Several decentralized platforms use oracles to bring real-world information into the blockchain, especially when it comes to prices used in transactions. These oracles rely on external data from centralized exchanges or other DEXs to provide price feeds on-chain.
What happens is sometimes this mechanism can create a deviation between the price provided by the oracle and the market price. In such cases, arbitrage trading steps in to rebalance transactions, which leads to traders and market makers having to assume arbitrage costs.
CoFiX, a new AMM-based platform launched on October 12, promises to revolutionize the market by combining NEST’s decentralized price oracle and DEXs risk-assessment model, thus eliminating the necessity of arbitrageurs.
What Is the Importance of Automated Market Maker (AMM)?
Proven as an essential resource for DeFi operations, Automated Market Makers (AMMs) are algorithm-based mechanisms that mimic price action within digital markets.
In traditional markets, market makers are entities or individuals responsible for providing liquidity into transactions. Their mission is to buy and sell certain assets from their account to profit by facilitating transactions and decreasing price slippage for larger trades.
Given that these traditional markets tend to rely on order book-based transactions, market makers are an essential source of balance between bidders and sellers in innumerous exchanges.
To reproduce the same mechanism in a decentralized environment would be slow, expensive, and too demanding, which would kill countless profitable opportunities at birth.
Instead, AMMs use a deterministic algorithm-based mechanism of price adjustment to facilitate decentralized transactions. Since the rise of AMM-based mechanisms, decentralized exchanges have been experiencing a boom of liquidity and all time-highs when it comes to daily trading volume.
What Is CoFiX?
CoFiX is a platform that offers a next-level automated market-making protocol. Its design is a combination of a unique mechanism provided by decentralized price oracles and reliable risk quantification and control.
The protocol relies on the NEST Protocol as its price oracle. Established in 2018, NEST was the first oracle network to produce price data on-chain. This fully decentralized oracle is empowered by the utmost high attack costs, which can mean up to 50% of the total value of Ether, plus all tokens.
Given that NEST provides a reliable set of mathematical proofs for price risk, CoFiX was designed as a fully computable on-chain market-making protocol.
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Hence, all the system-level risks are accounted for in each trade, which makes CoFiX the safest and most cost-effective on-chain market-making protocol currently.
The platform also has a second layer of risk management, in the form of extra mechanisms to further protect market makers (MMs) and traders in case of black swan events. All smart contracts within the protocol were audited by blockchain security firm CertiK.
Dig Into It
The design behind CoFiX follows two basic principles, which are:
- Computability and algorithm-based risk control.
- No system-level arbitrage opportunities.
The first principle means that everything in CoFiX is computable, which means more accuracy in prices and better risk controls for both MMs and traders.
The second principle relies on the fact that CoFiX can operate without involving arbitrageurs. As the protocol uses NEST price oracles, all trades are executed based on a market price only. Hence, since the market prices come from the oracle, neither arbitrageurs nor their efforts are needed.
Also, CoFiX permits that market makers to provide liquidity for a single asset only, such as ETH or USDT, which considerably limits their risk exposure.
Native Token
The protocol created a native token, called CoFi, as a way to reward users and incentivize liquidity providers within the platform. Investors can earn CoFi tokens by providing liquidity or trading using CoFiX. The CoFi was designed to be the CoFiX’s governance token, also representing dividend rights within the protocol.
On October 12, CoFiX was launched and simultaneously started a mining program (liquidity and trading mining). This way, the protocol will distribute 90% of the total supply of tokens to investors who engaged in liquidity and trading mining.
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Currently, this first version of the CoFiX DApp permits swaps for Ethereum (ETH), Tether (USDT), and Huobi BTC (HBTC). Also, supported pools include USDT-ETH and HBTC-ETH pools. These first two pools permit users to start mining liquidity and trading, with price stability provided by NEST oracles.
In the future, CoFiX aims to deliver a mechanism for any trading pairs, including odd combinations such as mean-reverting pairs, uncorrelated pairs, and inversely correlated pairs.
Who Is Behind the Idea?
Despite its launch in early October, CoFiX was founded in March this year. The founding members of the project include SECBIT (leading blockchain security firm), AlphaWallet, and several individual members.
Victor Zhang, CEO, and co-founder of AlphaWallet is one of the public figures ahead of CoFiX. With more than a decade spent on multiple successful businesses, in the last four years he was part of the blockchain industry.
Another prominent figure amid the project is financial product expert Zaugust, who was the author of CoFiX’s whitepaper.
Backed by several industry-leading companies, the project managed to raise half a million dollars from investors such as Huobi’s DeFi Labs, Coinbase Ventures, and Dragonfly Capital.
Conclusion
CoFiX is an advanced automated market-making protocol. Its purpose is to eliminate the need for arbitrageurs in transactions by:
- Using market prices sourced from NEST decentralized oracles
- Relying on comprehensive risk quantification and control.
This unique approach permits traders and MMs to make deals freely in a decentralized ecosystem without the necessity to expose themselves to unnecessary risks.
Among its main advantages, CoFiX can provide a risk-free market-making protocol with no place for permanent or impermanent loss, with simple hedging resources, high capital efficiency, and trading with the lowest levels of spread.
Investors also can earn the protocol’s native token CoFi by providing liquidity or trading with CoFi tokens. The project encourages users to take part in liquidity and trading mining, distributing 90% of the total supply of CoFi tokens between users who engaged in their mining program.