used to increase exposure within the specified price range to earn more trading fees.
Ranged limit orders
Convexus now allows users to open a limit order to complement market orders, which we are calling ‘ranged limit orders’.
LPs can deposit a single token in a custom price range above or below the current price. If the market price enters into their specified range, they sell one asset for another along a smooth curve while earning swap fees in the process.
Range orders may prove particularly useful for profit-taking and buying market downturns, both on long- and short-time frames, enabling investors and traders to partake in crypto markets in a decentralized manner while placing their orders in a proactive manner without needing to monitor markets 24/7.
Flash swaps
Convexus allows users to borrow tokens from a Convexus pool, make some arbitrage transaction with an external liquidity pool, and pay back the originally borrowed funds, all in one transaction. The transaction is atomic, meaning it is reverted in full if at any stage the transaction fails.
The obvious use case for such a feature is to execute arbitrage trades leveraging a liquidity pool.
Flexible fees
Convexus offers LPs three separate fee tiers per pair — 0.05%, 0.30%, and 1.00%. This array of options ensures that LPs tailor their margins according to the expected pair volatility. LPs take on more risk in non-correlated pairs and, conversely, take on minimal risk in correlated pairs such as stablecoin pairs.
Although distinct fee tiers may lead to some degree of liquidity fragmentation, we believe that most pairs will calibrate to an ‘obvious’ fee tier, which then serves as the canonical market. We expect correlated asset pairs to congregate around the 0.05% fee tier and uncorrelated asset pairs like ICX/USDC to use 0.30%, while volatile asset pairs might find 1.00% swap fees more appropriate. Governance can add additional fee tiers as needed.
Permissionless
Convexus will allow developers to create any new market by listing an asset instantly. A help center with all the necessary documentation will be made available to developers.
The Convexus token — CXS
How to get CXS?
Liquidity providers on Convexus receive CXS for providing liquidity. This ensures the protocol continues to offer low fees and extremely low slippage.
What is the utility of the CXS token?
CXS holders can vote on governance proposals to determine the platform’s evolutionary trajectory. CXS holders can vote to use the Convexus treasury to fund liquidity mining pools, grants, partnerships, and other growth-driven initiatives that expand Convexus’ usability and reach.
A given Convexus pool has flexible swap fees, which are equal to either 0.05%, 0.3% or 1%. On top of that, the Convexus protocol can take a fraction of the swap fees and store them in the Convexus treasury. By default, when a pool is created, protocol fees are set to zero. However, CXS holders can vote for enabling protocol fees on any pool through governance. Consequently, when a pool has protocol fees turned on, CXS holders will earn their share of the protocol fees for this pool.
Convexus governance has been designed in a way that will eventually let the core Convexus early contributors step out of the decision-making process entirely, achieving a truly self-sustaining and completely decentralized protocol.
Tokenomics
Convexus won’t run any initial token offering or token sale of any kind.
1,000,000,000 CXS will be minted at genesis and emitted over a period of 4 years.
The initial four year allocation is as follows:
- 50% to Convexus liquidity providers — 500,000,000 CXS. The details of the liquidity mining program and the incentivized pools at launch will be disclosed before mainnet release.
- 30% to the Convexus DAO treasury — 300,000,000 CXS. These CXS tokens will be distributed on an ongoing basis through contributor grants, community initiatives, liquidity mining, and other programs through governance.
- 20% to the Convexus early contributors with a 1-year vesting period — 200,000,000 CXS.
After the initial minting, CXS tokens will be locked in vesting contracts and distributed daily to liquidity providers, the Convexus DAO and the Convexus early contributors at the following rate:
- 40% in year 1
- 30% in year 2
- 20% in year 3
- 10% in year 4
After year 4, CXS will be inflationary at a perpetual 20,000,000 CXS per year to ensure continued incentives for liquidity providers and governance participation. The inflation rate can be modified through a governance vote.
User interface initial design
About us
We are a team composed of 2 public representatives (P-Reps): ICONation and Protokol7.
ICONation has been one of the first P-Rep teams in the ICON community since 2017, and have served the community tirelessly in many ways since then. Through Convexus, we want to bring a fully trustable, flexible, fair, documented, and transparent AMM protocol that the community will own. We envision Convexus to become the standard AMM protocol for the ICON network.
Protokol7 are a team of 8 driven members based in Slovenia that have been in the Blockchain space since 2018. As a main public representative (P-Rep) for the ICON blockchain, Protokol7 has contributed to the development of the Omm protocol (omm.finance), and currently working on Karma Finance. Our mission is to provide solutions to the decentralized finance (DeFi) space to improve adoption, scalability and accessibility. Our decision to build on the ICON network is based on ICON’s vision to become an aggregator chain, achieving interoperability between interconnected blockchain networks. We believe that interconnectivity will ultimately create the most value over the long term and allow decentralized finance to thrive sustainably for all its users and communities.
