Welcome to Multiswap
Multiswap represents a return to sound financial engineering principles in the spirit of the Black-Scholes model. To understand what is Multiswap and how it works, we go back to the basics.
An AMM is protocol that consists of 0.
a portfolio of asset tokens together with a pool token liability that tracks the value of the underlying assets.
In other words, the AMM is balanced with the total asset value equal to the total liability value. From this, the AMM imposes a number of constraints that capture elements of supply and demand in order to make a market, i.e. produce prices, for the asset tokens.
The first constraint AMMs impose on the portfolio is that the post-trade weight of each asset token in the pool is known and does not depend on the trade. In other words, an AMM is a rebalancing portfolio. For example, each Uniswap pool is a simple 2-asset portfolio whose weight is always 50/50 and, the value of all LP tokens outstanding at any moment is equal to the combined value of the two asset tokens.
This constraint allows us to completely determine the state of the AMM given the weights and reserves of each token. to express the marginal price of each asset in terms of the reserves of each token plus the weights.
Multiswap differentiates itself by adhering to all three principles of a good AMM: balance, rebalance, and self-financing. This compliance ensures a stable trading environment that benefits both LPs and traders.
The balanced principle stipulates that the value of a pool token must equal the value of all assets in the pool, making it a liability for the assets. This approach focuses on achieving and maintaining an optimal ratio between asset pairs in a liquidity pool.
Rebalancing means that the post-trade weight is known before the AMM state changes and does not depend on the trade. The rebalanced principle involves adjusting asset ratios within a liquidity pool to maintain the desired balance. Rebalancing also helps mitigate the risk of impermanent loss and ensures that LPs receive a fair return on their investments.
The self-financed principle asserts that no value is created or destroyed in the process but is merely transferred from one token to another. Multiswap's dedication to being self-financed guarantees that it can reward LPs fairly and maintain a robust trading environment.
In comparison, popular AMMs like Uniswap and Curve fall short of fully adhering to these principles, resulting in challenges for liquidity providers to achieve profitability. On the other hand, Multiswap's dedication to balance, rebalance, and self-financing principles offer a fair and efficient trading environment where LPs can profit from liquidity provisions and traders can access deeper liquidity.