Instaraise, via a DEX offering, is embedding itself as an even more critical component of the Tezos ecosystem and, in the process, may eliminate several issues that have affected the traditional Automated Market Makers (AMMs).
The Insta DEX is offering novel trading features – such as IL protection and single asset liquidity provisioning to the traders and Liquidity Providers(LP). Sure, these features have already been popularized by the Bancor DEX. But Instaraise’s integration may now revolutionize the Tezos ecosystem.
For the uninitiated – let’s have a look at why IL protection and Single asset liquidity provisioning are so important.
Issues in AMMs
Liquidity Providers, as the name suggests, provide liquidity to AMMs in the form of two digital assets in a pre-defined ratio. As the exposure of the liquidity pool increases, the quantity of the assets vary based on demand, while the ratio remains constant. Here, the traditional AMMs routinely encounter the following issues:
Involuntary Token Exposure
LPs need to involuntarily take exposure on each asset present in the pool just to participate in an AMM. This is counterproductive to investment strategies of some LPs, who do not wish to expose their favorite digital asset, but have to unwillingly expose them just to take part in the process.
Often, when a LP withdraws the asset back from the pool, the dollar value of the combined assets tends to be lower than the value could have otherwise been, if the LP simply held on to the tokens. This loss in value is called impermanent loss, and is a fairly prominent challenge in the sector.
Here’s how the Insta DEX may fix these challenges:
Features offered by Insta DEX
Insta Dex eliminates the issues of the legacy AMM through the following features:
Single asset liquidity provisioning
Should Instaraise work as intended, LPs will no longer need to face inconvenience and stake their favorite assets anymore just to join a liquidity pool. Instead of staking two assets, a LP can only provide one asset in the pool and take exposure solely on it. Also, LPs have a choice to provide liquidity in the native token of the Instaraise, that is INSTA. Here, the asset provided will solely face the exposure, and LP will also receive trading fees and similar remunerations in the token staked.
LPs who remain part of the Insta DEX pool, get a 100 day IL insurance. LPs who withdraw their asset after 100 days or more will get additional assets from the protocol to cope up any losses faced in the form of IL. Importantly in this scheme, 1 day represents 1% and a LP needs to remain invested in the pool for at least 30 days or else no protection cover will be provided. Similarly, if LP decides to withdraw funds after 80 days, then only 80% of the IL cover will be provided. So, LP needs to be invested for 100 days or more, to get 100% coverage of the IL.
Instaraise has been building interesting products for the ecosystem for a while. With a DEX, there’s clearly more problems it is now set to solve. What’s next?
Stay tuned to Coin Crunch and keep an eye on the upcoming testnet from Insta Dex on Twitter and Telegram.
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