AEX Product: AEX ASwap Pool
Introduction on AEX ASwap
We are so glad to introduce the design and mind of the AEX ASwap Smart Pool.
What is DeFi?
DeFi, Decentralized Finance product, refers to such products as decentralized loan, decentralized finance, decentralized exchange, for example, uniswap(UNI), sushiswap(SUSHI), compound(COMP), aave(AAVE), curve(CRV), balancer(BAL), bancor(BNT), harvest(FARM), pancake(CAKE), mdex(MDX), and so on.
They help users implement pure on-chain(Don’t need center server) finance, for example, spot trading, collateral loan, staking earn, and futures trading. And till the day, the TVL of DeFi has reached hundreds of billions of dollars, with up to millions of users.
DeFi is the first field that allows blockchain to be applied on a large scale and the first time that blockchain projects can earn sustainable profit income (Profits are generally divided to token holders or repurchased for destruction) in addition to minting and selling coins.
For example, the stable coin exchange platform Curve, has a real daily turnover of over $100 million, creating at least tens of millions of dollars in annual fee revenue (50% split to CRV lock-in holders and 50% rewarded to those who provide liquidity).
DeFi is different from any previous blockchain boom (no longer stuck in hype concept) because it effectively meets application scenarios such as cross-chain exchange, spot exchange, finance, and loan, and has already created a considerable scale of profits. Our market department believes that the transparency and security in DeFi will make it somewhat recognized by the market and the market basics size will gradually increase.
However, DeFi also has considerable limitations: first, it has a high threshold and complex steps, and as of today, 99% of users don’t know how to utilize DeFi. Second, the miner fees are expensive, often consuming hundreds of dollars in fees for a single operation, making it too costly for users to use.
At the same time, its performance, response, and other experiences are poor. Due to TPS limitations, when the market fluctuates a lot, you often encounter operations that cannot be confirmed for an hour or even a day.
Therefore, we had the idea of “ASwap Smart Pool”. The so-called ASwap Smart Pool is actually a combination of SWAP + Smart Pool. Firstly, we realize decentralized swap through centralized technology. Secondly, we realize the decentralized pool through back-end AI dispatch (DexRoute), and put the safe proportion (different algorithms for different pools, e.g. 65%) of funds in SWAP into multi-chain swap for hedging according to the principle of lowest risk and hedging model, such as pancake of BSC, mdex of HECO, sushi of ETH, etc., and get the yield farming returns of these swaps.
At the same time, we will then exchange the proceeds for GAT through the secondary market (automatically executed by the system), 98% of which will be distributed to the liquidity providers of the “ASwap Smart Pool” ( GAT for mining rewards), and 2% will be directly destroyed to promote the development of GAT ecology. (🤣Editor: Only this paragraph of the whole announcement is vital, the others are the boss ask me to do that for meeting the required word count)
This ratio will be subsequently adjusted depending on the operation. A higher destruction ratio means a higher deflation rate for GAT, but the liquidity provider will get a lower annualization, which is harmful to the development of the ASwap Smart pool. Scale expanding first or destruction first? We are not sure which one is better, so we have experimentally set a 2% destruction ratio.
We will iterate the parameters in actual operations and let’s look forward to what happens later.😉
What is “ASwap Pool”?
The ASwap Pool is a mining pool. It originated from Bitcoin mining pools, when a large number of coins applying SHA256 POW algorithm appeared on the market, such as BTC, BCH, BSV, etc. Due to the same algorithm, a mining machine can mine both BTC and BCH, and with the fluctuation of the price, the miner sometimes mines BCH more cost-effective, and sometimes BSV better, so the miners designed an algorithm to calculate which coin is currently more cost-effective to mine based on price changes and mining output to help miners switch in real-time. Since it’s like an intelligent robot, it sweeps where the revenue is high, so this kind of mining pool has a name “AEX ASwap Pool”.
AEX ASwap Pool, which refers to the pool for mining DeFi-type projects, users deposit various coins, and the platform mines the revenue for them safely according to the preferred allocation strategy.
To date, the size of AEX’s DeFi Pool has exceeded more than $1 billion.
Working principle and income source of ASwap Smart Pool
The previous article has explained the original design of the ASwap Pool and the concept of “Smart Pool + SWAP”. Now, let’s talk about the working principle of ASwap Pool. The core of the back-end AI scheduling algorithm of ASwap is a scheduling system we call DexRoute, which has 3 types of adaptation models. To avoid trade secrets leakage, we can only explain the basic concept of ASwap and will not disclose the technical details.
- When the trading pairs in the ASwap Pool are exactly the same as that in the dex, the system will use the Equal Scale Deposit Model (ESDM). In the AMM constant product algorithm, when the price fluctuates by 50%, the asset shrinkage of the weakened side of the SWAP pool is 33.33%. Therefore, if we set the price fluctuation of 50% as the alert bottom, then, in fact, 65% of the assets will not be used when the price fluctuates by 50% or less, so we will transfer 65% of the assets to the dex simultaneously, and when the price fluctuation is close to 50%, the back-end scheduling system will redeem liquidity from the dex, keeping the ASwap Pool away from the alert bottom at all times. However, in practice, the risk of volatility varies from pair to pair, and our risk control team will observe the actual situation and adjust the parameters. In this model, the platform is completely free from the impermanent loss of yield farming, and the mining proceeds are not subject to additional loss deductions , which can be used in full to exchange for GAT (This is also the main source of revenue for the ASwap Smart Pool).
- When the trading pairs in the ASwap Smart Pool, only one asset can participate in dex mining, the scheduling is more complex than the first, and the revenue is also more complicated, it may take 2000 words to describe its scheduling algorithm here, which is omitted for the time being.
- When the transaction pairs in the ASwap machine gun pool, both assets can participate in the dex but belong to two different transaction pairs or two different public chains on the dex, the scheduling algorithm is equal to the Double of the 2nd case, again not described in detail.
Which new things does ASwap Smart Pool have?
1) We can view the details of GAT repurchased every day, the amount of GAT issued as interest, and the amount that will be used for destruction (the destruction has been done since 2021/06/01, once a week). The ratio of interest issuance and destruction is currently set at 98 to 2. We will try different ratios to test the actual operational effect.
2) We can view the total TVL of the ASwap Smart Pool (total market value of participating assets), and the average capital utilization rate (for monitoring the health of the back-end DexRoute). Subsequently, we may also add a link to dex monitoring to facilitate users to observe our back-end AI scheduling system works on the chain, assets distributed, and the real returns. (But this will affect our security, “scientists” may catch our system operation to preempt the order, we need to measure more in-depth)
Finally, we are very sorry to inform you that we have been implementing this plan (The GAT that we repurchase with asset income in ASwap is used for interest distribution) since about 2021 January, but we are not sure if the model has a good market or if there are systemic risks and flaws in the model, so you may see that Aswap is obviously distributing a lot of GAT every day as interest, but the price is relatively stable. We also thought about the operation without disclosure, but in the end, we considered that it was against the transparency, so after more than three months of testing and operation, we decided to upgrade ASWAP to “ASwap Pool”.
Let’s forecast the change that ASwap Smart Pool will bring. The current mainstream swaps such as Uniswap, Sushiswap, Mdex, Pancake, etc., have a TVL that fluctuates between roughly $2–10 billion and assuming that we operate the ASwap Smart Pool to a TVL of 1 billion U through our efforts, then At an assumed 20% average annualized return, the ASwap Smart Pool creates roughly 200 million U of GAT buying per year, of which 196 million U equivalent GAT is used for interest distribution, as well as 104 million U equivalent GAT for destruction under the current 98–2 interest destruction ratio. At the same time, the GAT distributed by this interest is expected to be lower than 196 million U because some users hold positions for a long time. As a result, we create positive momentum for GAT and increase the destruction of GAT, which is beneficial to GAT. (All the above are hypothetical values, please refer to actual operating conditions)
Of course, we do not consider that the ASwap Pool is a mature product, it is still in the testing phase and will undergo adjustments, and it also depends on the development of the DeFi industry, and if there is a systemic risk, we may even outlaw it at some point in the future to ensure the safety of the platform funds.
Thank you for your support to AEX, we hope that you have a good experience with our financial designs, if you have any suggestions, please feel free to contact us.🥰
AEX Operation Team
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