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Trader Joe, the largest decentralized trading platform on the Avalanche network, announced to introduce a brand new automated market marker (AMM) called “Liquidity Book,” to solve “Impermanent Loss”, which is one of the biggest weakness of the DeFi ecosystem.
What is Liquidity Book?
The wait is finally over….
Introducing: Liquidity Book 🌊📘
A next gen AMM protocol that is highly efficient, flexible and built for #DeFihttps://t.co/6l2FoaJ0xo
— Trader Joe🔺 | New AMM Soon 🌊📘 (@traderjoe_xyz) August 22, 2022
The Trader Joe team explained that Liquidity Book (LB) is a type of liquidity pool (LP) that arranges liquidity of an asset pair into price bins, which are exchanged at a constant price. The liquidity book will initiate a new variable swap fee, which will protect traders from impermanent loss by compensating LPs in the event of extreme market volatility. In this way the liquidity can be more efficiently managed in response to sudden price movements. In a statement, Trader Joe said,
“Concentrated liquidity allows liquidity providers to capture more fees with significantly less liquidity. Instead of having one pool with unbound price ranges, Liquidity Book has multiple separate bins with different prices that can be used as building blocks for a liquidity position.”
What are the Other Features?
The Liquidity Book design means that Joe v2 will not be reliant on external oracles like Chainlink for its prices. The Trader Joe team asserted that fair market value will be maintained by arbitrageurs who will step in to take advantage of price discrepancies between assets traded on Joe v2 and other exchanges.
Joe v2 will also introduce an internal “volatility accumulator” mechanism designed to measure market volatility and inform the platform’s variable fee without using external data feeds. Trader Joe is also aiming to introduce limit order functionality for Joe v2 in the near future.
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