DeFi: DEXs & Capital Efficiency


Mark Richardson, the product architect and head of research at Bancor Network, moderates a panel discussion with three speakers: Robert, Brian, and Jose. These speakers represent projects launching on the Celo blockchain, namely the Mobius Protocol, Ube Swap, and Symmetric. The focus of the panel is on capital efficiency in the context of decentralized finance (DeFi).

Capital Efficiency in DeFi

The panel begins by acknowledging that capital efficiency has different meanings in traditional finance and DeFi. In traditional finance, it refers to the ratio between money spent on growth and marketing compared to revenue earned. However, in DeFi, capital efficiency relates to the liquidity required to facilitate a trade effectively. Unbounded Automated Market Makers (AMMs), such as Constant Product AMMs, are considered capital inefficient due to the large amount of liquidity required.

Different Perspectives on Capital Efficiency

The speakers elaborate on capital efficiency in DeFi. Brian discusses how capital efficiency in Ube Swap is measured by the utilization of capital for trades, with liquidity mainly concentrated at the current market price. Mobius and Ube Swap operate on different ends of the spectrum, with Mobius better suited for stable tokens and Ube Swap catering to more volatile assets.

Augmented Bonding Curves

The discussion moves to augmented bonding curves, focusing on the Crypto Curve introduced by Mobius. Unlike the Stable Swap invariant, which assumes assets have the same price, the Crypto Curve adjusts its invariant based on price fluctuations. This flexibility enables more efficient trading for assets with fluctuating prices.

Liquidity Providers and Market Makers

The panel delves into the challenges faced by liquidity providers and market makers. Liquidity providers on platforms like Uniswap V3 struggle to predict volatility accurately, leading to suboptimal liquidity provision. The speakers highlight the potential for convex payoffs to liquidity providers and the need for automated market makers that can provide such payoffs, mitigating permanent loss risks.

Limit Orders and Concentrated Liquidity

The conversation shifts to limit orders and concentrated liquidity. Brian emphasizes the importance of limit orders, enabling traders to create an order book without significant capital requirements. Limit orders are seen as crucial in facilitating large trades efficiently. Symmetric’s upcoming release includes a vault manager and boosted pools, aiming to leverage lending protocols and offering yield opportunities to traders.

The Cost of Liquidity Mining and Expenses

The panel touches on the cost of liquidity mining and overall expenses in DeFi projects. The rising cost of developer salaries and the expense of using blockchain networks are discussed. Developers are viewed as a fixed cost, and their presence is necessary for community trust and ongoing project development. Moreover, the expenses associated with maintaining a project, including security measures and evolving protocols, are important factors in assessing capital efficiency.

In this engaging panel discussion, the speakers provide insights into capital efficiency in DeFi, including different perspectives, augmented bonding curves, the role of liquidity providers and market makers, limit orders, and the costs associated with running DeFi projects.