The dawn of DeFi 2.0
Mar 25, 2022
On Blueshift, liquidity can be provided by any single token that is included in a liquidity portfolio. The decision on which tokens are included in Liquidity portfolios — is jointly managed by portfolio managers and the community.
In a decentralized approach to portfolio management — following the idea of decentralized autonomous organizations (DAOs) — the community has the right to vote on both portfolio managers and their suggested tokens to be included in a portfolio. This reduces the risk of inflating the liquidity portfolios with low-quality assets and poor portfolio management.
While this innovative setup makes liquidity provision more user friendly and convenient, Blueshift also changes the way in which price slippage — as one of the key problems of AMMs — is addressed. Invisible to users, Blueshift employs virtual pairs and their so-called Blueshift Reserve Model to mitigate the variance of highly dynamic prices which cause price slippage and impermanent loss. Thanks to virtual pairs and the multi-token liquidity portfolios, the profits of traders and liquidity providers are protected from sharp price movements of single tokens. Virtual Pairs are called ‘virtual’ because in the case of a swap — virtual pairs are constructed in liquidity portfolios, utilized, and then ‘deconstructed’.
In addition, every liquidity portfolio on Blueshift has a base currency. The base currency acts as a stabilizing reference point, which is used to express the prices of all other tokens. In combination, the interplay of these innovations provides liquidity providers with a price slippage that is 2–10 times lower compared to established solutions.
As mentioned earlier, high price slippage is the biggest problem users on decentralized exchanges are facing, and Blueshift has the solution. The solution is called the ‘Blueshift Reserve Model’. Portfolios that have liquidity within them, have virtual token pairs defined according to the present liquidity. Also, a base currency for each Liquidity Portfolio is selected. The base currency is a token within a portfolio that is used to specify the exchange prices of all other tokens.
This means that when a swap occurs, virtual pairs are constructed & utilized, based on the ‘Blueshift Reserve Model’. The usage of virtual pairs significantly reduces the price slippage during trade execution.
Besides price slippage, a major problem of AMM-based DEXs is the impermanent loss. Impermanent loss is a negative factor that decreases liquidity providers’ profit margins in most AMM-based decentralized exchanges and its cause is mainly in arbitrage operations.
Arbitrage operations are the key in maintaining AMM exchange prices staying close to market prices, however, arbitrageurs also earn profit from making operations at a better-than-market price — scalping the profits directly from liquidity providers.
Due to its Reserve Model, Blueshift will be able to reduce impermanent loss by giving only 10% of reserve shares to arbitrage operations which, in turn, results in 10 times smaller impermanent losses for liquidity providers.
It is safe to say that, with respect to all that Blueshift is bringing into the DeFi space — Blueshift’s revolutionary innovations will change the way we interact with the blockchain technology and the crypto market.
DeFi 2.0 has arrived and it is here to stay. Trading, liquidity providing, and holding cryptocurrencies will never be the same!