Blended Liquidity - AMM vs Orderbook

Hey @matthew , I just listened to your Index Coop podcast, awesome stuff!

I just wanted to comment on the discussion about AMM vs. Orderbook liquidity once it becomes blended.

I think it is very important to highlight on this front that a large % of all fee’s on the network will continue to go to AMM LP’s regardless of if the orders are filled by Orderbook MM’s or AMM LP’s. This should help offset any issues in this department IMO.

Is there a way to highlight this better, more in real-time? Ideally it would be awesome if this payout system was automated and showed up in the “Rewards” APY to help show LP’s of this huge extra benefit.

Just curious if on the new big Exchange UI that is coming if these ongoing rewards could get accounted for and highlighted in a bigger way to help attract more liquidity :slight_smile:

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I also had the same questions and concerns before I heard the podcast. My observation is this.

The majority of the LP’s get their incentives from the AMM pool fees. So if the orders or swaps go to the orderbook then the 0.15% which goes to the LP pool will no longer exist and the LP’s may fee hard done by.

To counter that argument, if the price oracle used matches the market and the order books have a different price, The swap function could take the best price (either from AMM or Orderbook or both, depending on order size, whichever is better). This way the end user will always get the best deal. This will reduce spreads overall and improve liquidity and volume on Loopring which will still produce rewards for the LP regardless of the order going through the AMM (or partially) or Orderbook. This would be similar to the way aggregators work looking for the best prices via multiple sources.

I’m just an ideas person so it’s up to the techies and mathematicians to see if it makes sense and doable. :grinning:

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I think this is why they came up with the new “Bounded AMM’s” system on top of this as well.

The Bounded AMM system basically tightens up the spreads of the AMM LP’s, making their orders much more competitive with the Order Book MM’s. So when larger take orders come in, the Orderbook MM’s in theory won’t have enough to cover the whole order so the BAMM LP’s should be right behind them to pick up the rest of the order.

I think these two ideas together + the tokenomics incentives to LP’s should be enough to make all MM’s happy.

Not to mention this is a HUGE improvement for users as they will experience far less slippage, which in theory should grow the pie of users coming on board, which then attracts more LP’s to capture more demand.

I think it will help solve the chicken + egg problem of adoption in a big way :slight_smile:

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Hey B and Odesium. Thanks for the thoughts. I agree this is important.

But just to be clear… @B.macro , I’m curious, does your initial post assume that “a large % of all fee’s on the network will continue to go to AMM LP’s regardless of if the orders are filled by Orderbook MM’s or AMM LP’s.” because this will make AMM liquidity actually be utilized more? Or just because you believe a piece of the action should go to AMM LPs in all cases, even if Orderbook MMs end up taking lots of volume themselves? I.e., a sort of tax on orderbook MMs? With some of their earnings going to AMM LPs?

Hey Matthew,

Yeah basically it was just meant to address the concern of: if Orderbook MM’s end up taking lots of volume… AMM LP’s still potentially have fees coming from the tokenomics V2 payouts (if I am understanding that correctly), which maybe they aren’t aware of because they don’t show up in the “APY” column.

Regardless, I am excited about the new emphasis on Orderbook MM’s and providing maker rebates! I think this, in combination with blended liquidity between Orderbook/AMM, will be amazing for the user experience/ low slippage.

At the end of the day it’s all about providing the best user experience to attract millions of users and the liquidity will follow the users… so I think you guys are doing it right and I am excited to watch and just throw in my 2 cents to try to help here and there :slight_smile:

Thanks for your feedback Matt

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Thanks B. Much appreciated.

I think you bring up a good point of showing the LRC tokenomics payouts somewhere. Right now it would indeed be hard for someone to figure that into their mental model. Maybe on the new UI there will be a separate page for LRC protocol fees, (vs adding it into the APY per pool directly). Since the LRC fees will not be globally distributed to all LPs, but via voting, to certain pools.

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Hey Matt, Some ideas for product team 1. There should be a way to create a vault on L2 which maps to a strategy of splitting active vs passive LP’s. 2. Once done you could hv a leader board of which vaults produced the biggest yields. 3. LP’s could deposit to these vaults to follow the strategist who created the vault. 4. This should be on future designs on utilize tab in the mobile app.

I may be wrong but I don’t think there are vaults that deposit as market maker for order book in defi. Not there in yfi. LoopringWallet would be the first to optimize for max yield and minimize impermanent loss combining AMM and order book.