Smoothy.finance — — single pool with low-cost zero-slippage swapping and maximum interest earning
Due to explosive growth of DeFi, multiple assets were introduced into the Ethereum network as anchor coins, such as BTC, USD, and GOLD. At present, there are more than 20 asset-backed tokens in the current market, multiple among which are backed by the same assets. In the future, more tokens backed by the same assets are expected to be introduced into the network. The swap ratio between these tokens should be 1:1, theoretically, due to the backed assets mechanism. However, in the current DEX, the swap requirements were not fully considered when designing, which caused unnecessary high cost for users because of the slippage. Thus, a better designed product specialized in the same backed assets is urgently needed in the market.
Curve.fi and mStable are the two representatives that are dedicated to token backed by the same assets (including stablecoin). However they do not provide a perfect solution for slippage, plus there has to be a trade-off between high gas fee and interest earning in both designs. Our unique design allows the swap ratio of the same backed asset to be fixed at 1:1 for most of the time, makes the gas fee 80% lower than existing projects, and brings maximum interest to the liquidity providers at the same time.
Today, we want to introduce Smoothy, a product built upon SmoothSwap. It is a novel single pool liquidity protocol specialized in same backed assets with low-cost zero-slippage swapping and maximum interest earning.
1. Single pool with low-gas-fee swapping and maximum interest earning
The composability of DeFi makes it possible for multi-contract interactive arbitrage. DeFi contracts can achieve operations similar to banks’ getting deposits and issuing loans. Ideally, liquidity providers can earn interest as well as receiving swap fee rewards. But for the same reason, the entire system has a long interaction chain, which reduces the funds trading efficiency, and also increases the gas fee.
For this reason, some projects have to choose one of the two: either give up interest earning to provide higher efficiency and lower gas fees, or give up low gas fee to provide long-term deposit and interest returns. Some projects even set up two separate trading pools, splitting the flow of funds within the project and lowering liquidity. For example, Curve provides two swap pools, the sUSD pool is only used for swap, and the Y pool provides the function of deposit and earn interest in addition to swap, but requires much higher gas fees. mStable only has one pool, which performs very similar to Y pool of Curve, offers interest earning but requires higher gas fee.
With reference to the bank’s reserve system, we designed a unique Dynamic Cash Reserve Algorithm, which dynamically allocates the funds in the pool, most of which is used for deposits to generate interest, and the rest is reserved to meet daily swap needs. In this way, the gas fee for swapping will be much lower ( ~80% lower gas fee on Smoothy compared with YPool in Curve and mStable according to our test product ) since no extra interaction with smart contracts from other DeFi protocols.
Currently, it is preset that 10% of the staked tokens in the pool will be reserved, and 90% will be deposited in the aggregation protocol to earn interest. As the swap proceeds, the reserve ratio will fluctuate between 0% to 20%. If the reserve ratio is not within the range of 0%-20%, it will automatically trigger the reserve ratio adjustment function to rebalance the reserve ratio to 10% again. By this way, we maximize the use of idle funds, and meantime ensure sufficient reserve funds to meet swap needs with low gas fees.
Compared with the high gas fees and long waiting time for Curve and mStable, Smoothy achieves the needs of depositing and generating interest at the same time, with high efficiency and low gas cost in one pool. It is more convenient to use, especially for small amount swap.
2. Zero-slippage swapping algorithm
Due to the market fluctuations and the infrastructure network performance limitations, all current DEXs including Uniswap have the high pricing slippage issue. Simply speaking, the final price is lower than the marked price when selling, and is higher when buying. For general blockchain projects, the slippage is acceptable, but for the same backed assets, excessive slippage will cause unnecessary loss.
Curve.fi and mStable have proposed solutions for less slippage relying on the design of the swap formula. But the problem is, for Curve.fi, even though the slippage rate is lower than Uniswap it still cannot guarantee 1:1 ratio swap. For mStable, it can guarantee 1:1 ratio swap within predefined range, however it cannot swap anytime since the swap will be prohibited if predefined weight is reached. In all, neither Curve.fi nor mStable has solved the slippage issue completely.
Zero-slippage and free swap, we have found a solution to achieve both.
SmoothSwap provides a new algorithm that can guarantee 1:1 ratio swap most of the time If the soft weights are satisfied; If not, a transaction is still allowed by imposing a penalty in some extreme cases.
To summarize our design:
Smoothy provides a single pool to support both swapping and interest earning with
- Zero- slippage
- Free swap at anytime
- Low gas fee
- Maximized interest earning
Comparison between Smoothy and other protocols
SMTY value capture
SMTY is the governance token of Smoothy.finance, which is used for decentralized governance of future projects and asset liquidity incentives.
The initial swap fee is set as 0.04%*, where 0.03%* will be distributed to LP and 0.01%* will be converted to SMTY and then burned.
95% of the interest earning through other DeFi aggregator will be distributed to LP, 5% of the interest will be converted to SMTY and then burned.
Token distribution plan
There is no private sale, no pre-set allocation portion for foundation and investor. Everyone is at the same starting line. You will get SMTY either by joining the test round through application or providing liquidity in Genesis round after Smoothy is launched.
For the emission rate of SMTY, we develop a pseudo-total-supply emission algorithm as the middle ground of constant emission (infinite supply) and fixed-time reduction emission (fixed supply). This means that SMTY will have much less inflation than that of constant emission, while the emission is long enough to attract LP to stay in Smoothy in the long term. We will share more details before product launch.
How to join
Test round (Now — genesis round begins)
Smoothy is not just an idea but a solid product. It is not a simple fork of any existing products. We need your help to fully test it before launching and your help to build a community from the beginning. That’s the value of having a test round.
In this round, we will recruit 100 people for internal tests. You will need to apply online. After our internal review, 100 applicants who meet our test qualifications will be eligible to share SMTY token equally. We will contact you directly through official email firstname.lastname@example.org. There is no fixed deadline for application, we accept applications either until Smoothy goes live (should be September) or 100 users are full. We’re calling for capable community members to join in us:
- Programmers, or test engineers
- Marketing specialists, and operators
- Liquidity providers
- Other specialists who can help us
Please fill in the Google form, give us a brief introduction of yourself and tell us what you can offer to make Smoothy better.
Link to Google form: https://forms.gle/eqzXQBRKyxVwzBjg8