Most investors within the world of cryptocurrency are aware of the quickly ascending utility DeFi has across the globe. In 2020, the TVL locked in DeFi rose by 14x, and already in 2021, that value rose an additional 3x to a total value of $81.85 billion. This exponential rise in popularity largely relates to the fact that, unlike conventional stock markets, the crypto markets never sleep. This means that buy/sell orders for anyone in cryptocurrency can occur at any point in time, which therefore justifies the need for a highly efficient way to receive tokens without relying on a counterparty’s active presence in the marketplace.
Utility of DEXs to Meet the Accelerated Lifestyle of DeFi Investors
Decentralized Exchanges (DEX) fit the bill in this scenario; Using Automated Market Makers (AMM), one can instantly buy/sell a token against a pre-set algorithm created by the AMM, which considers trade prices based on liquidity allowances in each pool. This ability to instantly trade within the marketplace shadows conventional stocks or Centralized Exchanges (CEX) use of order books, where one would have to wait for a counterparty to meet their buy/sell price demands before a trade could ever occur.
Where DEXs Are At Currently, and Where They Need To Be
While DEXs have been absolutely integral for the transition of conventional stock markets to the unending bustling nature of the crypto marketplace, there remains a host of serious issues within the DEX model in DeFi that, without change, can hamper both the security and overall prosperity of DeFi within Q3/Q4 2021 and onwards.
These problems, which are currently occurring on the most widely used DEXs within DeFi, include lack of liquidity due to insufficient incentivization for providers, lack of security measures to counteract liquidity rug pulls, and little to no cross-chain interoperability.
We at Sigmadex, by fixing each of these problems through meticulous design implementations, believe that we have created the new age of DEXs within DeFi. Let us look briefly into the mechanisms we have created to combat each of these individual issues.
Complex Back-End, Digestible Explanations on the Front-End
However, please keep in mind that these mechanisms are complex, and that a single article does not have sufficient space to explain all of them in complete detail. With that said, our following articles will go in-depth on each of these mechanisms but articulated in a way that the common investor can understand. This is in an effort to provide true clarity to our readers on how we fixed each of these problems and, therefore, will provide quantifiable justification for how we plan to become the industry-leading DEX of the future.
The Fossilization of Impermanent Loss in DeFi
The lack of incentivization for providing liquidity largely stems from the continuous fear of impermanent loss. Put simply, if either coin within a liquidity pool pair diverges in price, the liquidity provider to that pool loses a portion of their initial liquidity deposited (see table figure below to see how coin price fluctuation affects liquidity).
While this was long considered a simple by-product of the AMM-style of DEXs, the Sigmadex protocol intends on fossilizing this intrusive leeching of profits. Using a Modified Dynamic AMM protocol, liquidity providers (LPs) within Sigmadex will be able to receive % APY passive earnings that are both amplified relative to being an LP for conventional DEXs, and will also counteract any impermanent loss by our LPs due to several unique mechanisms.
These mechanisms in place (which will be described in much more detail in our following article) involve the use of smart contract treasuries for rebalancing liquidity pools, dynamic modifications of transaction fees to incentivize liquidity pool equilibrium, amongst other critical features exclusive to our platform.
Liquidity To All of DeFi Through Industry-Wide Compatibility
There is arguably no other sector that requires cross-chain compatibility as much as DEXs within DeFi. The simple reason for this is that the overwhelming limiting factor for the success of DeFi DApps across nearly every blockchain is lack of liquidity. This means that a DEX with a high degree of compatibility with multiple blockchains across the space will, for all intents and purposes, never be out of work!
That is why we decided to build our network on a Polkadot Parachain, where not only seamless interoperability with other blockchains could occur, but also high throughput and industry-leading smart contract computations be undergone within our network.
While Others Put Up Security, Sigmadex Makes Cheating Itself a Worthless Endeavor
While this point will be the last expressed in this introductory article, it is by no means one that should be taken lightly. The notorious liquidity Rug Pulls have gotten the best of crypto-investors since the advent of DEXs within DeFi. However, Sigmadex provides Rug Pull Protection due to time-locked liquidity, which results to significantly disincentive early withdrawal of liquidity due to penalty fees taken from your principal liquidity investment. This means that a rug pull will no longer be a profitable venture for any one party, and therefore its further existence in DeFi should be no more with the propagation and use of Sigma’s DEX across the crypto-industry.
All in all, we at Sigmadex intend to be an integral staple within the future of DeFi; A way for people to make amplified passive earnings through being a LP without fearing the risk of impermanent loss or rug pulls. At the same time, we want Sigmadex to be utilized across the entirety of the crypto space.
Read our subsequent articles to learn exactly how each of these mechanisms works to create the new-age DEX within the DeFi crypto space. For the savvier mathematical and/or computer science readers, check out our lightpaper for an in-depth explanation of each of our components whose validity is verified through auditable mathematical equations.