Decentralized finance, or DeFi, has won the spotlight of blockchain technology over the last few years. Its application is promising. If DeFi succeeds, we would be in charge of our money and no longer hostages of the banks and their fractional reserves protected by co-dependant governments.
DeFi’s subversive nature allows people to use their crypto assets for various financial services without going through third-party intermediaries.
It created an opportunity for crypto users to access new financial products and services while offering them better terms than what they would get from legacy banking.
However, it’s not without its challenges.
Liquidity and Impermanent Loss
DeFi protocols require liquidity to operate, allowing those willing to provide that liquidity to earn a share in platform fees via a liquidity “pool” mechanism.
Yet, an impermanent loss may occur when an asset’s price increases while it’s in the liquidity pool, and the investor gains less than if they hadn’t been there.
While investors still profit from the fees charged on the platform, that revenue won’t cover the loss unless the market prices recover again to the ones when the provider entered the pool.
But what if there was a way to mitigate these risks?
What if we could create a system that protects you from impermanent loss and create a better user experience by allowing you to take advantage of the benefits of DeFi while minimizing your risk?
The Community Market alternative
Community Market is a next-generation single-sided automated market maker.
Single-sided is a crucial keyword here. This is an alternative to the double-pair liquidity pool systems. Most automated market makers suffer from flaws in the double-pair system. Specifically, important ones are impermanent loss risks and capital inefficiencies.
Community Market offers a solution for these two with its single-sided liquidity pool model.
An automated market maker provides a way to exchange tokens at any time that is decentralized and permissionless.
You may have come across these as DEXes or “Decentralized Exchanges.”
You can think of Community Market as Community Finance’s DEX, focusing on stablecoin pairs.
Let’s understand what liquidity is
Liquidity is the ability to convert one type of cryptocurrency into another. For example, if I want to buy ETH using USDT, I need to find someone willing to sell me ETH for USDT.
The person who offers liquidity to me is called the liquidity provider.
We allow liquidity providers to provide liquidity using a single token type compared to other platforms that support double token pairs.
This system is known as asset-liability management.
It guarantees that liquidity providers get the exact principal amount and token type they initially deposited, including their accrued pool rewards, without exposing them to impermanent loss.
Exposure to Impermanent Loss
Impermanent loss occurs when an investor deposits funds into the liquidity pool and the deposited asset price changes compared to when it was originally deposited. The higher the volatility in price, the more the investor gets exposed to these risks.
So when the liquidity pool is configured to accept liquidity in token bundles or pairs, liquidity providers may constantly face these risks as the value of their token pairs may not remain the same as when they first made the deposit.
The major causes of capital inefficiency include liquidity fragmentation and liquidity pairing.
Liquidity fragmentation happens when capital is locked in a pool and cannot be used anymore, for instance, in another pool with an asset in common.
Liquidity pairing is when liquidity providers are required to provide liquidity in pairs, which means that anyone who wants to be in a liquidity pool must have two tokens with the same value.
Thus, it causes the liquidity provider to lose money since they’ll get stuck with an underperforming pair instead of being able to leverage their total capacity.
It’s a missed opportunity to have your capital “working” for you if it’s applied in underperforming pairs. This is very hard to manage manually because token pair performance constantly changes.
However, a single liquidity liability system eliminates this risk by allowing all to participate in the pool using a single token to guarantee capital efficiency and more sustainable yields.
$REALYIELD and the Yield Ones NFT
The goal of Community Market is to provide a safe environment for users to stake and lend mostly a single token type: stablecoins.
This mechanism removes the impurities associated with other AMMs while delivering higher returns than any similar protocol in this industry.
We use $REALYIELD, our native token, as an incentive for liquidity providers and end-users to choose our DEX to swap their assets.
We have designed $REALYIELD to offer Community Market participants extra incentives from the ecosystem.
$REALYIELD will be airdropped to the holders of our DeFi NFTs, “The Yield Ones” you can learn more about them here.
The Yield Ones is our membership NFT, and to provide liquidity to Community Market, you will need to mint one.
You will be able to burn $REALYIELD to level up your NFT and thus increase your APR on the platform.
End users who use our DEX to swap tokens will also benefit from holding a Yield Ones NFT and leveling them.
Community Finance Liquidity Management
Community Market stands out from other single-sided automatic market makers through our automated liquidity management strategies that maximize the yield for the liquidity providers.
These include auto-allocation, auto-compounding, and auto-balance.
The auto-allocation feature allows users to automate the entire staking procedure. The system automatically does this via a wizard when they stake single or several stablecoins.
Users can allow the system to periodically collect rewards and increase their liquidity position on their behalf through the auto-compounding feature.
As you keep using the system, its balance may change. This feature will allow you to set a specific period where the system will rebalance your stablecoins to reflect their optimal allocation.
Our Rewards System Explained
Liquidity providers earn rewards in the same asset they provide liquidity too.
Additionally, liquidity providers earn $REALYIELD as an incentive so that they can level up their NFT over time.
Users who swap tokens in the DEX and have a Yield Ones NFT staked in the platform will earn collectibles and $REALYIELD every time they swap.
The level of their NFT will influence these rewards as well.
Community Market is not just another AMM. It’s designed to solve the problems of existing protocols.
Our mission is to make it easy for people to use their capital without worrying about security or volatility.
Community Market begins our journey toward building a decentralized financial infrastructure.
We have many exciting ideas for the future. Each will work together to create a safer, more efficient, and more transparent decentralized financial protocol. Stay tuned!