Gravity Storm Incoming, Gravity DEX Imminent
Gravity Storm Incoming
Over the past year, the usage and adoption of decentralized exchanges has grown at a staggering rate and rising gas fees have prompted a plethora of exchanges to pop up all over the place, luckily, there is an exciting new solution! The Cosmos Hub is about to adopt it’s own unique and innovative decentralized exchange next month. The Gravity DeX from B_Harvest does not yet have an official launch date, but it is expected to launch shortly after the incentivized test-net and it has run through ATOM’s governance system, so possibly by the end of May!
For the most part, only people that are well off can interact with DeXes on Ethereum. If you take a look at the current status of Uniswap, it’s easy to come to the conclusion that people that want to invest a smaller portion of money, say $100, will more than likely choose to not make the trade because they’ll be burning half their investment in Ethereum fees. You can also immediately conclude that that is why Pancake Swap and the Binance Coin has gained so much adoption. Slippage and tolerance are also big issues! Especially if you’re trying to trade on short time frames.
There has been a fair amount of speculation on what this DEX will actually be able to do and how it innovates upon existing platforms. There currently exists two types of DEX. There are order-book dexes which rely on buy and sell orders, but these can be prone to market manipulation and arbitrage. There’s also automated market making dexes that utilize liquidity pools in which users can supply tokens into the pools to be used by an algorithm to create liquidity. The Gravity Dex will actually have both genres of decentralized exchanges merged into one and holds a lot of promise with a couple of innovations: Batch Execution and the Equivalent Swap Price Model. All this together will result in:
- Quick transactions
- Very low gas fees
- Decreased slippage
- Resistance to manipulation
ESPM
ESPM is an acronym for Equivalent Swap Price Model, this design allows you to swap tokens with the usual AMM interface, gives you the ability to invest in pools for high yields and submit limit orders into the order books. With the Equivalent Swap Price Model, the goal is to eliminate inefficient price discovery on day one of liquidity pools on the Cosmos Hub. The pool price lands “exactly” at the latest swap price. Which is fair for the trader who executed the latest swap, fair for the pool, and fair for the potential traders who will swap immediately after. What has been pointed out in the CPMM (Constant Product Market Maker) is that the latest “swap price” and current “pool price” is inconsistent. For example, in CPMM, if the last pool price is 100, and a trader swaps 1% amount of the pool, the swap price is now 101, and the pool price after the swap is little bit higher than “102”. With ESPM there is much less room for arbitrage.
Batch Execution
Batch Execution is an interesting take because it will help sort out the issue we see on Uniswap with arbitrageurs manipulating the system to make their profits. Uniswap orders are executed “sequentially,” but the sorting of the “sequence” is not necessarily fair. Skilled arbitrageurs can send more gas to miners so that their transactions can be located in front of other orders. With Batch Execution every order is treated fairly in a batch. Not only is it a great security measure, but batching will also radically decrease the cost of transactions as many will be done all at once!
How does this increase the utility of ATOM?
Coins that are swapped or put into liquidity pools will create transaction fees and the revenue generated will be distributed to atom holders, in the currency of the fee swapped.
The intent of this system versus one where the ATOM would be the base pair like UniSwap or Pancake Swap is the sheer amount of flexibility that it offers. There is no digital bank that would deny any currency if it exchanges for the same value and creates transaction fees. The exchange from swapped coins fees back to $ATOM can happen on the back-end.
The concept that we should force people to use ATOM in order to increase the price of ATOM is immoral, and very much like a ponzi scheme. To me that is the wrong interpretation of what the Cosmos Hub should offer.
A large successful DeX implies that lots of fees will be generated, and that results in a lot of value returned to ATOM stakers. The rewards can be converted to any coin, which is the point of the DeX to begin with.
But, will the AMM create an imbalance of staking?
Not really, both the AMM and the Cosmos staking model have great re-balancing mechanisms in both modules.
First off, the inflation for the ATOM’s staking model has a floor of 7% and a ceiling of 20% The target percentage of coins staked is 66%. So, when the staked percentage is above 66%, the inflation heads down to the floor of 7%. And when the staked rate is below 66%, the inflation starts heading up towards the ceiling, 20%. The rate at which the inflation changes is proportional to how far you are away from 66%. The further the staked ATOM percentage is away from the target of 66%, the faster the inflation changes to help encourage the amount of ATOMs staked to go back above the target by rewarding extra atoms for staking.
With the AMM, the liquidity pools are expected to provide between 20–50% APY. If a pool does provide 50%, then many users will end up depositing tokens into that liquidity pool, if more investors pile into the pool, the APY of the pool will decrease quickly because they have to share the trading fee returns with each other.
What coins will I be able to use on the DEX?
Any token from any of the Cosmos Ecosystem that decides to connect to the Cosmos Hub via IBC will be available on the the DEX to form a liquidity pool. One thing to note is that the token pool creation is permission-less and anyone can create liquidity with any token existing on the Cosmos Hub. This means that all those coins that you didn’t have access to before, you can now easily swap for using the Hub! Based off the implication of the coins that are being offered in the incentivized test-net, we will likely see $LUNA, $REGEN, $BTSG, $DVPN, $XPRT, $AKT, $NGM, $GCYB, $IRIS and $BLD from the get-go or just around the launch of the DEX.
Shortly after the DEX is launched, it is very likely that Althea’s Gravity bridge will be launched on Cosmos Hub, at that point any and all Ethereum assets will also be able to be traded on the Gravity DEX. There is also information that Octopus Network is incorporating IBC into Substrate, so IBC will have access to DOT para-chains, therefore our Hub DeX will likely allow us to swap DOT coins as well. The incentive to connect to the HUB via IBC will grow as the DEX grows in popularity and we are likely to see more and more connections in the very near future. You can learn more about these chains here: An Overview Of the Chains Connecting to Cosmos Hub
How do I participate in the incentivized test net?
So it works as a simulation of the real world, you trade coins using the AMM: you can daily trade, swing trade, or provide liquidity to the pools or all of them at once and at the end of the two weeks your “profit” is what determines the winner. The point of the test net is to ensure it’s stability and do use it as much as possible to trial run anything that could go wrong. I highly encourage everyone reading this to participate for the betterment of the Gravity DEX on the Hub and for the possibility of winning a share of the $200,000 in prizes! There is nothing to lose. You can register for the test-net and find for more information here: Gravity DEX Testnet Competition, Mainnet Launch on Cosmos Imminent
Conclusion
There is a lot of promise with the upcoming Gravity DeX, especially for $ATOM Stakers. AMMs are perhaps the most important tech in the blockchain space since permission-less value transfer, with IBC already integrated, with Althea’s upcoming Gravity Bridge to Ethereum and the release of this DEX, we are about to witness an explosion of innovation on our network! Gravity storm incoming!
