Making the Case for Singularity’s Existence
There are an increasing number of AMMs (automated market makers — more details here) available to users, both on Fantom and more broadly across the defi landscape. Revenant Labs is focused on producing useful, high quality solutions that real users can use regularly. Singularity, therefore, is built as a useful solution to chronic problems that plague other AMMs. It is a unique offering and is structured in such a way that it offers benefits to both users and liquidity providers.
Our focus in this straight-forward breakdown will be on the unique fundamental structure of Singularity compared to other AMMs — how it seeks to improve slippage for everyday users, how it aims to offer a better experience if you wish to provide liquidity and, when you combine all of its features, why it occupies an exciting niche in the current spread of available AMMs.
For an in-depth description on the way Singularity works, check out our docs here.
Why Providing Liquidity on Singularity is Unique
For the vast majority of users, when they see the letters “LP” (liquidity provider), they envision something similar to the UniswapV2 model — they provide two tokens, for example ETH and DAI, with a 50/50 split. Then, as a reward for providing that liquidity to the protocol, they earn a return, which comes from the swap fees gathered every time a user exchanges tokens via the pool they provided their liquidity to.
One big negative that comes with this type of liquidity providing is the looming spectre of impermanent loss. If the two assets that a liquidity provider has added to the pool are “volatile” (liable to larger swings in price, unlike stablecoins, for example), the fluctuations in price, especially comparatively between the two assets, can result in the liquidity provider ultimately leaving the pool with less value than they had when they entered. You can read more about impermanent loss, here.
Singularity seeks to mitigate this completely. Instead of providing two assets, when you create a liquidity provider position on Singularity you will only ever be providing a single asset, thus eliminating the potential for impermanent loss.
These unique, single sided deposits are made possible thanks to intelligent engineering choices when it comes to determining the fair market price of assets. Singularity uses an aggregated basket of oracle feeds (find more about oracles, here) that update ultra-quickly, which allows it best judge where to concentrate liquidity — a key piece in allowing single asset liquidity provider positions.
On Singularity, liquidity providers reap the benefits of accrued trading fees in the pools they have deposited in, just like in the Uniswap V2 model outlined above. Singularity reinvests these fees — creating a system similar to the xToken model used by xBOO, or xSCREAM. When users look to withdraw their liquidity position, they will be able to redeem their LP tokens, which will now include the value of the reinvested fees, too.
Pool Collateralisation on Singularity
Another distinctive feature of Singularity’s liquidity pools is the concept of collateralisation. Every pool on singularity keeps track of its assets and its liabilities.
- Assets — the number of tokens currently in the pool
- Liabilities — the number of tokens owed to liquidity providers
If a pool has more assets than liabilities, then it would be classed as overcollateralized. If a pool has more liabilities than assets, then it would be classed as undercollateralized. For users, this will be made clear in a simple way via Singularity’s user interface. But why does the collateralization of a pool matter at all to users?
Ultimately, the protocol is always looking to maintain basic collateralisation on any given pool. Because of this, removing liquidity from undercollateralized pools can come with penalties — although these only have notable impact on positions of significant size, as Singularity will be aiming to keep that liquidity in the places that need it most.
On the flip side, the incentive model for liquidity providers is the potential for earning high fees from the swaps occurring in the pools.
Swaps, fees and slippage
For the vast majority of users (and for aggregators that utilize Singularity for the competitive rates it will offer on swaps), the most important aspect of the protocol will be how well it performs when exchanging tokens. The rate that users can get for swapping on Singularity, compared to other available alternatives, will be the main draw for everyday users. Singularity excels in this area because users are trading at the oracle price (through some technical wizardry, as mentioned above) as opposed to at a decreasing price, which is a consequence of the older UniswapV2 model that most AMMs are based upon.
Initially, Singularity will have a deliberately limited basket of available tokens. USDC and DAI will be available at launch, as will a curated pair of “volatile” assets — BTC and ETH. These assets are coming first because the markets for these tokens are exceptionally liquid, with high quality oracle feeds available. Any further token additions will only be done via the team, as there is a strict set of import criteria that must be met.
When a user goes to exchange two tokens — for example, their DAI for some USDC — there are a few elements at play underneath the surface of that trade, which we will expand upon below, for transparency’s sake. Whenever swaps take place on Singularity, users will likely encounter both negative and positive slippage (although ultimately, the resulting slippage will likely be highly competitive).
The trade in question will route through two pools — the DAI pool initially and then the USDC pool. As DAI will be added to the DAI pool, the user will have either neutral slippage (if the pool is already healthily collateralized) or positive slippage (if the pool is undercollateralized). Positive slippage will result in the user actually benefiting from the trade, receiving slightly more equivalent tokens than they had to start with.
This can potentially be mitigated to some degree by the second part of the trade, when the USDC is removed from the USDC pool, which will again either result in neutral slippage (if the pool is healthily collateralized) or negative slippage (if the pool is undercollateralized). Equally, it is worth noting that in an ideal scenario for the user, depending on the collateralization of the DAI and USDC pool, they may receive a better rate than on any other exchange, as the positive slippage in the DAI pool may outweigh the negative slippage in the USDC pool.
Finally, there is a combined trading fee from both pool transactions that will have been applied by the conclusion of the trade.
For everyday users, Singularity will offer an exceptional competitive, low (and sometimes even positive) slippage opportunity to complete trades on an initially tightly curated basket of tokens. This is achieved via a clever combination of oracle-based innovation, unique pool design and innovative fee and slippage frameworks.
For liquidity providers, Singularity presents a solution to the chronic issue of impermanent loss thanks to its shift towards single sided liquidity pools. This is done thanks to a fusion of the interest bearing token properties (xToken style, as mentioned earlier) baked into these LP tokens and carefully crafted incentive structures to encourage liquidity concentration to the areas that it is needed most. The single sided liquidity pools also open up easier access to a wider range of use cases — such as potentially using Singularity LPs as collateral on Creditum.
Singularity is a bold new venture for Revenant Labs and we look forward to discussing how it will integrate into our existing product suite further, soon.
When will Singularity come out?
While we have full test coverage on Singularity’s contracts, we have several things we still need to test in real-time to ensure the quality of our product at release. During this week of April 3rd through April 9th, we will be releasing a beta version of the product so that users can test our site, oracle performance, and any unfound bugs in our contracts. The definitive launch date will be more conclusive as we get a better understanding through our beta launch.