Exploring Sovryn’s oracle-based, automated decentralised token exchange

brought to you by Sovryn

April 7, 2021

Sovryn is completing Satoshi’s vision of monetary sovereignty beyond simple peer to peer transactions. Operating on the Rootstock (RSK) Bitcoin side-chain, Sovryn’s transactions are merge-mined with Bitcoin, by bitcoin miners, to capitalise on its security model and network effects. The Sovryn financial platform is decentralized, permissionless and never takes custody of your keys/coins. To enable trustless trades and swaps, Sovryn uses an oracle-based Dynamic Automated Market Maker (DAMM).

What is the Sovryn DAMM?

The Sovryn DAMM is an on-chain liquidity protocol that automates decentralised token exchange, allowing all Sovryns to execute trades and swaps trustlessly, while never demanding your private keys. FAQ

So, how does it work?

To execute a trade quickly, liquidity is needed. Sovryn is bound by this requirement; if somebody wants to buy something, there must be another entity selling it. Traditionally, in centralised systems, large market-makers profit from executing these trades en masse. Sovryn has waved goodbye to the likes of centralised services that conventionally provide market-making. However, this creates a need for liquidity to facilitate trades and swaps. Without adequate liquidity, the AMM will suffer high rates of slippage and divergence from assets’ external market price. Sovryn overcomes this through liquidity providers. The AMM will use the liquidity provided to it to execute trades automatically based on its mathematical pre-programming, maintaining accurate asset pricing and amplifying liquidity in the highest demand ranges in the process. In Sovryn, anyone can be a liquidity provider.

Listen to Sovryn’s own Edan Yago’s explanation here

How can YOU earn from the AMM?

Within each pool, a trade generates a fee. These fees are distributed between liquidity providers as a reward, in exchange for their market-making service. The fees collected by the system and rewarded to LPs can be seen here - What are the fees?

But wait, there’s more! Not only can you Sovryns earn from fees generated by all trades, you can participate in Liquidity Mining events. These events reward liquidity providers with SOV tokens, depending on how much liquidity they provide and for how long in a given time frame. As it happens, one such event is live right now! Start your printers, Sovryn’s going BRRRRRR - see the details here.

Liquidity Providing 101

Liquidity providers lock their assets in a pool to act as market-makers in return for LP tokens – a representation and receipt of their share of assets within the pool. The Dynamic aspect of the AMM tackles impermanent loss and exposure to multiple assets by maintaining a dynamically balanced ratio of assets in each liquidity pool. For example, providing liquidity in Sovryn does not require even deposits of both assets within a liquidity pool, allowing providers to deposit only one of the assets on either side of the pool. Furthermore, Sovryn’s DAMM reduces the risk of impermanent loss through dynamic pool weight adjustment. This means that, during imbalances, the DAMM dynamically sets the weights of the pool, such that the arbitrage incentive of equalizing the pool price and an external market price will subsequently increase the pool asset’s current balance to become equal to the staked balance.
Learn all about the technical details of the Sovryn DAMM here.

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