DODO Exchange is a platform that supplies on-chain liquidity in order to support the Proactive Market Maker algorithm (PMM) to provide everyone with pure and contract-fillable liquidity on the blockchain.
At present, the decentralized finance (DeFi) space has multiple decentralized exchanges (DEXs) available for traders to select. But, only a few DEX platforms outperformed the general crypto market as Uniswap did. But even the aforementioned platform has some imperfections which have to be solved.
A new addition to the DEX arena, DODO Exchange aims to grab market share by strengthening the imperfections of Uniswap. But how does it aim to do this? It basically works via a new algorithm for market-making, which increases liquidity and attempts to eliminate impermanent losses.
Table of Contents
Overview
DODO is an automated on-chain market maker (AMM) launched recently. As the platform can respond to growing markets and liquidity constraints in real-time, it is considered to be more advanced than standard AMMs like Uniswap or Curve.
The motivation behind the project was derived from the theory that DeFi protocols are unable to distribute their liquidity, and DEXs are at the hands of centralized exchanges.
Background
Experience is crucial, particularly for DeFi projects that develop an alternative financial system’s basic infrastructure. Mingda Lei, a Ph.D. dropout from Peking University, is the DODO co-founder. He is also the architect behind the constructive market-making formula for the protocol. Previously, Lei worked as a key developer at DDEX, a DeFi margin trading site.
The second co-founder is Qi Wang. He is a developer who designed DOS Network, a China-based layer two oracle service. Before stepping into crypto, Wang worked as a software developer for firms like Pure Storage and Oracle.
The third co-founder is Diane Dai. She handles DeFi Labs, which is a subscription-based WeChat channel.
All three DODO co-founders are experts in the blockchain industry.
The platform recently completed a seed round with the participation of prominent investors such as Bobby Ong (CoinGecko), Framework Ventures, Jason Choi (Spartan Group), DeFiance Capital, Spencer Noon (DTC Capital), and Robert Leshner (Compound), despite the fact that the competition is immense in the AMM space.
High-caliber investors from DODO will provide appropriate experience and a network for the project to cement its development. In particular, Framework Ventures is known for bringing harmony among its different acquisitions, such as Chainlink, Aave, and Synthetix.
What is DODOEx?
DODO Exchange is a platform that supplies on-chain liquidity in order to support the Proactive Market Maker algorithm (PMM) to provide everyone with pure and contract-fillable liquidity on the blockchain.
The network continues to deliver digital asset trading on-chain but boasts fair order execution for centralized trading platforms. In this ecosystem, liquidity providers (LPs) and arbitrageurs still play a vital role, and the DODO team appears to have virtually removed impermanent losses.
The two sides of a trading pair need not be supplied by DODO LPs. LPs will apply single-asset liquidity to either pool to start collecting commissions.
Due in part to a tweak to its market-making algorithm dubbed “Proactive Market Maker” (PMM), it achieves all these solutions. DODO leverages the following formula instead of Uniswap’s x*y = k:
Pmargin = iR
The symbol ‘i’ refers to an asset’s market price, and ‘R’ refers to the risk factor. The interpretation of “R” is crucial to understanding how DODO stimulates high liquidity at precise rates.
AMM depends passively on arbitration dealing to adjust prices as the market price changes. On the other hand, to ensure that the segment in the vicinity of the selling price stays flat, PMM proactively moves the price curve in the same direction. This means ample liquidity is continuously given.
A ground-breaking algorithm called the Proactive Market Maker (PMM) is driven by DODO. To restore correct market values of assets as input, PMM leverages price oracles. It then attempts to have ample liquidity for any commodity near the market price. The effect is that as far away from the stock price, liquidity declines easily. The diagrams below compare the DODO (PMM) and Uniswap (AMM) price curves.
It is quite transparent that the PMM curve is marginally flatter than the AMM curve near the market price. This implies significant usage of funds and lower slippage. Moreover, prices provided by Proactive Market Maker are more favorable than AMM.
DODO Token
The overall supply of DODO tokens will be one billion and 60% of it is distributed to community incentives in a sequence of services that it calls ‘DODO Carnival’ jointly. The first of which, named ‘Gray Parrot’, is underway and covers the supply of liquidity and airdrops.
The next 15% of the tokens will be locked up for one year and released linearly over the next two years to the potential recruits, main staff, and advisers. Furthermore, 8% will be given to operations and marketing, 16% will go to customers, and the remaining 1% will be used for the initial provision of liquidity.
At present, The circulating supply of the DODO token is 12 Million.
Initial DODO Offering
The Initial DODO Offering (IDO) is a whole new solution to the distribution of crypto assets. Instead of paying huge listing fees to get listed on CEXs, it’s free to list assets on DODO.
Normally, the PMM algorithm needs a price oracle to provide liquidity, but you can easily set the oracle price to a constant and launch an initial DODO offering when there is no external demand which is typically the case when you are only beginning your asset offering efforts.
Mining and Staking DODO
DODO accepts the reserves of liquidity suppliers. To have ample liquidity, it receives funds close to market rates. DODO dynamically changes market rates to allow arbitrageurs to move in and stabilize the portfolios of LPs in order to minimize counterparty losses for them. The features can be described as below:
1) On asset types, there are no minimum deposit conditions and limitations
2) With each purchase, DODO charges a fee and ultimately distributes it to LPs as compensation.
3) With their own tokens, LPs may generate trading pairs
4) LPs can gain liquidity without taking on price pressure by depositing the tokens that they already own.
Chain Link Integration
The impermanent loss also ends up as a persistent loss on Uniswap. And because of the deep slippage they incur with greater exchange sizes, big traders are put off by 50-50 AMMs. This is where alternatives like DODO come up in the right direction.
The use of market oracles by DODO instead of simply managing liquidity around a constant formula allows the AMM to give better terms to traders and LPs. Traders have access to greater slippage liquidity than Uniswap, and LPs require only one token to deposit, possibly mitigating impermanent loss problems.
One problem is that LPs could already face a loss on DODO without sufficient trading volumes. If liquidity is used by traders while overall fees received by LPs are poor, a loss would be the net result. For LPs to make stable market-making gains on DODO, demand needs to rise gradually. The protocol is still in a preliminary stage, but demand may be less of a concern than ensuring that the system performs well.
Conclusion
The protocol may be in a preliminary stage, but volume is may not be much of a problem if the product performs well. If everything runs accordingly, DODO might give other AMM platforms a serious run for their money.
Automated supply of liquidity combined with an order book’s price and liquidity might actually turn into an effective and beneficial combo and the best iteration of AMMs.
