Trader Joe says his liquidity book will mitigate the fickle losses “from which so many liquidity providers on other DEXs” suffered during times of market turbulence.
Decentralized finance (DeFi) protocol powered by Avalanche Trader Joe claims he may have found a way to mitigate one of DeFi’s biggest weaknesses, erratic losses.
In a new white paper published on Tuesday, titled JOE v2 Liquidity Book, authored by quantum computing developers and researchers Adam Sturges, TraderWaWa, Hanzo, and software engineer Louis Memiselfe, the developers jointly described the use of the Liquidity Book (LB). an additional variable fee swap feature to “offer trades to traders with little or no slippage”.
Trader Joe said the new strategy will mitigate the temporary losses “that many liquidity providers (LPs) on other DEXs suffered during market turmoil.”
Time loss, which is considered one of the biggest weaknesses of DeFi, occurs when the price of tokens changes after depositing them into an automated market maker based on a liquidity pool as part of income farming – a type of investment in which lending tokens earns rewards (not the same) . as a bet).
According to Markus Thilen, chief investment officer at digital asset management firm IDEG, this is also one of the reasons institutional investors are being cautious in the DeFi space.
Speaking to Cointelegraph, Thielen said his firm and other institutional investors have “looked less at automatic market makers (AMMs) because the risk of temporary losses is too high,” he added:
“I have to admit that the Trader Joe v2 white paper offers a new idea and liquidity providers have generated 30 basis points to facilitate trading, which is an attractive income when the future growth of the industry is unclear. We want to see how much liquidity v2 is now attracting and how Trader Joe’s TVL improves.”
Thielen added that in order to gain a competitive advantage in the digital asset space, investors need to look for alternative investments with good fundamentals, and not just rely on blue chip assets:
“As a crypto fund, we cannot solely rely on ETH and BTC, we want other tiered coins and altcoins to flourish, so we applaud Trader Joe’s team for continuing to develop other AMMs as well.”
According to the paper, Trader Joe’s Liquidity Book (LB) is a type of liquidity pool (LP) that organizes the liquidity of a pair of assets into price cells that are exchanged at a constant price.
LB is introducing a new variable swap fee designed to protect traders from temporary losses by offsetting LP in the event of extreme market volatility so that liquidity can be managed more effectively in response to sudden price fluctuations.
Trader Joe’s LB will also offer trades with zero or low slippage, allowing traders to get better buy prices.
Done right, this could be a significant breakthrough in DeFi. A recent study found that over 50% of Uniswap v3 LPs lose money during market turmoil as temporary losses exceed swap fees.
Thorchain is another DeFi protocol that offers non-permanent loss protection for LP deposits after the first 100 days (with partial protection up to that point).
The Trader Joe protocol is positioned as a “universal decentralized trading platform” built on top of the Avalanche smart contract platform.
See also: Trader Joe (JOE) recovers 110% after launching Rocket Joe
The protocol is currently the largest decentralized exchange (DEX) on Avalanche with a total protocol value of $191 million (TVL).
The DeFi protocol allows users to trade, farm, lend, and participate, among other things.
Trader Joe’s token, JOE, has undergone a brief spike in price since the release of the white paper and is trading at $0.28 at the time of writing, although it is still 94.5% below its all-time high, according to CoinMarketCap.