@EvanVanNess is telling the hard truth that Swapr needs to provide more value to have success. I’m afraid being on Gnosis Chain is not enough of a differentiator @0xVenky… As soon as Gnosis Chain gets big enough to warrant it, 1inch and other competitors can and probably will deploy on it. Poof, Swapr’s advantage evaporates, as capital is redeployed to a more well-known and fully featured platform
On August 3 of last year, I introduced an idea for leveraged trading. Integrating this into Swapr would provide the game-changing advantage Swapr needs to be successful.
At the time I proposed this idea, there were many other priorities, so it wasn’t feasible… Now that a year has passed and things have changed, and Swapr is DXDao’s #1 product, I’d like to reintroduce my leveraged trading idea. I wrote about it as an independent product, but to be clear, it should be integrated into Swapr, along with a lending platform. I’ve discussed the benefits of combining swapping and lending platforms on many other posts that I won’t repost here. Add “1 year” to whatever times I mentioned, since I originally posted this a year ago:
**EXECUTIVE SUMMARY: **
By using a special type of closed liquidity pool on a DeFi lending platform, it’s possible to achieve very high collateralization factors without the lenders taking on much if any more risk. While I laid out how this can be used to achieve RIDICULOUS amounts of leverage, it’s also amazing for everyday borrowers because it reduces their chance of being liquidated, and gives them much smaller penalties for liquidation
Idea: Leverage.Crypto, a swapping, lending, and leveraging super-platform
Problem being solved: DeFi lending protocols are inefficient because they are forced to keep the collateralization ratio of assets relatively low for security. It may not seem like a big deal only being able to borrow using 75% of the collateral you deposited, but if you’re multiple times leveraging - borrowing, then borrowing again - this is a much bigger limitation. A 75% collateral factor only allows for up to ~4X leverage, but a 90% collateral factor allows 10X leverage. 99% collateral factor? 100X leverage! This is the gateway to DeFi futures-equivalents (10X leverage) and also absolute degenerate super-leveraging
With regulators closing in on CeFi, 100X leverage trading and really any leverage trading above 20X is going away fast. Binance and FTX both cut it to 20X max leverage it in anticipation/advanced compliance.
I know what you’re thinking - “It’s not possible to get a better collateral factor without taking on more risk for the lenders.” But what if I told you it WAS possible to get to a 99% collateral factor, and allow for 100X leverage, without lenders taking on much added risk?
Here’s how it works: Leverage.Crypto is also a swapping platform with its own liquidity pools. But these liquidity pools are unique in 4 ways
- They aren’t available for the public to swap with like other platforms - instead, they’re reserved for creating and liquidating leveraged positions.
- These liquidity pools aren’t traditional UNI-style liquidity pools, they don’t have an even amount of each asset on each side and they just track the spot price of the asset with data from Chainlink or The Graph, or whatever the oracle of choice is.
- These liquidity pools don’t have the same risks as other liquidity pools because every time there’s a swap, it’s done at the spot price of the asset. So there’s no impermanent loss, just possible decay of value over time if LPs happen to get the token that ends up going down instead of up.
- These liquidity pools are also composed of “patient swappers” who only add their liquidity for one transaction. More on that later
When someone who’s ~100X leveraging has the price drop below the 99% collateral factor, BOOM, the liquidity pool is used for instant liquidation of the sorry degen.
So how is this safe? Because the total amount of borrowing is capped at the amount of the token that’s in the liquidity pool. Remember, the liquidity pool is reserved only for liquidation and leverage creation, so there will always be enough liquidity to liquidate. The only risk is if the price of the asset falls by more than 1% within the seconds it takes for the oracle to update and the internal swap to be completed, which is very rare. The faster the oracle, and the faster the blockchain this is running on, then the higher the collateral factor can be set and the more leverage that can be levered
Now, for more about those patient swappers. This came up when discussing Swapr on a call during the past few weeks, and basically how it works is if you add single-sided liquidity in Uni V3 for a very narrow range, I.E., right below the current price of the asset you’re trying to swap to, you’ll be able to get your swap done without paying any swapping fee, and even earning a small amount of LP fees. Uniswap hasn’t set this up to be convenient though, which Leverage.Crypto will. Patient swappers on Leverage.Crypto will get PAID to swap at the spot price of their asset. There’s a lot of people who are willing to wait a bit who’ll take that deal