Elixir Liquidity Layer

Elixir Liquidity Layer

May 4, 2024 | Defi, Dex, Exchange

In this article, we will go over the concepts of liquidity layer and explore what differentiates Elixir.

Price discovery in liquidity pools

Decentralized exchanges use an automated market maker (AMM) model to facilitate trades. Instead of relying on order books, users trade against liquidity pools that contain reserves of various tokens. These pools are automated by smart contracts, adjusting token prices based on supply and demand.

For pools with low liquidity, this can be problematic since a large trade can affect the supply and demand metric of that specific pool, while the price of that token remains stable on the overall market. This phenomenon is known as “slippage”. Slippage occurs when a trade is executed for a larger size than the liquidity available in the pool. In such cases, the price of the token can deviate from the market price as the trade absorbs the available liquidity in the pool. So a token price can vary from a pool to another and it creates arbitrage opportunities. Traders monitor different pool and can buy low on a platform and sell high on another, which will stabilize the price across the platforms.

Prevention mechanisms

Decentralized exchanges such as Uniswap implement a constant product market maker mechanism. This ensures that the tokens pair quantities in a liquidity pool stays consistent. Consequently, when the price of one token rises from increased demand, its pool quantity decreases while the other token’s quantity rises. This regulates the price automatically. Other mechanisms include offering incentives for providing liquidity, multiple pools for the same pairs and advanced trading features like limit orders.

While these methods assist in reducing the impact of slippage to a certain degree, decentralized exchanges still face some challenges in offering liquidity and price stability compared to centralized exchanges. Traders and liquidity providers must assess these aspects before engaging in trading and providing liquidity on DEXes.

Aggregation Platforms

Various platforms like 1inch consolidate liquidity from multiple DEXes and liquidity pools, enabling traders to tap into increased liquidity and potentially reduce slippage by dividing orders among various providers.

While these platforms helps users automatically find the best prices the basic problem remains low liquidity.

Elixir liquidity layer

Elixir is a DeFi protocol that specializes in offering an infrastructure for liquidity provision and management. What differentiates Elixir from other liquidity layers such as Uniswap is its dynamic liquidity provision model. Elixir focuses on efficiency and optimization. The protocol dynamically adjusts rewards based on market conditions and liquidity needs, incentivizing liquidity provision where it’s most needed. By dynamically adjusting rewards and liquidity allocations, the protocol aims to maximize liquidity utilization and improve overall market efficiency. Elixir is natively integrated with many leading decentralized exchanges and orderbook exchanges.

Currently, Elixir have an airdrop program where you earn potions for providing liquidity. You can provide liquidity on ethereum mainnet or on arbitrum/SUI by using their native integration with dexes.

Here’s the documentation, make sure to understand all the risks included in supplying liquidity as many layers of smart contracts are involved.

How to optimize your transaction fees

Feb 10, 2024 | Exchange, Wallet

Context

Fee optimization is a very important part of your crypto journey. Before doing a transaction, it is important to explore all possible ways and choose the strategy that minimizes the fees. This applies to on chain and off chain transactions.

Let’s say for example you want to transfer a given asset from Exchange A to Exchange B. Each exchange has a withdrawal fee, a deposit fee and sometimes a minimum amount that can be withdrawn. In some cases it could be cheaper to sell the token in one exchange for USD and buy it on the other exchange so you don’t lose your position. While this might be tempting, if there’s any capital gain, you will be imposed and pay taxes on it. So you have to be extremely careful and consult with your tax advisor before doing any alienation of assets.

Example

For the following example we suppose it’s cheaper to buy USDC on Coinbase centralized exchange than buying it on MEXC. You need your liquidity on MEXC because it offers a wider variety of coins. In this scenario, it is better to buy USDC on Coinbase and send it to MEXC. We will walk through the steps.

Receiving wallet

First, in your MEXC wallet, navigate to deposit and choose USDC. Then select a network that has low network fees, For example Polygon(MATIC), Once your address is ready, copy it.

Sending wallet

In your Coinbase application, navigate to your USDC account, click on send. You will be prompted to choose a network. Ethereum has the highest fee, and the rest usually have a very low fee, but as of today it is free. It’s probably a promotion from Coinbase because they encourage the usage of USDC since they are early backers of the Circle project.

Make sure you choose the same network that you selected in MEXC, double check that you are sending USDC using MATIC and enter your MEXC address.

You will receive your funds in a few minutes. In MEXC, since most crypto are paired with USDT, you can convert your USDC to USDT for a negligible fee.

Don’t forget, It is always wise to send a small amount first to make sure you receive it correctly before sending the desired amount.