Many people consider 2020 one of the hardest years since the ’08 crash. This is not the case for DeFi, which beat record after record to boast a thrilling $11B in Total Value Locked (TVL) by mid-October.
Unsurprisingly, these huge numbers were pushed by platforms based on liquidity pools in various DeFi niches, such as Uniswap (DEXs), MakerDAO (lending), Synthetix (derivatives), and Yearn Finance (assets).
Liquidity pools received a big boost when platforms started using mechanisms based on Automated Market Makers (AMM) to facilitate trading and ease investors’ lives. However, as the need for liquidity in DeFi is ever-growing, AMMs are still underperforming when compared to human market makers.
DODO promises to solve this issue by introducing Proactive Market Makers (PMM) in the DeFi landscape. The platform aims to leverage the mechanism to provide pure on-chain liquidity for everyone.
Proactive Market Makers – A Brief Explanation
Undoubtedly, Automated Market Makers (AMMs) have transmuted the DeFi industry. First, order book-based DEXs tried to establish a base of operations in a decentralized environment. However, this task was too much for order book-based exchanges to handle, as they couldn’t share their liquidity with other protocols and lacked composability.
The rise of AMMs automated trading and eliminated the dependency exchanges would have on order books, which generated explosive growth in platforms such as Uniswap, Curve, and Balancer. As liquidity is the lifeblood of DEXs, decentralized trading reached all-time peaks, surpassing record after record every month.
These astonishing numbers took their toll, however, as now DeFi’s liquidity engine needs a new upgrade. Despite their success, AMM’s algorithms are still too primitive and static when you put them in check for the long-run.
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AMMs struggle to allocate funds uniformly across the price range, as only funds allocated near the market price are being utilized effectively in trades. Hence, most funds become underutilized or not utilized at all, which generates low fund utilization and high slippage.
DODO came up with a solution to create an algorithm-based mechanism that acts as an intelligent and productive on-chain market maker, called Productive Market Maker (PPM).
This unique mechanism acts by leveraging price oracles, mimicking the behaviors of human market makers, and allocating funds near the market price more efficiently.
What Is DODO?
DODO is an Ethereum-based platform for trading and issuing crypto assets that allow investors to indulge in higher fund utilization and lower slippage.
As the market price changes, DODO’s PMM mechanism starts acting proactively by shifting the price curve intelligently, using an automated human-like approach to ensure the constant provision of sufficient liquidity.
Another resourceful add-on is in the fact that liquidity providers do not necessarily need to deposit both tokens of the desired trading pair proportionally to the current market price.
It happens because the PMM adopts a risk-neutral approach, decoupling the base and quote tokens in any pair. This way, liquidity providers simply deposit the tokens they have.
Once the trading process begins, the PMMs adjust the price by stimulating arbitrage trading to minimize price risks and counterparty risks for liquidity providers. This dynamic process works effectively to mitigate the risk of impermanent loss, which haunts AMMs constantly.
Dig Into It
Both traders and liquidity providers can benefit from the platform, as the PMM mechanism offers opportunities for both sides.
On DODO, traders can indulge in liquidity levels similar to that offered by centralized exchanges, but in a fully decentralized environment. Also, the platform’s mechanism permits arbitrageurs to profit from price discrepancies between DODO and other exchanges.
As the ultimate goal is to facilitate transactions, smart contracts can natively use DODO liquidity to settle on-chain transactions (e.g. liquidations and auctions). The platform promises 10x better liquidity than Uniswap with the same funding size, which is a huge statement given Uniswap’s status.
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Considering how DODO quickly managed to climb the ranks to figure amid DeFi’s top 5 DEXs, with $85 million in Total Locked Value (TVL), this statement can be taken seriously.
Liquidity providers also have their fair share of benefits, as DODO does not have minimal deposit requirements and restrictions on any type of asset. Also, liquidity providers can create trading pairs with their tokens and earn liquidity by depositing any amount of quote token or base token, without exposing to price risk.
The platform charges a fee for each transaction, eventually distributing it as a reward to liquidity providers.
The DODO Token
The platform envisions reaching a Decentralized Autonomous Organization (DAO) status in the long-term. This way, the DODO token is the governance token that will grant holders and stakers the right to get involved in governance discussions and decisions.
The DODO governance system will be gradually implemented as the platform continue to grow, so early holders and stakers will have an advantage. The DODO ecosystem, as it is called, will consist of three DAOs with different purposes.
First, the Admin DAO will be the highest decision-making authority in the ecosystem. This branch will oversee the whole ecosystem, with the power to make changes to the operations of the other two DAOs.
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The second is the Risk Control DAO, responsible for adjusting and fine-tuning risk parameters within the platform. Last, the Earn DAO will govern how earnings are distributed within the platform.
DODO tokens have a total supply of 1 billion units, with the allocation going primarily for community incentives (60%). Thus, the core team and advisors share 15%, while investors have 16%. The rest is reserved for initial liquidity provision (1%) and operations/marketing/partnerships (8%).
Community incentives will be distributed to supporters in a series of programs collectively known as “DODO Carnival”. Besides, the DODO team has closed two rounds of funding from investors, a seed round, and a private sale round. The private sale round, led by Binance Labs, raised a sum of $5 million.
Conclusion
DODO Exchange is a capital-efficient, low-slippage on-chain liquidity provider built on the Ethereum blockchain. The project aims to solve impermanent loss and mitigate market-making risks while offering a user-friendly trading experience and profitable liquidity provision opportunities.
The platform introduced the concept of the Proactive Market Maker (PMM) algorithm, which leverages price oracles and mimics the behavior of human market makers, allocating funds near the market price more efficiently.
Launched in August this year, DODO’s smart contracts have been audited by PeckShield and Trail of Bits. The protocol is governed by the DODO token, which is distributed through a series of programs called “DODO Carnival” to incentivize the community.