Since the rise of DeFi and the possibility for profitable returns using protocols such as Uniswap, Curve, and Balancer, providing liquidity for different pools became a trend. In this sense, Mooniswap is a much welcome novelty in the DeFi scene. Considered the Automated Market Maker (AMM) of the future, Mooniswap wants to solve a common issue amongst major AMMs, which is that liquidity providers don’t earn on slippage.
The platform’s algorithm does all the heavy work of searching DEXs for the best trading prices, delivering an optimized and instant tool for token swaps.
Back to Basics – How Does an Automated Market Maker (AMM) Work?
In business, liquidity is a primary aspect, which is no different when it comes to DeFi.
In this sense, liquidity pools were essential for further developing decentralized finance, opening a gateway for more profitable opportunities. Liquidity pools are pools of tokens locked into a smart contract. This resource facilitates trading, providing liquidity for decentralized exchanges (DEXs).
In any order book-based exchange, buyers and sellers expose their proposals, and deals happen when both sides agree on a commonplace price. However, what if neither side manages to agree on a fair price deal? That is when market makers step into the game.
Market makers are responsible for facilitating trading, as they are always willing to buy or sell different crypto assets. Reproducing this scheme on DeFi, however, would be a burden, as it would cost too much time, money, and effort.
Automated market makers are DEXs that rely on deterministic algorithm-based formulas to set the price of a token. This way, there is no need for an actual market maker to intermediate the process (which would be slow and expensive). Hence, users can swap between several token pairs via an automated price adjustment mechanism in a decentralized environment.
What Is Mooniswap?
Launched in August 2020, Mooniswap is a next-level DEX where users can swap between various token pairs. Their focus is to:
- Redistribute earnings fairly to liquidity providers.
- Capitalize on user slippages.
- Protect investors from front-running attacks.
When DeFi users swap tokens across different DEXs, the exchange rate is formed by two parts, which are a fixed swap fee and a price slippage (related to the volume swapped in the transaction). Users who need to swap larger amounts of tokens are exposed to the worst exchange rates, which is an unfortunate calculation.
In such cases, liquidity providers can earn swap fees, while arbitrage traders profit on slippage. These “middlemen” get an expressive amount, sharing a part of the profits with miners. The problem is that they set high gas prices to take advantage of transaction ordering in the blockchain.
This way, in most pools, liquidity providers miss up to 100% of the possible income, while in some pools, these numbers can go up to 300% to 500%. Mooniswap stands out from other DEXs, redistributing earnings to liquidity providers by employing their unique system.
Another advantage of Mooniswap is its focus on security. Since its inception, their team prioritizes the smart contract, verifying different models and focusing on functionality plus safety. The platform also received audits from three well-known auditors in the DeFi industry, Peppersec, Dapphub, and Scott Bigelow.
Dig Into It
There are two main options for Mooniswap users: swapping tokens and providing liquidity to the pools available at the platform. It is possible to perform swaps between several token pairs, as long as the chosen combination has enough liquidity in the market to materialize the deal.
As the platform is still a novelty, new liquidity pools will be added over time, increasing liquidity and giving users the likelihood to swap between odd token pairs (ETH/HEX or ETH/PARETO, for example).
Learn more: What is FutureSwap?
Their business model is driven by the referral fee, which is fixed and is equal to 5% of the income made by liquidity providers on deals. The Mooniswap swap fee is around 0.3%, but the team promises that this value will decrease as 0% as the platform gains size and competitiveness.
Given the 0.3% swap fee, 0.015% goes to referral, and 0.285% goes to liquidity providers. Additional profits, result from virtual balances, are also split using the same ratio.
The platform has an intuitive dashboard, so even novice investors won’t face any issues. To onboard on Uniswap, the user needs to connect using a wallet. Supported options include MetaMask, WalletConnect, Coinbase Wallet, Fortmatic, and Portis.
After connecting, users can start swapping tokens right away. On the far upper-right of the dashboard, there is the ” Transaction Settings” tab. Investors can choose which is the ideal slippage tolerance percentage, so the transaction will be reverted if the price changes unfavorably by more than the chosen number. Currently, three main options vary between 0.1%, 0.5% and 1%.
Learn more about decentralized finance: Are derivatives a future of DeFi?
A unique option is the “Toggle Expert Mode” that permits deals to bypass confirmation modals, allowing high slippage trades. Even though users are cautioned to use this tool at their own risk, some more skilled traders can find it useful occasionally.
Who Is Behind the Idea?
Mooniswap is one of the leading products of 1inch, a DeFi aggregator that discovers routes through several DEXs and liquidity pools, empowering the protocol with the best rates in the market.
1inch is a creation of Anton Bukov (co-founder and CTO) and Sergej Kuz. The duo started taking part in ETHGlobal and other hackathons in late 2018. After winning three sponsor prizes by coding DApps for Kyber, MakerDAO, and Set protocol, they came up with the idea that would become 1inch.
Empowered by 1inch, Mooniswap took 18 hours to build and was launched after only two weeks.
Mooniswap is a brand-new AMM which promises to be a next-generation DeFi platform. Reuniting token swaps, liquidity pools, and virtual balances, their focus is to redistribute earnings to liquidity providers while capitalizing on slippages.
Despite the vast gap between the efficiency provided by centralized exchanges compared to DEXs, Mooniswap signals that the future of DeFi is not too far away.