🧑‍🌾 Liquidity

Our protocol optimizes the capital inefficiencies created by liquidity pool pairs, giving users a more cost-effective end product.

MonoX is creating an ecosystem that will be the home to the next generation of builders, liquidity providers and traders. With the Monoswap protocol, we have taken a different route in designing our liquidity pools. Instead of using regular liquidity pool pairs, we utilize Single Token Liquidity pools.

Our protocol optimizes the capital inefficiencies created by liquidity pool pairs, giving users a more cost-effective end product. At the same, by deploying a two tiered liquidity pool system, we can protect users from scams and rug pulls, while supporting and promoting genuine innovators in DeFi.

How Single Token Liquidity Pools Work

vCASH Virtual Pair

Single Token Liquidity pools function by grouping the deposited token into a virtual pair with our virtual USD stablecoin (vCASH), instead of having the liquidity provider deposit multiple pool pairs, they only have to deposit one. In essence, liquidity providers only need to deposit “Token A” to the pool reserve and each token is paired with the vCASH stablecoin. There is no pool weighting, only an amount of Token A reserve in the pool based upon how much liquidity has been provided to the pool.

Constant Product Algorithm (x * y = k) and Pricing Curve

AMMs like Uniswap use the constant product algorithm xy=k. Where x is Token A, y is Token B and k is the invariant.

Monoswap uses a similar ratio as Uniswap which forms a price curve. However, ours is based on a starting price and a would be price. When users first add liquidity to the pool they set a starting price, the assets are backed by vCASH only when someone initially buys at the starting price. This is because the vCASH balance needs to be positive for trustless listing pools.

If a user sells from the starting price the asset depreciates in value, if someone buys from the starting price the asset appreciates in value. As such, we use starting price and would be price instead of the ratio between Token A and Token B in the xy=k constant product formula. Our pricing algorithm is based on Uniswap’s model found here.

Benefits of Single Token Liquidity Pools

  • Users only need to supply one token (Token A) to be an LP

  • Projects can launch their token with zero capital (no ETH needed to create the pair)

  • More capital efficient: 1. As a Liquidity Provider there is no need to deposit multiple tokens. This increases decentralization because being an LP is much less capital intensive

  • Lower trading fees: 1. All the pools/pairs are in the same ERC1155 contract. It is much cheaper to interact with the same contract internally, than involving multiple other contracts. 2. Lengthy transaction paths are avoided because thanks to our vCASH stablecoin, Token A will not go through a ‘path’ of pairs to swap into Token B. 3. Every trade is one swap and a flat 0.3% fee.

  • Less capital siloed in multiple pool pairs: 1. As there is no need for multiple pool pairs, more capital is unlocked and free to use.

  • Allows for borrowing and lending from same pool: 1. The borrowing and lending process is more optimized as users do not have to withdraw/reserve two tokens to keep the ratio (price) the same.

Adding Liquidity

Adding Liquidity on Monoswap works exactly the same as in paired liquidity pools:

When an LP adds liquidity to the pool for token A, the price stays the same. The amount of Token A increases in the pool, and therefore the liquidity pool reserve increases. In exchange for providing liquidity, the LP receives their share of the liquidity reserve and the ERC1155 LP token. Liquidity providers receive a share of the fees proportional to their share of the liquidity reserve.

Providing Liquidity on Monoswap

Removing Liquidity

Removing Liquidity works exactly the same as a paired pool:

When one removes liquidity from the pool for Token A, the price of the token stays the same. The pool burns the liquidity provider’s ERC 1155 LP token. In exchange, the pool transfers to the user their share of Token A’s virtual pair’s net value. When the vCASH balance is positive, the user will get their share of vCASH plus their share of Token A. When the vCASH balance is negative, the user will receive their share of Token A, minus their share of vCASH debt valued in Token A.

Removing Liquidity on Monoswap

Impermanent Loss Protection

With typical token pairs, the volatility of price changes can severely diminish the returns for liquidity providers. This causes a significant inconvenience for users providing liquidity to a traditional AMM. A superior benefit of our single token liquidity pools is the reduction of impermanent loss.

Our AMM reduces the risk of impermanent loss by using a price that’s closer to the updated price to execute each transaction. With this mechanism, users may worry less about the potential loss of returns due to price volatility.

Compared to Uniswap V2, if a token appreciated 100x impermanent loss would be roughly 50%, however with our platform it would be 20%.

Value Backed Tokens (VBTs)

MonoX serves as the leading protocol for capital efficiency of Value Backed Tokens.

VBTs are tokens that are already backed by some value, meaning they are already collateralized. The market for these more innovative tokens is exponentially growing and MonoX provides the perfect solution to capture this value encapsulated by new ‘Value Backed Tokens’.

Examples:

  • Fractional NFTs (value backed by the NFT itself)

  • Synthetics (value backed by assets used to mint them)

  • Gaming Tokens (value backed by the in-game assets)

  • Insurance Tokens (value backed by the assets used as collateral)

It is unnecessary and inefficient for projects to deposit VBTs backed by assets a second time when providing liquidity in token pairs. For example, if a project wants to provide $100,000 worth of liquidity for Token A, they will also need $100,000 worth of another token to deposit into a traditional AMM. This creates a severe inconvenience, especially because these tokens are already backed by some value.

Our single token liquidity pools allow projects to launch their VBTs with 100% capital savings - no inefficient token pairs needed.

Trustless Listing Pools & Official Pools

We have some additional protocol constraints for LPs.

  1. largest LP holder of unofficial pool can’t remove their LP within 3 months of pool creation

  2. Largest LP holder can’t send out LP tokens to other users, within 3 month period

  3. Users cannot remove liquidity if they have just added liquidity

    A. For Trustless listing pools, it’s 24 hours.

    B. For Official Pools its 4 hours.