💡stabble's innovations

Important note: Please be aware that our protocol is currently only accessible on devnet and the contents and technical specifications of this chapter may be subject to change.

Smart liquidity routing

Smart liquidity routing (SLR) aims to support liquidity providers to automate, diversify, and ease their liquidity provision. Users can provide single asset deposits that will be distributed along multiple pools to diversify the liquidity position; the smart liquidity routing function compares the expected pool returns and navigates the fund into the most lucrative pools based on its APY while controlling for a diversified liquidity position. It allows users to automate long-term liquidity deposits, as it continuously reallocates funds into profit-maximizing pools. Through diversification, SLR reduces the divergence risk up to 80 % and leads to an improved risk-return trade-off for liquidity providers.

Smart liquidity arbitrage

The majority (up to 95 percent) of trades at AMM decentral exchange are arbitrage trades. Our analysis of peer decentral exchanges shows the consequences of arbitrage trades. Annually between (18-34%) of total pool liquidity is drained out, which leads to divergence losses for liquidity providers. Arbitrage traders profit from price differences within one or across many exchanges. They earn risk-free profits and support the convergence of the market and DEX price for a given coin. stabble has pools that are marked as arbitrage pools. For these pools’ the liquidity provider receives extra compensation for gains that are earned with the help of stabble’s cross-exchange arbitrage bots. The bot profits from 0 percent trading fees at stabble and only executes if the cross-exchange arbitrage spread is bigger than a predetermined threshold that is defined by stabble token holders.

In terms of functionality, internal arbitrage aims to substitute the concept of flash loans designed by Balancer. Flash loans support the arbitrage process within a decentral exchange along different pools to the benefit of arbitrage traders. stabble raises the question of why external individuals should receive these profits. With internal arbitrage stabble shifts the generated profits that are generated by arbitrage traders towards liquidity providers that profit from protocol internal arbitrage trades. Internal arbitrage will work hand in hand with smart liquidity routing, whenever a single asset deposit will shift the price. Whereas internal arbitrage will be embedded on chain, stabble will also support off-chain cross-exchange arbitrage trading to allow an efficient flow of supply between stabble and other exchanges. Both, internal and external arbitrage, will create additional returns for liquidity providers. Liquidity providers increase their income, and traders profit from price efficiency and lower slippage. The stabble arbitrage pools are especially suitable for high-volume traders and liquidity providers. stabble will connect with an increasing amount of decentral, central exchanges to build a frictionless and robust DeFi ecosystem.

Margin liquidity and virtual margin liquidity

Margin liquidity

Despite the extra compensation through arbitrage trading, providing liquidity can still be risky in times of high market volatility. It can be argued that it demands to be a risk-seeking/risk-neutral individual to become a liquidity provider. stabble aims to include risk-averse liquidity providers in the DeFi ecosystem. Therefore, stabble develops margin liquidity to support the wider adoption of liquidity provision. Margin liquidity is 8,000 times more capital efficient than concentrated liquidity.

DeFi Researchers explain the benefits of virtual and margin liquidity to increase capital efficiency at a DEX. Whereas traditional liquidity provision requires a liquidity provider, margin liquidity requires a lender and a margin liquidity position. Margin liquidity provider demands capital from lenders and provides it to the pool. To compensate the lender, the margin liquidity provider pays the fee to compensate the lender where the marginal liquidity provider places a collateral amount. Similar to concentrated liquidity in Uniswap V3, the liquidity provision only holds for a given price range, so that the loss in the leveraged position of the margin liquidity provider cannot exceed the provided collateral. With the help of margin liquidity stabble extends the flexibility for users and increases capital efficiency. Risk-averse liquidity providers can lend liquidity and are not exposed to divergence loss. Risk-seeking liquidity providers can take marginal liquidity positions that allow high profits at the cost of possible liquidations.

Margin liquidity provision is fairly new to the defi-ecosystem and requires it to be well-tested before being launched. Therefore, it will not be included in stabble’s first launch, for more see the roadmap.

Virtual margin liquidity

Virtual margin liquidity provision differentiates from margin liquidity provision by the lending party where instead of the third-party lender, the liquidity pool becomes the counterparty for the margin liquidity provider. This has an advantage for liquidity providers since the virtual margin liquidity provider mitigates the divergence risk during the loan period. Therefore, liquidity providers receive the extra compensation at the level of fees generated.

For more information, please take a look at our technical whitepaper.