Bonding Curve

Stabull.Finance is laser-focused on improving “capital efficiency” for an FX stablecoin focused AMM to enable stableswaps in their purest form by building on top earlier iterations

Demand-side

Traders benefit from lower slippage and fees.

• Lower slippage is generally achieved by a flatter curve (increasing Curve’s alpha parameter) or a larger no-slippage zone (increasing DFX’s beta parameter); as demonstrated by Curve’s main improvement over Uniswap with lower slippage around some equilibrium price.

• Where Uniswap spreads liquidity across a range of exchange rates, stableswaps center liquidity around an equilibrium price, thereby lessening liquidity at the tails.

• The internal exchange rate is the oracle provided price, whereas external exchange rates are those offered by other exchanges, such as Uniswap, Curve or centralized exchanges. Internal exchange rate stability (low slippage) must be balanced by liquidity provision from a variety of external exchange rates (to protect draining of the pool).

• • E.g. A constant-sum AMM has complete internal exchange rate stability, but can only provide liquidity to a single external exchange rate. If they do not match, arbitrageurs can drain the pool of the undervalued currencies.

• The shape of the AMM curve (distribution of liquidity) can also determine the price stability between smaller sized swaps and larger ones.

For example:

The blue curve shows a larger flat section (zero-slippage), controlled by DFX beta parameter, but a steeper curve at the tail (delta parameter). Conversely, the orange curve shows a small flat section (small beta), and shallow tails (small delta). As a result the orange curve incurs more slippage on small trades (gray area), and less slippage for larger trades, compared to the blue curve.

• Lower slippage also reduces incentives for arbitrageurs to balance the pool. (arbitrage = slippage - fees). In the flat section, there is no incentive to rebalance the pool.

Supply-side

Capital efficiency is achieved when yield > (impermanent loss + withdrawal & deposit costs).

• Lower swap fees are preferred by traders, yet unattractive for liquidity providers. Excess fees however discourage trading, and are therefore bad for both.

Defending against exploits with Liquidity protection assurance is also necessary.

Prior generation AMMs have demonstrated that constant sum invariants should not be used in practice because any depegging triggers arbitrageurs to drain the undervalued currency from the AMM.

The exploit log in the Appendix reveals oracle attacks and flash loans as potential attack vectors in existing AMMs, and required either “unlimited liquidity” or some liquidity provision at a variety of levels, and reliance on constant sum invariants contributed to depegging and draining of pools.