Stableshift: efficient AMM exchange

Stableshift is an efficient decentralized digital exchange protocol based on token portfolios. Formerly it was also known as Liquifi V2, but as version 2 of our protocol is a significant step forward, we gave it it's own name. Our mission is to cardinally increase the efficiency of capital utilization in liquidity pools - and it will bring higher APR for liquidity providers and better exchange rates for traders.

Prototype DApp for Cardano ready for testing

We have already developed and launched a prototype DApp that can be accessed publicly (see also a screencast in attachments): https://cardano.stableshift.finance.

This prototype has all the Stableshift protocol Plutus code implemented. You can use it to test swap, liquidity deposit and liquidity withdrawal transactions. There is no browser wallet integration yet, so the prototype uses a Daedalus wallet with several test accounts deployed on our server.

Whitepaper

The Stableshift whitepaper is available here: https://stableshift.finance/pdf/stableshift-whitepaper.pdf

See a brief explanation of the main points below.

Capital usage efficiency - portfolios instead of pairs

Stableshift uses token portfolios instead of pairs, unlike Uniswap and many other AMM exchanges. Why is it more efficient? Imagine that to enable some token exchange operation (e.g. ADA to USDC) in a traditional AMM exchange a separate pool should be created by liquidity providers with sufficiently large amounts of ADA and USDC tokens (e.g. 1M ADA and about 1.8M USDC). And the same is needed for every other exchangeable token pair. As ADA will often be one part of these pools, then for 10 tokens we will need a 10x amount of ADA (e.g. 10M ADA).

And what does it look like in Stableshift portfolios? Liquidity providers just invest 1M ADA and other 10 tokens in one portfolio - and this ADA amount is reused for exchanges between ADA and any other token in the portfolio. The result is 10x more efficient usage of ADA capital and about 1.8X more efficient in total. Taking into account other exchange pairs (not only with ADA), the resulting efficiency in practice is even higher.

Reduced price slippage

Implementation of the Stableshift protocol can reduce price slippage up to hundred times as we do not need to scatter liquidity across all the pairs. If average losses from slippage could be as large as $1M monthly, and we can reduce them to $10K - this gives $990K of extra profits for traders every month.

Low impermanent loss and high APY

The impermanent loss can reduce liquidity providers income by 10-20% of the invested assets. For a $100M pool it gives more than $10M losses. By introducing special arbitrage swaps with reduced reserves (and zero fee) we can, first, decrease the losses in 10 times, giving $9M additional revenues; second, give liquidity providers additional revenues from slippage. This will result in several times higher APY on the same volumes of trades.

Browser wallet integration

Lack of browser wallet integration is currently one of the blockers to launch Stableshift in the Cardano mainnet. At this stage of the project we plan to investigate, and when possible implement, the integration with one or of the existing browser wallets for Cardano. Currently we consider Nami wallet primarily as it is an open-source project with a clear API. Also looking at Yoroi wallet.

Batch order processing to improve the throughput

It is well known that Cardano architecture has a fundamental limit that prevents DApps from executing more than one transaction per time slot. A profound analysis of possible ways to overcome this problem has been recently published by the Sundaeswap team. They also introduced "The Scooper model" that is based on accumulating exchange orders and then delegating their batch execution to a selected group of network participants - "Scoopers", or Transaction processors as we will call them below.

In Stableshift for Cardano we consider a similar technique. But to make it a bit simpler we plan to allow users choosing who they want to delegate batch transaction processing. It could be implemented implicitly or explicitly in the UI - giving users a possibility to either select a specific Transaction processor or to choose him randomly.

The submitted orders will be added to a per-reserve queue of the selected Transaction processor and processed as soon as there are enough transactions in the queue or after a specified timeout. We will also apply some ideas from Liquifi to implement an AMM algorithm to process several parallel swap operations at once, instead of processing them one by one. This approach will not only give us some computational economy, but will also provide better exchange rates when there are swaps in opposite directions.

Layer 2 alternative

Deployment on a Cardano layer 2 chain could be an alternative of implementing batch order processing inside Stableshift. We consider Hydra as a primary possible solution, but also continue investigation of other upcoming layer 2 projects for Cardano. During the current project stage we plan to study the technical opportunities for layer 2 deployment and compare them in terms of efficiency, development costs and marketing potential.

Project roadmap

December 2021 - Stableshift Prototype in the Cardano testnet released

Q1 2022 - Security audit of the Stableshift Plutus code passed

Q1 2022 - The Stableshift protocol in the Cardano mainnet released (public launch)

Q1 2022 - Stableshift token farming in the Cardano mainnet started

Q1 2022 - Stableshift token bridging between BSC and Cardano established

Q2 2022 - Decentralised portfolio management launched. Advanced analytics developed.

Q3 2022 - Full on-chain governance launched.

Impact on the challenge metrics

Implementation and launch of the efficient AMM DEX protocol in Cardano will increase the number of viable applications on top of Cardano and attract users to the platform. Viability of the application will be supported by the fact that Stableshift will be among the first launched applications of this type. The efficiency of the protocol will allow highly competitive exchange rates that will bring transaction volumes to the protocol.

Liquidity providers will benefit from low impermanent loss and high APY on investments. New users will also be attracted to the platform by the farming and yield pools features. In general, the whole Cardano ecosystem will acquire more digital asset holders and increase platform capitalization.

Definition of success

3 months: The Stableshift protocol launched in the Cardano testnet. Browser wallet integration released. Security audit passed.

6 months: The Stableshift protocol launched in the Cardano mainnet. Stableshift token bridging between Binance Smart Chain and Cardano established.

• Users: 1000
• Monthly volumes: $100,000
• TVL: $100,000

12 months: Decentralised token portfolio management released. Application scaling and performance improved. Full on-chain governance released.

• Users: 10000
• Monthly volumes: $10,000,000
• TVL: $1,000,000

Budget

Development costs:

• Browser wallet integration: $8,000
• New UI development: $8,000
• Batch order processing research and prototyping: $6,000
• Layer 2 research and prototyping: $6,000

Total: $28,000