Centaur Swap: Liquidity Repurposing — Generating Higher Yields For Liquidity Providers
Automated Market Makers (AMMs) have largely been responsible for creating an alternative source of income for many cryptocurrency holders. With AMMs, cryptocurrency enthusiasts and investors can earn a passive income while supporting their favourite cryptocurrency project.
However, the current version of AMMs is generally inefficient in terms of managing the staked liquidity which leads to a lowered yield for liquidity providers (LPs).
In Centaur Swap, a next-generation AMM, a radical new concept called “liquidity repurposing” is introduced. Through liquidity repurposing, Centaur Swap can automatically use the underutilised liquidity in the liquidity pools for other DeFi solutions such as lending and enhance the yield for liquidity providers.
In today’s article, we will understand how Centaur’s Liquidity Repurposing works and how Centaur Swap can provide additional benefits to a liquidity provider.
Centaur Swap — A Quick Working
At the heart of Centaur Swap is single-side staking. In single side staking, a liquidity provider needs to stake a single-asset rather than in a pair based format that is seen on current AMMs. This mechanism is different from the commonly used pair-based mechanism, in which an LP needs to stake a pair of tokens in equal value to provide liquidity in a pool.
One of the biggest drawbacks of the pair based liquidity pool is that effective liquidity is limited to the amount staked for any pair and not the TVL. For example, if there is 100 million worth of ETH staked in total, but only 50 thousand worth of ETH in a pair, the effective liquidity of the pool is 50 thousand and not 100 million.
Via single-side staking, a pool can effectively trade with all the other pools in Centaur Swap thus removing the above problem. For example, in Centaur Swap if 100 million worth of ETH has been staked in Centaur Swap Pool, and 1 million worth of Token B is staked another Centaur Swap Pool, the total effective liquidity of the Centaur Swap Pool for ETH is still worth 100 million.
This methodology opens a lot more possibilities for liquidity to be used efficiently.
Liquidity Repurposing — Making Use of Underutilised Liquidity
Centaur uses a discount/premium model to balance the pools. In case a pool’s token holding drops or increases the price rebalances via arbitrageurs to reflect the pool’s token holdings.
Due to the fluctuations in price, users are unlikely to trade any tokens that are facing severe surplus or pool deficit. In this case, the liquidity for these assets will be underutilised as traders are unlikely to trade these assets. Instead of letting the liquidity sit idle, Centaur Swap can use part of the unused liquidity in other DeFi applications in its ecosystem.
For example, if the slippage on the ETH pool is high, the unused ETH can be used for Centaur Lending to provide liquidity in that application and allow the liquidity provider to make extra returns on their staked assets.
Through liquidity repurposing, a win-win scenario is created in which the efficiency of the staked liquidity is maximised, and LPs make a higher return on their liquidity.
Liquidity repurposing is one such innovation that is part of Centaur Swap. You can read more on how Centaur Swap manages the liquidity efficiently by going through the Centaur Swap Whitepaper.
By combining the best elements of decentralised finance with measured regulatory control, Centaur is bridging DeFi and traditional finance. For more information, please take at a look at our website or join our Telegram community discussion group and announcement channel.
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