Trader Joe reveals whitepaper for Liquidity Book AMM

Trader Joe reveals whitepaper for Liquidity Book AMM

Trader Joe’s team has finally come up with more details about how their brand new AMM is going to work.

Liquidity Book is currently undergoing an audit, with more research articles to be posted in the following days. 

Trader Joe is the second biggest Avalanche native protocol by TVL and is defined as a one-stop-shop decentralized trading platform.

Users can swap, trade, lend, borrow, participate in token launches, deposit their tokens in liquidity pools, and buy NFTs directly on the Trader Joe platform. 

Liquidity Book (LB)

In a similar way to Uniswap V3, the liquidity providers of the project’s new AMM will have to select a price range where they want to provide liquidity. But Liquidity Book will also allow liquidity providers to choose any number of bins and compositions they want to deposit their liquidity, creating custom liquidity structures.

The market for each asset pair is created by aggregating all discrete price bins. The liquidity in a price bin can be exchanged at a fixed price. However, in the case of the bigger trades that require more liquidity than in the current price bin, the swap will exhaust the liquidity in each consecutive bin till the order is filled. 

Thanks to this architecture, when someone performs a relatively small swap that doesn’t require more liquidity than in the current bin, his trade might incur 0 slippage. 

Apart from low slippage trades, the project team also aims to solve the impermanent loss problem with the launch of their new AMM. In order to do this, the swap fee will have 2 components: a base fee and a variable fee.

Based on the recent volatility, the variable fee will adjust in order to compensate the liquidity providers’ losses because of the impermanent loss. Liquidity book introduces a “Volatility accumulator” mechanism in order to measure the market volatility.

The protocol will also collect a part of the swap fees, which will likely be distributed to the $JOE holders as in the previous version. 

At the end of the whitepaper, the team also stated that the efficiency and the market depth of Liquidity Book are comparable to Uniswap V3, which is already known to be one of the best DEXes in the space. But due to the variable fees and volatility accumulator mechanism, Trader Joe’s new AMM goal is to be a better version of Uniswap V3, especially for liquidity providers. 

You can read the full whitepaper here.

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Armando Sebi
Armando Sebi
Armando is a DeFi analyst that started his crypto journey in 2021. He is passionate about cryptocurrencies and the future of decentralized finance.