What is Swaap?
Swaap is the first market neutral Automated Market Maker (AMM). It leverages a combination of oracles and dynamic spread to provide sustainable yields for liquidity providers and cheaper prices to traders.
How do we combine both?
Swaap strongly reduces arbitrage trading, a phenomenon whereby external actors extract value from a pool by taking advantage of price differences within the market. The value preserved from arbitrageurs is distributed to traders and Liquidity Providers (LPs).
Liquidity Providers access profitable & sustainable market making strategies. The protocol strongly reduces Impermanent Loss and offers multi-asset pools.
Traders enjoy lower trading fees. Indeed, the protocol does not need to charge traders high fees to compensate LPs for their Impermanent Loss.
Why do we need such solution?
As explained in our AMMs vs. Orderbook series, AMMs have enabled onchain trading at the expense of LPs and traders, who are losing out large sums due to Impermanent Loss.
- Impermanent Loss is costing LPs billions of dollars per year. ~50% of LPs on Uniswap v3 are losing money compared to a HODL strategy.
- Trading fees are in most cases, higher than those of centralized exchanges. This is because AMMs need to compensate their Liquidity Providers for impermanent loss. Slippage is high, since liquidity is lower than in centralized exchanges - due to IL again.
Arbitrageurs are the middlemen of this broken system. They extract considerable value from LPs and traders by rebalancing the pool’s quantities. .
Making on-chain trading sustainable requires a better solution. That is why we decided to create Swaap.
At Swaap, we are on a mission to democratize DeFi because we think it is intrinsically better than the centralized financial system.
We do so by providing profitable & passive market making strategies to all types of investors, no matter their level of sophistication and by providing traders with the cheapest prices onchain.
By enabling multi-asset pools with strongly reduced impermanent loss, we enable a new asset class: yield ETFs (index products that collect fees).
Since Swaap leverages oracle feeds to implement its approach, we see Swaap as complementary to traditional AMMs and to Order Books:
- AMMs are probably the best design to trade low cap tokens which could not be listed on Order Books.
- Swaap is a more efficient model to invest & trade on-chain for higher cap tokens which are listed on Order Books.