It’s been an exciting couple of weeks at AllianceBlock, without a doubt. Recently, we took the time to celebrate the release of the AllianceBlock DEX on testnet. We thought it would be great to kick off DEXWeek with the key team members responsible for the new DEX and cover any topics and questions from our #NoMercy community.
AllianceBlock DEX was developed by a team led by Co-Founder and CEO Rachid Ajaja, Chief Research Officer Houman Falakshahi (PhD in Quantum Mechanics from the University of Paris-Saclay), and Head of Quantitative Analytics Matthieu Mariapragassam (PhD in Applied Mathematics from the University of Oxford).
To kick off the DEX Week, they jumped on our Telegram together with our Head of Marketing Michael Borowiec to talk about what makes our DEX special, how it’s going to change the industry and much, much more.
To read the full AMA in our Telegram group, you can go here. You can also go straight to testing our brand new DEX here and access details about the bug bounty here.
#NoMercy!
Impermanent loss and how it affects DEX users
Michael Borowiec (Michael):
In the DEX blog post, we talk a lot about impermanent loss. Why is impermanent loss an issue? How is it stopping the industry from evolving?
Houman Falakshahi (Houman):
Impermanent loss is the risk associated with providing liquidity to DEXs. Due to this risk, when liquidity providers (LPs) withdraw their assets, they tend to recover more of the cheaper asset and less of the more valuable asset. If we forget the fees, they recover less than what they put in the DEX in terms of USD value. This keeps the risk-averse participants away from the industry and prevents a more rapid adoption.
A few solutions have been proposed in the industry with pros and cons, and not always satisfying. For example, Uniswap V3, Bancor etc — only a few innovations have been done and lots of forks which multiply the number of DEXs but don’t add to the innovation to fix the core of the problem.
Matthieu Mariapragassam (Matt):
Indeed Houman — and I wanted to add that impermanent loss is also strongly linked to the “volatility” of the liquidity provider’s (LP) profit and loss, meaning that for a given spot movement, the higher the IL the stronger the impact on the LP’s holdings. An issue that we try to tackle indirectly as well.
What makes AllianceBlock DEX special?
Michael:
Ok, zoning in on our product specifically — what then makes AllianceBlock DEX special?
Houman:
Our approach provides advances on the following points:
- Lower impermanent loss (can be tweaked with a pool parameter)
- New class of AMM, opens new ideas for R&D hence we make the code open source
- Other approaches to reduce the IL one level above the AMM system itself are feasible e.g. liquidity efficiency (Uniswap V3), insurance pools, etc
- Entry amount ratio of tokens is like Uniswap
- Slippage is harder to compute (possibly harder front running)
Matt:
Just to add one last point on the above in line with my previous comment — we also hope to reduce the “variance” of the LP’s profit and loss as well.
How will AllianceBlock drive liquidity to its DEX?
Michael:
Apart from key features that our DEX will include, users and liquidity are everything. How do we plan to drive liquidity into our DEX?
Rachid Ajaja (Rachid):
I think this is a very important question, and I saw many community members have been asking this. I have shared some nuggets before — everything we have done was strategic in order to arrive at this point.
For example, we have 10+ LMaaS clients so far, and many projects are coming. We have $56m TVL in our own Liquidity Mining & Staking campaigns and $100m TVL with all projects using LMaaS combined, which is actually very encouraging.
We will integrate our own DEX to our LMaaS; hence every project will have access and, liquidity migration will be done smoothly and easily.
Also, we will have a big incentive program to bring liquidity to our DEX. Without saying that the DEX will be on multiple chains and L2 and hence $ALBT will be linked to all chain’s native currency and will drive liquidity as well. Everything will be connected later thanks to our Cross-Messaging Protocol to be able to do cross-chain swaps between all the chains that we will support. We will start with EVM (Ethereum Virtual Machine) support and we will also have non-EVM.
#NoMercy is the only way, and the DEX is really a very important block for our whole ecosystem and the potential is really big. We are absolutely happy to be able now to release the work that we have been doing for the last 12 months.
Price Slippage
Michael:
It’s fascinating to hear how we’ll link our existing client base on LMaaS, but let’s address the slippage question. Can you please expand on the current state of slippage on the AllianceBlock DEX and, how do we plan to improve it?
Houman:
Trade-offs are always part of new solutions and it is generally harder to only showcase advantages.
However, during our research, we discovered that there are possible approaches to optimize the slippage with respect to the impermanent loss by finding the best balance between liquidity in the pool and the control parameter (weight). Research in that direction will carry on and possibly be discussed further, as well as be part of an upcoming version.
Matt:
Precisely, also lower impermanent loss would generally be a motivation for liquidity providers to bring liquidity and therefore higher liquidity should help here as well.
DEX fit in the AllianceBlock Ecosystem
Michael:
Okay, with that out of the way, let’s paint us a future picture — how will AllianceBlock DEX interplay with some of the other products in our ecosystem apart from LMaaS?
Rachid:
As said above, DEX is an important block in our ecosystem. After many iterations, we are going toward five big modules that will give us the opportunity to build the decentralized financial infrastructure and be a major actor in bridging traditional finance and DeFi.
- DEX
- Bridge
- P2P Funding (Fundrs)
- Trustless KYC (which will become more general as it will be any type of data Disclaimer: YUGE nuggets)
- Wallet (we will start development first half of 2022)
Now, as you can see, the Bridge will be linked to the DEX; LMaaS as well as it will be integrated into the DEX. Fundrs as well as we need to give the opportunity for projects to have liquidity and be able to trade. The Wallet will, of course, have in-built KYC/AML as well as be fully integrated with the DEX.
This is exactly what makes us super excited, as these five modules will be interconnected and will be able to be the foundation of Finance 2.0 LET’S GO WITH #NoMercy.
The DEX and institutional funding (plus: YUGE nugget from Rachid regarding AllianceBlock’s Wallet and KYC solutions)
Michael:
Great! The interconnection between the ecosystem of our products is huge here. Moving on — how will our DEX help us invite institutional funding into DeFi?
Rachid:
Oh man, I think I am ready to drop another YUGE Nugget!
As you know, in the Compliance and Regulation layer, we are now building the Trustless KYC, which will lead us later on to have the KYC Oracle. This means that people will be able to connect to the DEX via their wallet, for those that are KYC’ed will be able to participate in verified pools that will have a lot of institutional liquidity. The innovation is here — we don’t need to create private pools, but open pools that are listed as verified pools, hence it will bring liquidity from traditional financial players.
We believe this will have an amazing impact on the current state of DeFi and is a step forward in bridging traditional finance and decentralized finance.
Matt:
From a TradFi perspective, participating in a DEX as a liquidity provider bears similarities to some financial derivatives products. Hence, this could fit well within the portfolio of a derivative trader willing to be exposed to this payoff profile while gaining trading fees as a counterpart. Although more research is required on that topic, this also opens possibilities in hedging that risk dynamically.
Houman:
It is good to know the Forex market is one of the biggest in the financial industry; this is where people trade one currency for another. The issuing of stablecoins linked to fiat currencies such as EURT, USDT and the existence of DEXs makes it possible in the near future to make this whole market feasible on the blockchain. Furthermore, this will lead to volumes well above what we know in the crypto space. Besides, if the IL is reduced as made possible with our DEX and KYC, this opens a massive road for an inflow of money from TradiFi into this space.
The road to AllianceBlock DEX Mainnet
Michael:
It’s amazing to see the master plan of inviting institutional players to participate in the opportunities in DeFi. Last one from me — so, AllianceBlock DEX is going live on testnet. What’s next? Tell us about the road to mainnet and what can we expect
Rachid:
This is what everyone wants to hear. We will indeed go live on testnet and we will release an amazing incentive program for users that will test our DEX and send us all potential bugs. We will need to go to mainnet once we are 100% sure that everything is working perfectly. Then we will release on mainnet and we are expecting between 1 to 2 months max before going live. The good thing is that the mainet version will have amazing features that are not on the testnet.
Many people asked us why we are open-sourced and, are we losing our edge? Our edge is our team, and our edge is being always 2 steps ahead, so expect treasury contract, generating passive income thanks to integration between the DEX and yield protocols, and also NFTs will play an amazing role in our DEX, you will see a new way of having strategies which will be wrapped into NFTs. Many things are coming, just fasten your belt, test with #nomercy and let’s go. :)
Houman:
One of the features that will be proposed in the next version of our DEX will focus on allowing single-sided liquidity provisioning (SSLP). This is an important step and many participants are keen to have less exposure than the usual 50–50 into two tokens. There are already some solutions in the market but none of them is satisfying according to us.
Houman:
We will build a technology that will be actually DEX-agnostic and can be proposed on top of any other DEX for proposing SSLP, starting with our own.
Matt:
In the future, we also plan to provide a “Liquidity optimisation layer”. This service will allow for an end-user / participant to monitor and optimise liquidity positions in different liquidity protocols such as DEXs. This offering will evolve with time and provide more and more advanced techniques to help leverage new DeFi technologies.
Community Questions
Will Overledger be integrated into AllianceBlock DEX at some point?
Rachid:
Definitely, overledger is our first partner and trusted us since the start where we were just 3 people and didn’t have a product, also I am absolutely excited about their tech. Overledger will be integrated later on, especially for some specific cases that we will be able to disclose later. For all people asking the question if we will integrate Overledger, the answer is YES, but more details will be released soon, I think it will be more toward 2022 once our product has matured and we go to the next phase. 🔥
What is the UI/UX of AllianceBlock DEX going to look like?
Rachid:
So, for testnet we will have the UX/UI as for Uniswap, as we wanted to be able to test it as soon as possible. The mainnet will have our own UI with analytics, and later on, when we will release our new branding (👀), we will work with Clay for the new UX/UI of our DEX. So expect 3 phases:
Phase 1: testnet — UX like Uniswap
Phase 2: mainnet — Our new UX/UI
Phase 3: NUKE Phase — Collaboration with Clay for fully new UX/UI which will make our DEX in line with all our products. 🚀
How does the DEX fit in with AllianceBlock’s London Stock Exchange partner program?
Rachid:
We are working on an offering and once we have everything signed we will be able to share it with you guys.
Is there any way the average user could help with testing of the DEX on testnet?
Matt:
Yes, later on, users will be able to try out our DEX testnet when it is officially launched and see precisely how it works. We will also be releasing a testnet usage awards programme and a bug bounty for developers in the coming weeks, so more details to come on that matter very soon.
Will there be an SDK for AllianceBlock DEX?
Rachid:
100%, we are fully rebuilding our own SDK which will be released with the mainnet. The SDK is very important for everyone to be able to integrate our DEX. Our third pillar is the DeFi Layer, which will be done with a full SDK and API for easy integration for DeFi projects, and also traditional finance, and lowers the barrier for adoption. In particular, our DEX will be later used for FX/Tokenized Shares etc and will be linked to a yield protocol including Fundrs. Here you can see how all our products are connected and you can see the full picture that we have been building block by block / module by module / no mercy by no mercy mindset. :)
Also, in order to increase the adoption for our Bridge and DEX, we will soon release a new smart contract that will allow any project to choose to use its own token for fees. This will not only increase the utility of our partners’ tokens but also will increase the utility of our own token.
Remember, a few months ago I said: Bridge + DEX + KYC + Fundrs (and now + wallet) is the magic equation that will be the foundation of DeFi 2.0 and, quite simply, Finance 2.0 as we believe, in 10 years we will not speak about DeFi and TradFi but only finance.
Where can we find a feature list of the upcoming DEX? How can we access the testnet version? What will the features include?
Houman:
We will release all the information very soon for you to get access to the testnet version. The first version will be a simple Swap interface indeed, but we will work on delivering other features such as SSLP as mentioned. Features such as Limit Orders rely on layers above the DEX and this is for our next versions where we want to provide intelligent layers to optimize liquidities and also propose smart routing for trading on top of limit orders.
Apart from IL reduction, how else is the AllianceBlock DEX better than the competition?
Houman:
We worked to reduce the IL at the core of the AMM. The AMM will offer a similar entry ratio to Uniswap with any weight you choose for IL reduction, which is not the case with Balancer for example. There are interesting properties on the slippage as well — the calculation to predict the slippage is less straightforward, which should make front-running more challenging. Also, the approach is new and opens the road for further research.
So, the AllianceBlock DEX will be fully ready in 1–2 months?
Rachid:
This is our target, yes; the DEX has its own roadmap with many features. We have an amazing team with brilliant backgrounds. We have Thomas, our new Quant, that is coming from Rothesay, Yassine, our Chief Investment Solution, he was Director at BAML at the Quantitative Index Strategy. We have more PhDs in maths and AI that are joining us, we want to become the standard of Quantitative DeFi.
Is there any Fiat-On-Ramp solution (with decentralized KYC), or will we have to use another exchange to deposit/payout fiat money?
Rachid:
This is a very good question and yes, we are already working on potential solutions. We are also now looking to hire one of the biggest names in Compliance who will become our Chief Compliance & Risk Officer in order to start applying for FINMA licences and hence we will be able to allow our users to deposit fiat, and thanks to our technology we will be able to make this fiat work via a fiat on-ramp. In addition, we are specifying a new solution for Stablecoins backed by assets (they can be crypto, FX, collectable, NFT…) and hence drive the usage of our DEX.
To put it simply, our vision is to become the Palantir / Google of DeFi and the next generation of finance, and we truly believe that we have an amazing no mercy team in order to achieve this.
We have spent many months working on the Values and Culture that define us and we finally have it. I am sharing it here, BE READY!
This is who we are, this is what characterizes us, and this is why we have what it takes to achieve our YUGE vision.
Are there any plans on “front running” prevention?
Matt:
That’s a good question — at the moment, there is no plan on front running prevention but we definitely have not closed possible research projects on the subject. Our hope is that, since the slippage is not a function of the pool reserves only (but also other complex to compute variables), this could be the building block for new possibilities in making front-running harder on the AllianceBlock DEX.
Is there any reason ETH won’t be a chain on testnet DEX ?
Rachid:
ETH is the mother of chains, however, given the amount of calculations we are doing, we saw that it will cost a lot of gas. Given that we want to be able to release the DEX as soon as possible, we have chosen the chains with the lowest transaction fees and, in parallel, we are doing research in order to optimise the gas fees. For Polkadot supporters, we are also working on deploying on several parachains, including ink! based parachains.
Will SSLP (Single-Sided Liquidity Provision) become available on testnet or only mainnet down the line?
Houman:
SSLP won’t be available on testnet. We are in the middle of finalizing this at a theoretical level — this will be proposed as an agnostic layer in the future versions which can be applied to any DEX including Uniswap, Balancer etc. So this is planned for the V2 of our DEX, but also for other DEXs.
Are you planning to open-source the code for AllianceBlock DEX?
Rachid:
I want to add something about open-sourcing. I spoke about it quickly before, but I want to assure our community that after a lot of thinking, we have chosen to open source it for two reasons:
1. Innovation in the DEX space stagnated in the last 6 months because of the forking, Balancer has done amazing job for bringing their generalized CFMM, Bancor participated hugely to this innovation with their SSLP, 1inch as well with their aggregator, however we noticed that the innovation has stopped. The only way to drive innovation again is to have open source technology that people will understand, challenge, find pros and cons, and build on top of it. This is the only way to make the DeFi space the best space in terms of innovation, and we want to be the driver.
2. Having said that, we are aware that open source technology can make us lose our edge, this is why we have done it only because we are already 2 steps ahead with many features that will bring innovation to DeFi.
Will the actual KYC review be done by a third party or AllianceBlock?
Rachid:
We have released our big partnership with GBG, one of the leading KYC / AML providers, the checks must be done by a known service provider, our innovation is the way we deal with the data, how it is encrypted and all our work on decentralised policies that will deal with the role based access control.
For those who read all my nuggets, should know which technology we are leveraging to build these decentralized access policies. :)
I think I will do a quiz about all the nuggets and the one that reads the different channels will be able to win something cool. Michael, I think we have something here. :)
Will there be any partnerships with Vectorspace AI as they are also into data sets?
Rachid:
I see this question coming a lot. I had the occasion to speak with the CEO, and we agreed to speak again once we have our data tunnel with our own ABQL, and then we will be able to work on the synergies between our own projects. Once we start the discussions, we will let you know as usual.
Maybe the team can consider doing multichain farming as a sub-product for the AllianceBlock DEX?
Rachid:
Interesting question, with all that we said here, you can see that it will be planned, Bridge + AllianceBlock DEX+ Fundrs then we will have our orchestrator layers, which will take liquidity of users and allocate it across chains and across pools, and will automatically reallocate the liquidity given certain parameters. So the users will not need to jump from pool to pool or chain to chain.
What about the other things on the roadmap, are they on time?
Rachid:
Fundrs will come soon after, KYC we are making amazing progress and be ready as it’s an absolutely unique tech. We will also have our own issuance platform to issue structured products (stay tuned) and because we are here, let me share with you a YUGE Nuggets 3.
This is a sneak peek of our Terminal, with an inbuilt IDE to be able to query data, drag and drop. This is what will connect everything.
We will also share our Beta of DataQuasar, which is the Enterprise Grade API with highly scalable and available infrastructure that aggregates all DeFi data across different chains and gives access through API endpoint. In The Quantitative Finance world, we have what we call the QA library with all models, here we will have a QA DeFi library that will be built in Rust.
Building the future takes time, but it needs to be done step by step and we always keep in mind the product-market fit.
Last nugget for today, it’s been 6 months we have been working with our partner Databricks, to have anomaly and fraud detection. It is much more advanced than chain analysis, and based on an amazing ML / DL framework to be able to spot illicit wallets, but I will leave the rest for later. I think I have dropped a huge tsunami of nuggets.
We hope you enjoyed this recap and the rest of the #DEXWeek. We’re also excited to announce that our DEX is live on testnet. You can access it here and head here for more usage and bug bounty information.
About AllianceBlock
AllianceBlock is bridging the gap between decentralized finance and traditional finance, by remedying issues that exist in both spheres and linking them more closely together. They see the future of finance as an integrated system in which the best of both worlds can work together to increase capital flows and technological innovation.
Building this future by bridging traditional finance with compliant, data-driven access to new decentralized markets, DeFi projects, and ecosystem-scaling tools such as funding and interoperability. As such, they are building a next-generation financial infrastructure that aims to provide regulated financial entities around the world with the tools they need to seamlessly access the DeFi space.
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