Introduction

The best swaps for Klaytn, in a nutshell.

What is Kokonut Swap?

Kokonut Swap is a next-generation AMM DEX protocol for the Klaytn ecosystem, through which users - or other protocols - can exchange stablecoins with low slippage.

Why do we need a stableswap?

CP-AMM(Constant-product Automated Market Maker) protocols such as KlaySwap are useful for general-purpose liquidity providing and trading. However, when it comes to exchanging assets whose exchange rate is mostly stable - for example, USDT-DAI, KLAY-AKLAY -, their market-making algorithm becomes very inefficient. With CP-AMM Protocols, market takers always suffer from high slippage losses even if there’s a lot of liquidity provided to the pool.

What’s the problem with CP-AMM?

Providing liquidity to CP-AMM is like spreading an infinite number of limit orders on an order book from price 0 to infinity. The thing is, the swap ratio between stablecoins usually stays around 1:1. The rates rarely deviate 20~30% from the equilibrium.

This means that most of the liquidity allocated to price ranges, for example, under 0.8 or over 1.2, is seldomly used because the price rarely gets there. Because of this, the ‘effective’ liquidity that traders utilize is actually very low, even with the high volume of total liquidity provided to the pool.

What’s the alternative?

A hybrid algorithm that utilizes both CP-AMM and CS-AMM can be a good solution. The most well-known example is Curve Finance.

The chart above is from Curve’s whitepaper. It describes how the stableswap invariant works. The inclination of the tangent line of a point on the curve represents the spot price at the point. When x increases, y decreases - and vice versa.

This figure - also from Curve’s whitepaper - describes the price movement of a stableswap from its equilibrium of (5,5). Even when almost 50% of Y token liquidity is taken from the pool, the pool still offers a decent swap ratio with low slippage.

Benefits of Kokonut Swap

Kokonut Swap offers low-slippage swaps between assets with stable swap rates - such as exchanges between USDC and USDT. Since a stableswap’s price adjustment mechanism, compared to that of CP-AMM, depends lesser on the arbitragers, the extra margin benefits the liquidity providers and traders.