dSWAP is a CLMM (concentrated liquidity market maker) fork of Uniswap V3 on Fraxtal. The CLMM model allows LPs to allocate their capital within specified price ranges, rather than across the entire price spectrum as in traditional AMMs (automated market maker). This model increases capital efficiency by allowing liquidity to be concentrated where it is most needed, typically around the current market price, allowing for greater order sizes and lower slippage in these ranges. This efficiency is particularly beneficial for pegged-asset swaps (such as stablecoins and LSTs/LRTs), where the price is expected to remain relatively stable.
On top of existing V3 features and mechanics which can be referenced through Uniswap’s documentation, dSWAP incorporates several unique features that incentivize deeper liquidity and enhance LP rewards.
dUSD Base Pairs
LPs earn fees from traders. On pools where one of the assets is dUSD, LPs earn the full trading fee. On pools where neither asset is dUSD, the protocol will collect 50% of trading fees as protocol revenue.
- Example 1 - frxETH <> dUSD | 0.3%
- Trader swaps 1000 dUSD for frxETH
- Trader pays dUSD in fees
- LPs earn the entire 3 dUSD
In this example, we have a pool containing frxETH and dUSD, with a fee rate of 0.3%.
- Example 2 - frxETH <> FRAX | 0.3%
- Trader swaps 1000 FRAX for frxETH
- Trader pays dUSD in fees
- LPs earn dUSD in fees, the protocol keeps the remaining 1.5 dUSD
In this example, we have a pool containing ETH and FRAX, with a fee rate of 0.3%.
Benefits
By encouraging LPs to consolidate liquidity within dUSD pools, there arise several emergent properties that improve the experience for both traders and LPs.
- Low trading fees: All assets will likely have a dUSD pool, therefore trading between any two assets will typically take no more than one hop. Since traders incur trading fees on each hop, by minimizing the number of hops, we can also minimize fees for traders.
- Lower slippage & consolidated liquidity: By consolidating liquidity around dUSD pools, LPs no longer have to split up their assets among many different pools to chase yield. This lowers gas costs for active position management for LPs and enables traders to fill larger orders at better prices, since their price impact against a large pool will be low.