👣Carbon

Introduction

AMMs have traditionally relied on constant-product technology, as seen in early implementations like Bancor and popularized by Uniswap. This approach, while elegant in its simplicity, is inherently inefficient for certain types of trading, particularly for assets that trade within well-known ranges. The constant-product model fails to allocate liquidity efficiently, resulting in significant amounts of collateral being wasted on price points that are unlikely to be reached.

Complexities and Inefficiencies associated with providing liquidity in automated market makers (AMMs):

• Stable-Swap Invariant Curves:

  • Designed to trade assets that are expected to maintain a constant price point (typically around unity).

  • Most liquidity is concentrated around the target price to ensure efficient trading and minimize losses.

  • Example: Constant-sum or constant-price curves where liquidity is focused at a specific price, halting trading beyond that price range.

  • Practical implementation often includes a small range around the target price to accommodate slight deviations and provide price discovery without wasting collateral.

• Concentrated Liquidity with Uniswap v3:

  • Introduced multiple concentrated trading curves, each associated with a specific price interval.

  • Liquidity providers (LPs) can invest in multiple segments but only earn fees on the segment corresponding to the current price point, leading to potential wasted collateral in other segments.

  • Moving liquidity between segments is cumbersome and gas-intensive.

• New Usage Patterns:

  • Some LPs place collateral far from the current price with the intent of executing trades during price dips or rallies, rather than for traditional liquidity provision.

  • This shift reflects a transition from a pure liquidity provision model to a more active trading strategy using AMMs.

• Challenges with Traditional AMMs:

  • High costs and inefficiencies associated with moving positions due to gas fees.

  • Symmetric liquidity provision can result in undesired trades if market conditions change before the LP can react.

  • Traditional AMMs do not accommodate conditional trading well, where specific conditions (e.g., price targets) must be met before executing trades.

Bancor has introduced Carbon, a next-generation Automated Market Maker (AMM) that aims to redefine the landscape of on-chain trading and liquidity management. Carbon's unique architectural design and feature set differentiate it from traditional AMM implementations, offering traders and liquidity providers a more sophisticated and efficient platform for executing trades and managing risk. Carbon is a DEX designed with traders in mind, and its most important features are based on asymmetric, parametrically adjustable, and concentrated liquidity.