Capital Inefficiencies

At the time of writing, most DEX (stableswap or invariant curve) have some sort of capital inefficiencies. This means that capital locked in the protocol is not being used to its full potential.

Liquidity fragmentation

An example of capital inefficiencies is how most protocols fragment their liquidity into multiple pools; USDT liquidity in Curve is spread around 5 pools. This makes the capital requirement for USDT 5 times higher than necessary to provide a similar service.

The same happens with Uniswap, which has +100 pools containing USDT. These pools cannot share liquidity with each other.

Obligation to provide liquidity in pairs

Another issue most stable swaps exhibit is the obligation to provide liquidity in the form of pairs, in essence, the need to have an equal value of 2 tokens in order to be a liquidity provider.

Curve tries to solve this problem by allowing single-side deposits. However, it still only uses the liquidity up to the least abundant asset in the pool, making the least popular token the bottleneck for the growth of the pool. Moreover, it is impossible to add new tokens to an existing pool (particularly if the new token’s liquidity is not comparable to other existing tokens in the pool), which hinders the scalability of the protocol.

Community Market Solution

Market allows for single-side liquidity provisioning. This means you only need one type of token to become a liquidity provider.

Single-side liquidity provisioning helps combat capital Inefficiencies by reducing the number of unnecessary pools.

In Market, the number of pools will only ever equal the number of accepted tokens in the protocol. This allows for the reduction of liquidity fragmentation across the protocol.

Last updated