🤩Introduction

Automated Market Makers (AMMs) play a crucial role in the decentralized finance (DeFi) world, pooling liquidity and enabling trades through algorithmic processes. Constant Function Market Makers (CFMMs) are a widely used class of AMMs, often implemented as smart contracts on permissionless blockchains.

One of the main challenges with the current CFMM models, especially those employing the constant product market maker formula, is their capital inefficiency. A large portion of the assets in the pool is not effectively utilized at any given price, which is particularly problematic when assets are expected to maintain a stable price.

Earlier attempts to address this issue, such as those seen in Curve and YieldSpace, involved creating pools with different functions to define the relationship between reserves. This approach, however, often leads to liquidity fragmentation, as it requires all liquidity providers in a pool to follow a single formula, limiting their ability to cater to diverse price ranges.

This paper introduces a new iteration of a leading AMM in the DeFi world, designed to improve capital efficiency while reducing liquidity fragmentation and gas inefficiency. This version maintains the constant product reserves curve of its predecessors but introduces several significant enhancements:

Concentrated Liquidity: Liquidity providers can now focus their capital within chosen price ranges. This not only increases capital efficiency but also allows providers to customize their reserve curves, while still contributing effectively to the overall pool aggregation.

Flexible Fee Structure: The swap fee is now adjustable, with different fee tiers established at the initiation of each pool. The governance body of this AMM can also introduce additional fee options.

Improved Governance over Protocol Fees: The governance system is now more adaptable in setting the proportion of swap fees that are collected by the protocol.

Enhanced Price Oracle: The platform offers a more efficient way for users to access recent price data, simplifying the process for calculating time-weighted average prices (TWAP).

Liquidity Oracle: A time-weighted average liquidity oracle is included, providing deeper insights into liquidity trends.

Given the non-upgradeable nature of the previous version's core contracts, this new version is implemented as a completely new set of contracts. These contracts are also designed to be non-upgradeable, with certain parameters under the control of the governance system.

This advancement marks a significant stride in the DeFi sector, offering increased flexibility and efficiency for both liquidity providers and traders.