Bancor V2: Introducing an AMM that reduces slippage
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Blue Fox Notes (ID: lanhubiji)
Bancor was the first to introduce the AMM model in practice, but it was Uniswap that really started it. After that, AMM blossomed almost everywhere. After a period of silence, Bancor launched Bancor V2, which aims at the current weakness of AMM. If a breakthrough can be achieved this time, it may cause another wave in the DEX arena.Understand Uniswap in one article》《Why Automated Market Makers Might Lose Money?》）
The AMM model is based on the constant product algorithm, which requires a large amount of liquidity to provide users with a low-slip trading experience, which is considered a natural disadvantage compared to the order book model. (Blue Fox Note: For the AMM mode, you can refer to the previous article "
Why Automated Market Makers Might Lose Money?
（Source：Bancor V2）
So, how does Bancor V2 solve the slippage problem of DEX?
secondary title
The Mechanism of "Liquidity Amplification"
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Judging from this picture, what Bancor V2 wants to achieve is that its slippage is only higher than the stable currency DEX Curve, and this slippage is very competitive in DEX. Of course, it is only a plan at present and has not yet been presented in practice.
Users often complain that the transaction slippage in Uniswap is too high, which is not cost-effective. Indeed, except for a few liquidity pools with considerable liquidity, the liquidity pools of most tokens are not suitable for large-scale transactions.
Just exchanging 100ETH will affect its price by more than 50%. This is a very large slippage, and almost no one will perform such an exchange.
（Source：bancor V2）
In order to solve the problem of excessive slippage, Bancor V2 tries to use the mechanism of "liquidity amplification" to improve. The so-called "liquidity amplification" mechanism is mainly to reduce slippage within a specific price range by changing the pricing curve of AMM. The mechanism of liquidity amplification is widely used in stable coins and packaged assets (such as weth, etc.), such as Cuvre. And what Bancor has to do this time is to introduce it into a more volatile token pool. In other words, Bancor V2 focuses liquidity within a specific price range, rather than providing an unlimited market-making price range. This is different from the "unlimited" token exchange of the first generation AMM. That is, it no longer offers an unlimited market-making price range like the previous AMM. In order to balance the token pool, the original AMM model may have sky-high exchange prices.
Judging from the information disclosed so far, the AMM model of Bancor V2 is not very detailed. The figure below shows the difference between the two types of AMMs, blue is the current standard AMM model, while red represents the AMM model to amplify liquidity. It can be seen that the slippage has dropped a lot.
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epilogue
(Chainlink provides price feed for BNT/USD oracle)
In other words, Bancor V2 will dynamically update the liquidity pool to provide slippage costs equal to market price changes. Based on this, arbitrageurs still have the opportunity to arbitrage in order to achieve a balanced token price. At present, there are few overall disclosures. Bancor plans to disclose more details in July. At the same time, its technical code will also be open-sourced and deployed to the main network.
