Michael Egorov - Stablecoin Swaps - TOKEN2049 Singapore 2024

hi everyone um so I wanted to uh uh to basically uh talk about their uh ideas we had recently where where we can expand uh where we can expand uh exchanges of stable coins so as you of course know uh we started with uh originally with swaps between stable coins of the same denomination and um I guess one of the most popular pools uh historically was a pool which swaps between usdc usdt and D um so uh well these stable coins they have different use cases so uh the die was defin native and uh um you know usdt was mostly used in uh in like Asia Middle East and so on and usdc is mostly like used in USA in Europe but you know there are these use cases are mixed sometimes but uh swaps between stable coins uh they essentially do sort of uh cross jurisdictional Arbitrage um or like you know the just these stable coins adopted are adopted in different regions and you essentially use these swaps to uh to to do value transfer between different regions but if you think about that it probably doesn't make much sense if it's all USD in all the regions right so and it kind of implies that that foreign exchange swaps should happen um at some point but apparently it doesn't happen today too much and the question is why and I believe the reason is uh purely technical um and that's what I will expand on a little bit so uh in uh well I don't know if you realize or not but all the pools on curve they have concentrated liquidity so even the very first pools um so for swaps between stable coins of the same denomination we use so-called stable Swap invariant and uh it's uh very convenient uh to use um to show everything in units of uh U of X Y Kai inv variance or the same as Unis Swap 2 uh uses uh so for example on this graph if you have like a 100 it means that liquidity is 100 times more dense than in Unis Swap 2 so and if you look at stable swap uh in variant it's uh uh well it can be that high compared to compared to the naive uh um bonding curve constant product bonding curve so uh if you um well after uh uh if if you try to do it differently let's say uh stable swap always assumes that price uh of uh of the coin is constant so what happens if it is not constant um uh for that we have uh uh we have developed so-called cryptos swap algorithm which uh concentrate liquidity at some price but if the current price moves it uh actually tries to move the concentrated liquidity around to the place uh where the new price is the problem is that uh this process is lossy and you need to compensate the loss you for like moving the concentrated liquidity around from from somewhere and uh crypto pools currently compensate that from fees they earn um but sometimes these fees occasionally could be not enough and then the crypto pool wouldn't catch up with the current price and uh that's why you need to limit the maximum liquidity you get there um but uh well uh that's how it is now uh and uh that didn't work uh too well for uh for swaps between let's say usds and Euros even though there are a few Euro stable coins so um we thought uh how to do that better so and uh one idea would be uh to use what we developed just uh more recently uh uh to use a yield generated by stable coins so uh uh we have CV USD currently which uh inherently uh produces uh some uh borrow fees so our Ser USD is created uh by people borrowing that against collateral and uh it just generates uh uh some some yield which is currently going to to curve Dow so the idea is what if we split some of that yield and and uh stream it to subsidize rebalancing of the uh uh of the crypto pools or well foreign exchange pools in this case and also what if we create sery Euro which is uh also a CDP and also uh streams uh something earned on the borrow rate to to subsidize rebalancing in the pool than uh uh than the pool which swaps between rvusd and serve Euro uh would uh uh would essentially be able to use uh some of the uh fees generated in the pool and the this uh uh rates earned by stable coins sitting in it towards uh rebalancing the dance liquidity so and um at the moment it's uh not running this way it's in development but uh you can already do simulations and see if it's efficient so that's what we did and uh it appeared that uh If U let's say if price impact uh in in a naive um x yals k inv variant is taken at 100% um well you want to have the price impact as small as possible so uh stable swap in variant uh to swap between two uh coins of the same denomination uh is U gives the price impact less than 1% and uh if you if you try to just apply a crypto swap for Euro to USD swaps um it's on average it's not working well very well so uh it can uh can have price impact uh somewhere between you know 10 and 30% of price impact of a naive uh Unis swap to like in variant so apparently if we uh do what we uh what I what I just said if we uh subsidize rebalancing from uh uh borrow rate earned uh by by the cdps then price impact can be almost as good as in stable swap so around uh 2% and uh uh I can probably show some pictures uh of what simulations looked like so here I uh just um plotted what uh the price impact would be depending on parameters of the crypto pool if it's made in this Arrangement so this is for Euro USD pair and uh um the um the the Bluer the better on on this picture uh so uh if uh if we took the the very minimum of the slipage on the picture it looks like uh it can be uh well around uh around 4% and you know the smaller the better uh but it appeared that if we somehow make a um Chinese Yuan stable coin for example then it works uh even better this uh area where the slipage is lowest is actually bigger and the slipage is lower so it can be around uh around 2% and the concentrated liquidity part there is probably around five times bigger than an EUR USD swap so um anyway uh it appears that um that we can uh significantly improve uh Market making and uh liquidity management uh in uh for foreign exchange swaps and uh I think uh that's some use case which is uh not very much present in defi currently but uh uh I hope we figured out how to how to actually uh get it done um yeah so that's all uh thank you for listening