Breaking Down Vader: Why It Stands Head and Shoulder Above the Rest

Native Stablecoin (USDV)

As a user looking for a liquidity protocol to trade freely, access to a stable coin is crucial. For example when I think price is facing headwinds and headed lower, I want to lock some profits in USD in order to limit my exposure to huge price swings. To do this there must be a way to sell for a stable coin. A stable coin is a coin whose purchase power is pegged to 1 USD. The most used stable coins at the moment are USDT and USDC. Current DeFi protocols provide access to these stable coins in one way or another. However, not all stable coins are the same. Some require more trust than others. USDT and USDC for example are both stable coins built through 3rd party backing. We have to trust that these stablecoins are backed because the issuers say so. For example Tether states that for every Tether minted 1USD cash or 1 USD worth of bonds enters its treasury. USDC on the other hand claims to be fully backed by cash. For every USDC in circulation there is 1 USD in their treasury. When selling our btc or eth for usdt or usdc we still have to trust that these coins are actually backed. In other words we have to trust the issuer (third party company) isn’t minting coins out of thin air. This can be the source of a lot of speculation, malicious FUD or even panic (from our side as users as well). Tether is famous in this sense, although all stable coins are under close scrutiny by regulators. As recently as last week, for example, the chair of the senate banking committee sent a letter to all stable coin issuers to provide proof of adequate backing. If we don’t want to have to trust someone then a decentralized stable coin seems to be the only way out from both a practical and legal viewpoint.

Liquidity Pools and AMM

For trade to occur through a liquidity protocol, aside from liquidity pools, a piece of algorithm known as AMM is required. What the AMM does, basically, is to make sure buyers or sellers get the best possible price for the asset they are trying to buy or sell. At the same time the AMM has to make sure liquidity providers get a fair fee for the liquidity they provide, and (ideally) that they are rewarded for any extra risks incurred when markets become particularly volatile. Therefore a lot of incentives have to be aligned for this to work smoothly with continuity.

The size of the circle is an indication of the liquidity of the pool. Smaller pools have higher slippage and poorer user experience
In a CLP all tokens use the same settlement base ensuring much lower slippage than if they were split in separate pools
The opportunistic fraction prone to oscillations as per Nansen’s analysis will be a small part of the total liquidity

LPs are Kings

Despite its non dependence on LPs, Vader still offers very strong incentives to make sure the liquidity fraction provided by private LPs is as sticky as possible. It does this by addressing the impermanent loss problem and by offering risk adjusted fees.

Deflationary Tokenomics

Now that we have shed light on all the pieces of the Vader puzzle, it should be easier to see the full picture. Vader is a liquidity protocol with very strong liquidity incentives that will allow it to quickly climb up in terms of market share and compete for market share with established alternatives like Sushi and Uniswap. Current alternatives bear much more risk both for users (because they have no POL which means higher slippage or rug pull risk) and for LPs (because they have no ILP and no slip based fees). As result, with the full launch of the protocol this month and with the start of bond sales I foresee some tectonic shifts as result of which critical masses of users and LPs will slowly slide towards Vader.



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Reviewing crypto projects in my spare time. Most are scams, but there are a few gems.