DEEPER: Enhancing Liquidity in Concentrated Liquidity AMM DEX via Sharing

This paper presents Deeper, a design for a decentralized exchange that enhances the average active liquidity via reserve sharing. By doing this, it addresses the problem of shallow liquidity in low trading volume token pairs. Deeper allows liquidity providers of multiple trading pairs against a common token to share liquidity. This is achieved by creating a common reserve pool for the shared token that is accessible by each trading pair. Independent from the shared liquidity, providers are free to add liquidity to individual token pairs without any restriction. The trading between one token pair does not affect the price of other token pairs even though the reserve of the shared token changes. The proposed design is an extension of concentrated liquidity market maker-based DEXs that is simple enough to be implemented on smart contracts. Experiments show that for a batch consisting of 8 trading pairs, Deeper enhances liquidity by over 2.6 − 5.9 ×. This enhancement in liquidity can be increased further by increasing participating tokens in the shared pool.

I. Introduction

Following the success of Ethereum [1], blockchains are fostering the promise of decentralization by removing central points of failure and bringing trustlessness in traditional technology sectors. This includes revolutionizing Financial Technology (FinTech) with Decentralized Finance (DeFi) [2], research platforms with decentralized science [3], gaming with game finance [4], web services [5], supply chains [6], and social engagement platforms [7]. A key aspect in the design of a decentralized model is an economic incentive that is enabled using cryptocurrency tokens [8]. Apart from incentives, tokens can provide utility in web applications, governance rights via voting, or tokenization of real-world assets [9].