Automated market makers (AMMs) have captured the world of DeFi by storm, with many types of AMMs emerging each trying to focus on a new niche and improve on it (or cash-grab in some cases). Uniswap being the most well known one uses a constant price function to value the tokens on the exchange, which I have detailed here. Curve emerged with a different formula specifically tailored for stablecoins and pegged assets that is made to provide low slippage for such pairs. Balancer brought multi-token pools that act like an index fund as well as custom swap fees and other parameters. And many others have brought new additions and changes to the classic AMM idea. However, there is one issue that hasn’t been tackled yet perhaps, and that is smoothing out large price fluctuations on an AMM, something that is non-existent so far on any pair that isn’t just stablecoins. This is where DEXToken comes in, a new idea on how AMMs should work with a new function to determine the price that works based on volatility instead of constant product like Uniswap.
The technology behind the platform
DEXToken uses a new unique algorithm for its DEX platform that adjusts the prices of the tokens based on the volatility of price movements, as such over time the curve of prices tends to be flatter and smoother than in a constant function AMM. In this case, the price is determined by a function taking in mind recent volatility, supply, and other market conditions. As such, as shown below, the change in the price of one asset is less reflected in the price of the other one, where in a constant product AMM a large change in the price of one asset would cause large IL and make a drastic difference in the pricing of that pair, that happens to a much lesser extent here. DEXToken calls this their “speculative AMM” due to how it works.
This can really change the game, especially for pairs that might experience high slippage due to whales or low liquidity. For example, if a person was to trade a large amount in a low liquidity pool, they might lose maybe 10% in slippage in a regular AMM, but they would lose much less to slippage with the volatility-based function.
The token behind it
The platform also has its own native token DEXG that will be used for platform governance as well as staking for rewards. There are 8 rounds of staking with the first one being over and the second coming in a few short days. Each one might be different from the last which means for example the first round was staking DEXG tokens directly, while the 2nd round is staking DEXG-USDC LP tokens. Additionally, there is a max theoretical supply of 200k tokens, however this is not going to be reached due to how the staking distribution works in a dynamic manner. Put simply, the number of tokens distributed each round depends on the number of active users of the token as well as the ATH for it, as such the higher both of those variables are, the less tokens are minted (while the rest will never be), reducing the possible maximum supply even further.
This makes DEXG a deflationary token like the typical DeFi model. And this cycle feeds into itself in a creative manner, the less tokens minted, the more likely that ATH will be higher the next round, and that more users will be interested, which then reduces the rewards next staking round even further, which keeps feeding back into the loop. As such, DEXG is unique in that manner unlike other farming projects that usually end up dumping quickly because there is nothing to balance out the high rewards or lower them.
The future of DEXToken
The platform has quite the bright future ahead of it, with a planned release of the DEX in 2020 with 2021 bringing great expansions to it. A more tailored formula will be used for a speculative-AMM that deals with inflationary token as the current one is more suited for deflationary ones. Additionally, the most exciting feature of off-chain and derivative token AMMs will be introduced. This opens the door to millions of possibilities and could generate billions in volumes due to the demand of such things. This could even allow stocks, commodities and more to be traded on the DEXToken platform natively and with low price slippage and fairly low volatility compared to anywhere else in the cryptocurrency industry.
As such with the talent behind the platform and the innovative ideas being put forward it is likely that DEXToken will be a successful player in the DeFi space, possibly transforming a large segment of the AMM market in the future too depending on benefits and adoption. The DEXG token also provides a new and interesting spin on governance tokens and issuance that is looking to be a great experiment in tokenomics
