Parameters affect the way in which all stakeholders of an AMM interact with the protocol and tweaking them can incentivise users in a balanced way

Although each dynamic stableswap parameter holds a slightly different naming convention, all fall roughly into one of two categories:

  • Curve Parameters: control of the shape of curve (i.e. where liquidity is focused / how much slippage). Curve v2 uses Alpha and Lambda, DFX uses Beta & Delta.

  • Fee Parameters: fixed and dynamic fees that increase with slippage (paid to LP’s and protocol treasury).

Demystifying the bonding curve and curve parameters: a brief overview

In the kaleidoscopic world of decentralized finance (DeFi), liquidity pools are the linchpin that holds the decentralized exchanges (DEXs) together. They are like magical pots containing multiple tokens, enabling users to trade one token for another seamlessly in a trustless and decentralized manner.

Below are simple explanations that dissect the anatomy of liquidity pools and unearth the significance of various parameters that govern them and facilitate various flavours of AMM - whether it be designed for like products, fungible products, or perfectly complementary products; volatile assets, stablecoins with the same root peg, or those pegged to difference currencies, the parameters of the bonding curve must be tailored specifically to each market, and these parameters must function somewhat dynamically to reflect the conditions of the market - either endogenous or exogenous.

What are Liquidity Pools?

At their core, liquidity pools are smart contracts loaded with reserves of two or more tokens. They are the beating heart of DEXs, allowing users to trade tokens by interacting with the contract rather than relying on a traditional buyer or seller or middleman. The smart contract dynamically determines the price based on the proportions of tokens in the pool. Those parameters will be discussed below.

In the rapidly evolving world of decentralized finance, liquidity pools play a crucial role in ensuring efficient asset swaps. Stabull Protocol introduces an innovative approach to liquidity pool management, particularly focused on stablecoin swaps within the realm of Forex. This approach is predicated on a sophisticated interplay of four parameters: Alpha (α), Beta (β), Lambda (λ), and Delta (Δ), which collectively dictate the behavior and performance of the liquidity pool.

Weight (w): This parameter denotes the ideal weight of each stablecoin in the pool. It is used to maintain an optimal balance between the different stablecoins within the pool, enhancing stability and mitigating impermanent loss.

  • Alpha (α): This parameter sets the acceptable range within which the actual weight of an asset in the pool can deviate from its ideal weight. Alpha is instrumental in limiting the impact of large transactions on the pool’s balance, thereby mitigating susceptibility to excessive swings and potential manipulation.

  • Beta (β): Beta calibrates the responsiveness of dynamic fees to the deviation of an asset’s price from its peg. It acts as a defence mechanism, ensuring that higher transaction fees are triggered when market conditions are volatile, thereby protecting the pool.

  • Lambda (λ): Lambda represents dynamic fees, which adjust in response to market conditions. Primarily, it is designed to discourage one-sided trades, particularly in scenarios where an asset's price deviates significantly from its peg.

  • Delta (Δ): This parameter adjusts the rate at which the dynamic fee changes in response to variations in trading volume or liquidity, adding an additional layer of responsiveness and protection against sudden market changes.

The synergy among these four parameters forms the foundation of Stabull Protocol. They create a dynamic ecosystem that maintains equilibrium within the liquidity pool, accommodates fluctuations in trading volumes, and safeguards against adverse market movements.

This amalgamation results in a more resilient, efficient, and secure environment for liquidity provision, fostering greater trust and enhanced user experiences in DeFi transactions for our 4th-gen AMM that focuses on non-USD stablecoins.

**More will be added here once finalized

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