Thoughts about increasing liquidity through swap routing and vaults.

[TimDaub]

Balancer, Uniswap both introduce a "router" contract above all AMM to improve liquidity between assets [1, 2]. For Uniswap V1 & V2 (don't know about V3) and balancer V1, the conceptual model is: 1 AMM contains an asset pair that can be traded. However, there are intersections between AMMs. Consider the following example:

AMM 1:

• ETH
• DAI

AMM 2:

• ETH
• USDC

Now, if there was no router, to go from say DAI to USDC, I had to do two transactions:

• Sell DAI to ETH/DAI pool to receive ETH
• Sell ETH to ETH/USDC pool to receive USDC

It'd mean I'd have to pay twice the amount of gas, sign two transactions and the process would take the double amount of time.

To optimize this, both Balancer and Uniswap have introduced a "router" contract that can execute trades between intersecting AMMs. A user can call the router and say: "Please swap DAI => USDC through ETH/DAI and ETH/USDC".

A router comes with the following benefits:

• Routers improve price discovery as price reflects the actual value better since there are left less to arbitrageurs [1].
• A user's gas costs are lower
• The steps of inter-trading OCEAN assets decreases
• It's easier for the user to understand that they can to trade QUIRCA-0/TREMPEL-36

To improve overall swap liquidity further, it'd be great if the router was compatible with e.g. ETH/OCEAN AMM that are not directly controlled by OPF too. E.g. the OCEAN/BNT pool currently holds $26M in liquidity [3]. ETH/OCEAN holds $7M at a volume of $1,8M just in the last 24hrs.

It'd give all data tokens a tremendous boost if these liquidity pools would connect e.g. with the data token pools.

Finally, another option to improve cross-asset liquidity is upgrading to Balancer V2, which is planned for Q2 2021 [5]. From my understanding V2 stores all tokens in a vault to optimize gas costs too. Essentially it addresses the same problem as the router. However, I leave the following question in this thread:

From my understanding, all AMM platform providers currently optimize gas costs for assets within their AMM network. As we can see from the situation today, however, liquidity is spread evenly through these providers. For data tokens to receive the best liquidity bridge possible, is there an additional option that provides interoperability and captures the maximum amount of liquidity across all AMM provider platforms (e.g. Uniswap, Sushiswap, Bancor, Balancer etc.).

References

• 1: https://docs.balancer.finance/smart-contracts/sor
• 2: https://uniswap.org/whitepaper.pdf
• 3: https://app.bancor.network/eth/data/
• 4: https://info.uniswap.org/pair/0x9b7dad79fc16106b47a3dab791f389c167e15eb0
• 5: https://oceanprotocol.com/technology/roadmap

[alexcos20]

Thanks for the proposal.

We are planning to use Balancer V2 for our upcoming V4, so all of our pools are going to be part of the balancer pools.

[TimDaub]

see datax ocean dao