Youves Is About To Launch A DEX Function To Enable Low Slippage Trades For Stablecoins And Wrapped Tokens

by | Jan 25, 2022 | Adoption, DeFi, Latest

The DEX function will be available on the youves DeFi platform and especially aims to enable close to 1:1 trades for BTC wrapped tokens and stable coins.

These tokens aim for a 1:1 value and should be tradeable as such, 1 tzBTC should be valued as 1 BTC and 1 uBTC should be valued as 1 BTC, which means the tzBTC and uBTC should be tradeable 1 for 1.

The New Youves DEX Function

The DEX function will be available on the youves DeFi platform and especially aims to enable close to 1:1 trades for BTC wrapped tokens and stable coins.

These tokens aim for a 1:1 value and should be tradeable as such, 1 tzBTC should be valued as 1 BTC and 1 uBTC should be valued as 1 BTC which means the tzBTC and uBTC should be tradeable 1 for 1.

The same goes for stablecoins like uUSD, kUSD, USDtz for example. In an ideal system, all same value tokens should be inter-tradable without losing value.

But in traditional DEXes, supply and demand heavily influences the exchange rate between tokens. So if there is more demand for tzBTC for a while, it would be valued higher than uBTC.

youves’ DEX function tries to minimise that. More about that in the last paragraph of this article.

uBTC

January 10th, the YIP-004 proposal was accepted by the youves community after they could vote using YOU tokens (the youves governance token). YIP-004 introduces a new tracker token, uBTC. 

Initially, uBTC can be minted after submitting XTZ as collateral. In a few days, tzBTC LB tokens will also be accepted as collateral. 

The concept will be the same as the current uUSD and uDeFi minting process.

Read more about youves DeFi here: Minting Assets, Savings With Interest And YOU Tokens: The youves Platform. 

uBTC + youves’ DEX function = access to tzBTC liquidity baking without selling your XTZ

Once both features are live, XTZ holders will have a new way to acquire tzBTC. In this case, you wouldn’t even have to sell your XTZ.

Users will be able to supply their XTZ as collateral, mint uBTC and start earning YOU tokens. The XTZ that is supplied as collateral can still be delegated and will continue to earn staking rewards.

With that uBTC they will be able to buy tzBTC on the youves DEX function.

Now they can add liquidity to the tzBTC – XTZ pair in the Liquidity Baking DEX.

Once liquidity is added, you will start earning LB liquidity rewards. Additionally, users will be able to use the LB liquidity tokens for collateral to mint more uBTC or uUSD. 

Keep in mind that there are risks involved and that you’ll pay minting fees and lending fees.

Make sure you fully comprehend the factors involved and read the comprehensive documentation that is provided by the youves team.

https://docs.youves.com/ 

Flat-Curve Constant Function Market 

The reason for the youves DEX function to behave differently from more traditional DEXes, is the fact that it utilizes a Flat-Curve Constant Function Market (CFMM) as opposed to a constant product market maker (CPMM).

Where the CPMM is designed to reflect supply and demand in price movement, the CFMM is designed not to do so to enable efficient trading between stable tokens pairs. 

It’s important to understand that even in a flat-curve CFMM DEX, there is a tipping point where supply and demand does take over. When that happens, buying the scarce token will have a disproportionately large price impact.

This is simply because of the fact that even in a CFMM design, liquidity isn’t infinite and the price has to adjust so that the liquidity pool does not run out of one of the tokens.

youves stated:

“As a consequence, there is a chance that the ratio of the pools gets stuck close to one of the points where the flat bit of the curve ends and hence trades in one direction start having a larger price impact.

If this happens to be the direction needed to unwind one’s position, then the situation would be similar as in a CPMM.” 

An advantage to adding liquidity to a CFMM DEX, is the fact that the risk of impermanent loss is significantly lower. 

“As the price will move only very little, even for relatively large transactions, relative to the pool size, the ratio of the two assets in the liquidity pools may change significantly.

However, given that the trading pairs are stable tokens on the same underlying asset, which in theory should fundamentally be worth the same.

As long as this equality holds, any notion of impermanent loss will likely be a mere inconvenience.” 

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