DODO: On-Chain Liquidity
DODO and the quest for on-chain liquidity#
DODO is a decentralized exchange on a mission: to develop the liquidity-building tools and techniques to transform decentralized finance (DeFi). With innovative solutions hitting the market this year -- and a continued boom in overall DeFi popularity -- that goal comes closer every day.
Decentralized exchanges (DEXs) offer investors and issuers a host of practical and philosophical advantages over their centralized counterparts, including anonymity and protection from hacking, outages, theft and manipulation. Because they allow peers to trade directly with peers without the intervention of a third party, DEXs are also truer to the crypto ethos. But until recently, decentralized crypto platforms faced a major stumbling block: it was difficult to ensure liquidity, that essential oil in the transaction engine.
In any given marketplace – crypto or traditional – low trading volumes make it tough for sellers to find buyers willing to pay the asking price, or for buyers to find the assets they want without paying well above market rates. This either makes a trade unfeasible, or requires compromises that increase both price volatility and risk.
Centralized exchanges, with longer pedigrees and structures more like traditional financial marketplaces, established an early lead in the crypto space, and were thus able to offer more liquidity than their decentralized heirs. That started to change in 2020, during what analysts have dubbed “the summer of DeFi.” Trading volumes on many DEXs surged until they rivalled centralized players -- a trend that looks set to continue.
Technology to the rescue#
Still, to ensure a consistent level of liquidity, decentralized exchanges must rely upon technology and incentives for those willing to put up their assets to ensure an active market. With this in mind, blockchain veterans Mingda Lei, Qi Wang and Diane Dai created DODO, a user-friendly, highly customizable platform that operates on the Ethereum and Binance blockchains and offers levels of liquidity comparable to centralized exchanges.
Lei conceived DODO’s ground-breaking Proactive Market Maker (PMM) algorithm, the powerhouse behind the exchange’s highly capital-efficient liquidity pools. PMM uses oracles to sniff out the actual price of an asset and then provides sufficient liquidity at or near this point while reducing availability at the extremes.
Unlike Automated Market Makers, the main liquidity engines of most decentralized exchanges, PMM minimizes both slippage – the gap between asked and realized prices – and impermanent loss – the temporary disappearance of funds liquidity providers can suffer because of volatility in a trading pair.
The PMM is one of many tools that allow DODO to offer liquidity comparable to centralized exchanges. There is also the SmartTrade trading and aggregation system, which finds and compares various liquidity sources to find the best prices between any two tokens. DODO Vending Machine and DODO Private Pool are a duo of features that allow liquidity providers to create and manage their own market-making strategies.
In addition to trading and mining, users can also take part in Combiner Harvesting, a program aimed at giving platform users exposure to promising projects willing to collaborate with DODO. Under this system, approved projects can create liquidity pools on DODO, and those who provide liquidity for these pools can earn DODO reward tokens. And with no minimum deposit and the ability to use single tokens, liquidity providers can stake tokens they already own without taking on price risk.
A paradigm that works for everyone#
In January, we launched Crowdpooling – a new protocol designed to ensure tokenized asset issuers have access to healthy markets. With Crowdpooling – the name is a blend of “crowdfunding” and “liquidity pool” – issuers can both keep costs low and provide highly liquid capital pools for investors for a guaranteed period. Inspired by the call auction mechanism in securities markets, Crowdpooling is designed to be safe from both frontrunning and bot interference. It also offers a guaranteed liquidity protection period so investors can support projects they believe in with peace of mind.
At the start of the process, each token issuer sets an initial offering price, a time limit on the campaign and a soft cap on the number of tokens in the issue. Part of this is earmarked for crowdfunding and part for providing ask-side liquidity in the pool. Once the campaign ends, participants claim tokens based on how much they have staked at the pre-set offering price. If funds raised exceed the soft cap, participants are awarded extra tokens proportionate to their shares of the pool at the initial price. The ask-side liquidity remains in the pool for a pre-set period: the liquidity guarantee.
DODO co-founder Diane Dai calls Crowdpooling “a liquidity offering paradigm that works for everyone”.
Liquidity for non-standard assets#
In March, DODO announced plans to roll out its latest ground-breaking offering in the second quarter: a price discovery and liquidity protocol for non-fungible tokens (NFTs). The idea is not a new one: by breaking up NFTs or groups of NFTs (e.g., a series of works by one creator) into smaller pieces and issuing these as fungible tokens, it is possible to foster a highly active and efficient secondary market.
Prior to DODO NFT, though, there has not been a solution that could offer enough cost-effective liquidity to ensure success. With its PMM and liquidity pool feature, DODO aims to solve this.
Issuers will be able to deposit individual or grouped NFTs into the DODO NFT Vault, an on-chain repository for any type of NFT item – from vlogs to photographic collections. This vault is then broken up into tradable fragments. The protocol is structured to allow issuers to set the starting price for a fragmented token at minimal cost and without committing any capital. These tokens can then be freely traded on other cryptocurrency exchanges, both centralized and decentralized.
DODO NFT is the latest step in a quest to become the best on-chain liquidity provider in the game – now for standard and non-standard assets alike. Learn more about DODO today.