The Algofi Core Developer team will implement a (simple) STBL2 router for the DEX and will reduce the swap fees for STBL2-ASSET lending pools to 0.125% down from 0.25%. If someone wants to perform a swap on the Algofi DEX of ASSET1->ASSET2 the router will check if there are STBL2-ASSET1 and STBL2-ASSET2 pools and if it would be better to swap ASSET1->STBL2->ASSET2 considering prices, price impact and swap fees.
Temperature Check: STBL2-.... pairs as the central liquidity pairs of the protocol
To learn about lending pools, see a write up here .
To learn about STBL2, see a write up here .
Implement a STBL2 router for the DEX and reduce the swap fees to 0.125% for STBL2 lending pools.
The motivation is to add STBL2 utility and use it as the central liquidity asset for the Algofi DEX. This is supposed to help with concentrating liquidity by not having multiple pools with low liquidity for an ASSET instead of one ASSET-STBL2 pool which would directly enable swaps to ALGO, USDC, goETH, goBTC and BANK (for now). Only STBL2 lending pools are part of this since the reduction of swap fees is an important part of that proposal. Since lending pools earn lending APR of the assets in the liquidity pool the reduction of swap fees wouldn’t effect the attractiveness to add liquidity to those pools as much.
Instead of proposing a full DEX router like the one pact introduced recently in BETA (you can read more on that here) i think a simple STBL2 focussed DEX router would be time efficient usage of dev time and would further disincentivize multiple low liquidity pools. Additionally, splitting the order is not part of this proposal. Splitting the order into two swaps to be executed via ASSET1->ASSET2 and ASSET1->STBL2->ASSET2 to optimize the swap price would only encourage adding liquidity to the ASSET1-ASSET2 pool which again would not help with concentrating liquidity.
The swap fee reduction to 0.125% down from 0.25% would make the routing through STBL2 pools more attractive and is therefore an essential part of the proposal in my opinion to make the routing through STBL2 lending pools a viable option. If a swap gets routed through STBL2 then the max swap fees would still be 0.125%+0.125%=0.25% as they are right now anyways.
The usage of STBL2 as the central liquidity asset for the Algofi DEX would make the DEX more unique and by this the DEX would not compete as much with the other DEXs for the same liquidity (ALGO-ASSET) which then gets splitted and leaves all those DEXs with low liquidity pools which essentially means people have to use DEX aggregators to make decent swaps.
A contra point could be that people do not like adding liquidity to ASSET-STBL2 instead of for example ASSET-ALGO pools because of the risk of possibly higher impermanent loss (you can read more about IL here) since the price correlation of assets could result in less IL. A very personal view on that is that in my opinion people are a bit too scared of impermanent loss since they always view that as “i am loosing money”. Impermanent loss just means you earned less then you could have if you held those assets just in your wallet. But at the same time adding liquidity to a pool means you are automatically follow the market without the need to do anything, you sell your asset when it rises and you buy it when it drops in value (when paired to STBL2). Furthermore, when the market does not move for some time like ALGO whose price hovers around 0.3$ for some time now you still can earn swap fees + farm rewards.
The inclusion of “splitting orders” should be discussed underneath this post. As I have said a full DEX router would not make sense in my opinion. Splitting orders would incentivize multiple pools but at the same time this would be an auto-arbitrage of the pools on Algofi. Additonally, when its possible to get a better swap for someone by splitting the order then the question is why not just do it. The devs should comment on the feasibility of that.
The swap fee reduction would as a by-product also incentivize the use of STBL2 in general since people would be able to swap STBL2 with lower fees. That could further incentivize people borrowing STBL2 instead of USDC in the lending market and therefore help with adoption of STBL2 in the ecosystem. The usage of the router could also mean that STBL2 pools are getting used more which could mean that the swap fee APR doesnt drop as much. Additionally, all those lending pools receive BANK emissions so they are not as much reliant on those swap fees and we should continue to support STBL2 lending pools primarily with BANK emissions.
Since there were a few temperature checks about adding ASAs to the lending market and the problems that were mentioned regarding that I wanted to mention that it would still be possible to add lending pools for those ASAs without the need to have a “working” lending market for those assets. This would mean ASAs could still benefit from the STBL2 router when they decide to propose opneing a ASSET-STBL2 lending pool. An example of this: STBL2-BANK is a lending pool and you still cant use BANK as collateral and you cant borrow it. But in the future this could change and without the need of moving liquidity over from a normal pool to a lending pool just the parameters of the respective lending market could be changed.