Public blockchain infrastructure provider Orbs is delivering a next-generation liquidity solution designed to encourage greater defi participation by separating stablecoin pooling from cryptocurrency pooling.
Liquidity Nexus Protocol Aims to Forge Better Connections Between Defi and Cefi
As decentralized finance (defi) aggressively expands its footprint in the cryptocurrency arena, one of the most significant pain points that have arisen involves liquidity pooling.
Liquidity pools, which effectively lock coins and tokens in smart contracts, provide the basis for dex (decentralized exchange) and defi operation. Most liquidity pools require users to lock an equal amount of two tokens in a pool. Rewards earned from the pool’s activities are distributed proportionally to an individual’s stake. However, this model produces numerous inefficiencies.
To maintain equivalent amounts of two tokens (cryptos and stablecoins), pools must constantly readjust holdings, exposing users who lock their cryptos to slippage, price risks, and volatility. Moreover, this makes it difficult for users to capitalize on their entire portfolios without having to rebalance holdings to join pools. The Orbs Network has arrived at the novel solution to this quandary with “single-sided liquidity” available from its Liquidity Nexus protocol.
This fresh model is designed to facilitate the most efficient capital allocation possible by enabling users, including centralized finance (cefi) participants like crypto exchanges, to participate in defi by pooling just one token (single-sided) instead of two of equivalent amounts (double-sided).
Protocol to Tier Awards Based on Risk Tolerance
Because the risks taken by users pooling cryptos or stablecoins is different, Orbs protocol will optimize awards accordingly. Stablecoins, by their very nature, are expected to maintain their value and pose less risk relative to cryptos which can fluctuate widely in value due to inherent volatility.
It means the opportunity to monetize their tokens’ full potential and collect higher APYs to compensate for the higher risk for cryptocurrency holders. Moreover, this implies crypto holders can avoid converting tokens into equivalent amounts of stablecoins to participate in pools.
Centralized exchanges that already have an ample supply of stablecoins gain the opportunity to join pools without taking as much risk. They don’t need to worry about price fluctuations, but the incentives are smaller because of the lower risk than the one borne by crypto token holders locking their holdings in pools.
Taken together, this new liquidity farming model can support all stakeholders in the defi ecosystem while also inviting greater participation from the cefi community. The cefi benefits from leveraging its existing liquidity in a format that allows for higher returns than traditionally available. By extension, holders pooling cryptocurrency can yield higher APYs without the need for constant portfolio rebalancing.
With these pieces in play, Orbs’ goal of improving overall defi liquidity and fueling participation through its single-sided protocol is very much within reach thanks to its unique approach to one of the most critical problems hindering adoption.
Will single-sided liquidity lure you into giving a try to liquidity pool investing? Let us know in the comments section below.