xGov-23 Open AMM - Governance Discussions / xGov Proposals Pilot - Algorand

xGov-23 Open AMM

post by Adri on Jun 8, 2023

Author Ludovit Scholtz ( @scholtz)
Category dApps
Focus DeFi
Open-Source Yes
ALGO Requested 200000

Abstract
This grant proposal aims to advance the development and open source implementation of Automated Market Makers (AMMs) with concentrated liquidity. AMMs have emerged as a crucial component of decentralized finance (DeFi), providing efficient and decentralized mechanisms for trading digital assets. However, traditional AMMs suffer from certain limitations, such as inefficient capital utilization and vulnerability to impermanent loss.

Concentrated liquidity models address these issues by allowing liquidity providers (LPs) to concentrate their funds within specific price ranges, thereby enhancing capital efficiency and reducing the risk of impermanent loss. This proposal seeks funding to support research, development, and implementation efforts focused on creating open source algorand AMM smart contract.

By supporting this grant proposal, you will contribute to the advancement of decentralized finance by addressing the limitations of traditional AMMs and enhancing capital efficiency and risk management through the implementation of concentrated liquidity models. This research and development effort will foster innovation, attract liquidity providers, and improve the overall user experience in the rapidly evolving Algorand DeFi ecosystem.

Link for details

post by averagezen on Jun 9, 2023

I’ve seen it argued both ways on the subject of whether another AMM (albeit this one open-source) would be a net positive for Algorand at this time. I do like the idea of concentrated liquidity but there are questions of whether this is a feature that just needs to be added to existing protocols vs building out a protocol solely around this feature. Some have mentioned fragmented liquidity being a possible concern or the ability to consolidate orders to more efficiently use that liquidity. I’m curious how Ludo plans to tackle these issues.

post by scholtz on Jun 9, 2023

Current AMMs does not have concentrated liquidity in place. EVM does. Big investors prefer to utilize their money in efficient way, and making concentrated liquidity on Algorand will move big money to algorand ecosystem.

You did not mention much the open source part of this. I believe core protocols on algorand should be open source. I believe the AMM is one of the core protocols in DeFi, and still no current AMM project has it open source. Open sourcing base defi protocol will create competition in fees between the protocols, and will allow new competitors yet to come. If pact will shut down the services the same way as deridex did, do you want someone other who can do legal things better to continue the legacy?

Regarding fragmented liquidity… I stand the point, lets fragment the liquidity more and create tools such as deflex that move the whole market efficiently with single swap. I prefer the decentralization in opposition to central liquidity.

post by timlevin.algo on Jun 11, 2023

I am no expert here on AMMs but I wonder if it is better to have concentrated liquidity first, then gradually move to decentralized. After all, I do think the future lies in building strong systems that have some centralisation and then gradually decentralising them, which it seems Algo is doing.

post by scholtz on Jun 11, 2023

AMM is fully decentralized. Concentrated liquidity is about setting your liquidity in specific price range. So if you believe that the price of gAlgo can be only between 0,95 algo and 1 algo, you can create liquidity pool between these prices. So if the price is 0,95, you will own 100% of Algo, and if the price is over 1 you will own 100% of gAlgo. This way with liquidity of 1000000 algo,galgo you can achieve the same thing as you can do at tinyman now with 20000000 algo,galgo… The point is that you can take more assets from the pool at lower slippage even if the liquidity is lower.

post by timlevin.algo on Jun 11, 2023

Ok, but can’t Tinyman do this itself? The question is whether we need to fund a whole new system vs what we already have.

post by scholtz on Jun 11, 2023

Tinyman are focusing on developing tealish… Pact is focusing on creating farms… Pera wallet does not have multisig support until now… Do you really want to wait until those projects will come with the ideas by themselves? Perhaps they do not even know that there may be something better than what they built. Why they did not do it one year ago when they received huge grants from the foundation and they are still heavily supported by all the liquidity programs?

Lets create more competitive environment where we challenge each other to create better products.

post by lobo on Jun 11, 2023

tinyman V1.1 and V2 are open source.

while i personally would love seeing concentrated liquidity implemented on algorand the amount you request wouldn't even cover an audit which would be absolutely necessary. having an open source AMM is great but people still wouldn't trust it when it has no audit. i know that audits cost way too much and don't ensure that the protocol is safe but its better than having nothing.

this would require you setting up the concentrated liquidity AMM such that it would be easy to integrate them into current aggregators. vestige and deflex already have problems integrating lending pools by algofi…

the thing is one concentrated liquidity AMM could make a lot of liquidity on other standard DEXs obsolete because they are way more efficient and reduce price impact enormously (if liquidity is set up by market makers tightly). a lot of forks of uniswap V3 (or algebra which is based on it) are launching on EVM chains now for a reason and afik all incentivize mostly their concentrated liquidity part.

and @scholtz while i know that you always worked on multiple projects, having these many proposals by you doesn't wanna make me really vote for them because which will be your priority? how can you ensure all of them are executed the best way possible when you have people waiting on others… especially when one of them is a concentrated liquidity AMM. i feel like a concentrated AMM is more sth for an existing DEX.

post by averagezen on Jun 12, 2023

I know Pact is well aware of concentrated liquidity. It has been brought up several times in their Discord, oddly enough this request increased right before you made this proposal! xD

I DO like open-source, but this is not the ultimate solution as very few users of such protocols are equipped to evaluate the open-source nature of the dApp. Personally, I’d care more about audits from trusted sources over open-sourcing, though ideally there would be both.

post by scholtz on Jun 12, 2023

Yes, I have quoted that in the proposal… Adri copied here only abstract, I recommend voting on real proposals which are in github.

You can start doing audits only if you have code finished. That's why this proposal is for coding only.

Thanks for pointing this out. I did not know. Just for reference I found this code.

My priority is the AMM, and then vote coin github tools. That's why for github tools I have added more time and information that it is ok to be paid after project is completed. The AWallet grant request (10000 algo, at the future price 0,01$/algo is 100$) is just recognition of completed work. 2FA authentication was already created, and if budget allows I can hire someone to do the design refactor.

I made this request 2 weeks ago. xGov-23 - OpenAMM by scholtz · Pull Request #23 · algorandfoundation/xGov · GitHub.

I am happy that it has desired effect and Algorand’s project will move to better products. We need to increase competition…

The same way as when Algo stepped into the blockchain industry. There were a lot of other blockchains but Algorand brought VRF, multisig support for corporate self custody, fast efficient smart contract throughput, decentralization, security and more…

post by scholtz on Jun 18, 2023

I have created Discord channel for early community building and technical discussions.

I recommend anybody who would like to help the project to join in. Thanks

post by scholtz on Jul 25, 2023

Hi @lobo, did I answer your comments properly?

I really believe that Algorand DeFi space needs AMM with concentrated liquidity, however I see no discussion on this topic.

post by lobo on Jul 26, 2023

kinda yes. imo this proposal goes in the right direction but without a team dedicated to building the actual AMM then or established AMMs willing to use the code I don’t know if it’s worth it.

and yes we need a concentrated liquidity AMM that’s true but there’s more to it than having the code for the smart contracts. clAMMs outsource a lot to the user (deciding on the range and watching your position) and implementing a farming solution is not as easy as traditional AMMs. additionally, the SCs would need to ensure it’s easy to build no top of them (aggregators for example).

post by scholtz on Jul 27, 2023

Let me quote from the proposal…

We seek to establish new legal entity for this project and comply with MiCA regulations.

post by lobo on Jul 27, 2023

but only you are mentioned, that's part of my problem. scholtz & co is not very helpful. additionally, again the grant you are asking for wouldn’t be able to cover all of this imo so you would need additional grants.

maybe to add to this why I am not a fan of your proposal atm: you cite projects of your team, but I am only aware of vote coin that is on mainnet which again makes me question this proposal since vote coin and a clAMM are two very different things. I was pretty excited when I heard about diatomix but haven’t heard anything after it was announced for example.

post by scholtz on Jul 30, 2023

I plan to invest my money to the project as well.

The plan in the first phase is to create smart contract, build a web so that people can interact with the smart contract.

Everything will be open source and not audited after this first phase. I assume we will request the funds to cover audit costs after we launch to mainnet in the next grant period. The audit requires the specific github commit to be audited.

Yes, I am part of multiple projects.

First scholtz&co projects are:

Stabilitas Finance - Smart contract allowing issuing national currencies. Project is on hold until the institution of electronic money is funded and approved.

DREM: Decentralized real estate marketplace was my overall winner project at Swiss blockchain hackathon, and is my vision what I want to do. Tokenizing rental income is the future of DeFi. Project Vote Coin is meant to provide voting solution for individual tokenized apartments, and project stabilitas finance is mean to provide ability to operate for example in Czech Republic. The OpenAMM project is also meant to provide efficient AMM solution to stabilitas finance as well as DREM.

By AdarmidLabs: I have coded most part of Aramid.Finance - multichain multisig bridge. Project run out of finance a few months from the grant, however I was able to push it to a successful audit. There is no VC at the moment and we are considering launching it with dry accounts.

By Verum Capital: I was hired to do Algorand side for Diatomix - impermanent loss solution. Project has in my opinion too many management and quants over the developers, and is currently on hold because of lack of funds. We launched to Algorand testnet.

post by scholtz on Jul 30, 2023

Please discuss also at Reddit:

post by lobo on Jul 30, 2023

ok that makes sense for stabilitas. don't know if you need a clAMM for DREM tho, an order book seems more appropriate (which also seems to be used for testnet atm).

these two things combined are my problem: multiple projects on hold because of lack of funds and a grant that wouldn't cover everything so that project might end up the way the others did.

I like your enthusiasm for Algorand, we need more of that in the ecosystem but those projects that are on hold make it harder for me to support this proposal.

Diatomix is the only project who you got hired for, the rest are "yours"?

also launching on mainnet without an audit (although they don’t ensure something is safe and are way too expensive) is very risky as it could ruin the project.

post by scholtz on Jul 30, 2023

I got hired to Aramid and Diatomix… I don’t have control over the finances.

DREM and Stabilitas require funds before they can be launched. I did not have luck with any Algorand’s VCs yet and I do not want to take a very bad deal.

Scholtz&Co have received only one grant for Vote Coin and it was delivered on time. Most of the money algos were given to vote coin community through pact fi boost program.

Actually, if we would launch Aramid to mainnet one year back even without the audits the risk would be the same as launching now. Audits are just next eyes to check the code and minimize the risk.

Launching of open source AMM first with smaller amount of money in liquidity and information to any liquidity provider that the AMM is in audit is a good thing in my opinion. The open source thing is reducing the risk of launching bad code.

In Aramid it has broken the team because after starting doing the audits there was basically nothing to do for the next 9 months. I don’t want the same happen to OpenAMM.

post by scholtz on Aug 12, 2023

Please read and discuss the OpenAMM whitepaper: https://cloudflare-ipfs.com/ipfs/QmagzMhx2dqgAH9YePwx2UhgnMdvNG3whauLZriUunufTH

post by scholtz on Aug 12, 2023

Algorand urgently needs Open source AMM solution with concentrated liquidity!!!

Concentrated liquidity AMM will revolutionize Algorand’s DeFi, increasing capital efficiency of liquidity and increases swap returns for users.