Dynamic Bracket Pools
Revolutionizing Market Making on Decentralized Exchanges
Introduction
In the rapidly evolving landscape of decentralized finance (DeFi), market makers face unique challenges, particularly the high gas fees associated with placing and canceling orders on-chain. Multipool introduces Dynamic Bracket Pools, a groundbreaking solution that not only minimizes these costs but also automates the market-making process, thereby enhancing liquidity provision and trading efficiency on decentralized exchanges.
How Dynamic Bracket Pools Work
Dynamic Bracket Pools are segregated into two categories: the Bid Pool and the Offer Pool. Market makers can choose to participate in either or both, depending on their trading strategy. Here's how it works:
Current Price Monitoring: The system continuously tracks the current trading price of the asset. Let's assume the current price is $1.00 and the order book only allows $0.01 increments.
Automated Order Placement: If you have funds in a Dynamic Bracket Pool, the system automatically places five limit orders above and below the current price. For instance, buy orders would be set at $0.95, $0.96, $0.97, $0.98, and $0.99, while sell orders would be at $1.01, $1.02, $1.03, $1.04, and $1.05.
Dynamic Adjustment: As the asset's price fluctuates, the system automatically adjusts the bracket orders to maintain a consistent range around the new current price.
Linking to AMM Liquidity Pairs: Each trading pair in Multipool is intelligently linked to a corresponding Automated Market Maker (AMM) liquidity pair. If our order book deviates beyond a certain percentage range compared to the liquidity pool, the Dynamic Bracket Pools will not be used. This proactive measure is in place to protect bracket pool liquidity providers from potential impermanent losses or manipulation attempts by other traders.
Key Benefits
Reduced Gas Fees
Traditional market-making strategies require placing and canceling thousands of orders daily, incurring substantial gas fees. Dynamic Bracket Pools significantly reduce these costs by allowing market makers to pool their funds into a dynamic system that adjusts orders based on the asset's current price.
Enhanced Liquidity
By maintaining a consistent range of buy and sell orders around the current price, Dynamic Bracket Pools ensure that liquidity is always available, thereby facilitating smoother and more efficient trading.
Flexibility
Market makers can choose to participate in either the Bid Pool, the Offer Pool, or both, providing them with the flexibility to tailor their market-making strategies according to market conditions and their risk profile.
Efficient Capital Utilization
Market makers aim to churn their funds multiple times a day to earn exchange trading fee rebates. With Dynamic Bracket Pools, they only need to replace orders when their funds are depleted, allowing for more efficient capital utilization.
Conclusion
Multipool's Dynamic Bracket Pools offer a transformative solution for market makers in the DeFi space. By automating the market-making process and significantly reducing associated costs, these pools are set to redefine how liquidity is provided on decentralized exchanges. Join us in this exciting journey to make decentralized trading more efficient, cost-effective, and accessible to all.
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