Ambient Finance (formerly CrocSwap) is a DEX that uses an AMM system combining multiple liquidity mechanisms. One interesting aspect is that the protocol has been built on a single smart contract. Curious to learn more? Let's go.
3 types of liquidity
The liquidity pools in Ambient support three types of liquidity: Concentrated, Ambient, and Knockout.
These mechanisms are combined within the same pool, and liquidity providers earn fees proportional to the amount of their liquidity within a given tick.
Ambient Liquidity
The Ambient liquidity is similar to what you can find on UNIV2. The fees are auto-compounded, positions are fungible, and you have the choice, if you wish, to tokenize your position.
Concentrated Liquidity
As for Concentrated liquidity, it is similar to what exists on UNIV3, with its benefits and constraints. However, you have the advantage of seeing your returns auto-compound.
Knockout Liquidity
Knockout liquidity is akin to limit orders.
Ambient Finance employs a system based on Concentrated liquidity, with the difference that when the price passes through the fixed range, the position is permanently removed from the pool.
You could try to manually mimic a limit order with Concentrated liquidity, but you would have to remain vigilant. If the price crosses your range once on the "right" side, it could then cross it again on the "wrong" side, and you would find yourself in the initial situation.
With Knockout liquidity, you get the benefits of a limit-order-like system, with the added bonus of earning trading fees instead of paying them. However, there are three things to consider:
- First, the size of your order range is fixed at a predetermined small size.
- Second, bids must be placed below the current price, and asks above the current price.
- Finally, if the price enters your order's range (Fill start) but exits without reaching the knockout price (Fill End), your order will not be filled. In fact, it will be partially filled and then converted back to the initial currency.
Permissioned Pools
The default pools on Ambient are permissionless. They have no restrictions on usage.
Ambient also offers permissioned pools. These pools allow control over access and actions through the use of external permission oracles.
These oracles can be versatile smart contracts, both internal and external to the protocol. It provides increased flexibility to customize the parameters and operating rules of the pools.
JIT
Another very interesting point about Ambient is the prevention of Just-In-Time attacks.
It is theoretically impossible for a MEV bot to provide and withdraw liquidity in the same block.
You can learn more about it:
Dynamic Fees
The fees in the pools are dynamic and are adjusted periodically to reflect market conditions. This allows all liquidity providers (LPs) to receive optimal fees without having to worry about this factor.
An external oracle is responsible for adjusting the fees of each pool. In theory, as volatility and demand increase, the fees will also increase, and vice versa.
Other
Other interesting points that I haven't detailed are the usage of EIP-712, enabling "Gasless" transactions, the support of account abstraction, and a seed round fundraising of $6.5M.
Alpha from PrimapesDAO
Conclusion
As of now, the protocol is struggling to generate significant volume.
While it is indeed new, in comparison, Maverick, without a token, on Ethereum, with a similar lifespan, had double the TVL with a cumulative volume of $400M compared to Ambient's $18M.
However, Maverick was under the radar. The majority of the volume came through aggregators, which found the best routes by utilizing it.
I am not making this conclusion to criticize either protocol. I am simply using on-chain data to gauge the effectiveness of the protocol. It will be interesting to see which features or changes will reverse this trend and attract more volume in the future.
Article posted @July 30, 2023
