Capital Efficiency

OrdiAMM Liquidity Protection Efficacy Compared to General AMM

The OrdiFi AMM model combines the concentrated liquidity feature with the dynamic liquidity adjustment mechanism to create a highly capital-efficient AMM system. Here’s a detailed explanation:

Concentrated Liquidity

We introduce concentrated liquidity into OrdiFi, allowing liquidity providers (LPs) to allocate their capital within specific price ranges. This model is represented by the liquidity curve formula:

$L = k \cdot \sqrt{xy}$

Where x and y are the reserves of the two assets, and k is a constant.

Dynamic Liquidity Adjustment

OrdiAMM adjusts the LPs' price ranges automatically in response to price changes. It repositions liquidity to maintain capital efficiency and avoid inactive liquidity when the market price moves outside the LP's range.

OrdiFi leverages liquidity concentration and incorporates LP dynamic adjustments. The AMM automatically adjusts the LP's price range to keep liquidity active.

1. Initial Liquidity Position: $L_{\text{initial}} = k \cdot \sqrt{x_{\text{initial}} \cdot y_{\text{initial}}}$

2. After Price Change (without range adjustment): $L_{\text{inactive}} = 0$

3. After Price Change (with OrdiFi's Strategy Suite adjustment): $L_{\text{adjusted}} = k \cdot \sqrt{x_{\text{adjusted}} \cdot y_{\text{adjusted}}}$

Capital Efficiency Improvement

The capital efficiency improvement is quantified by the active liquidity ratio before and after the adjustment.

OrdiFi AMM's integration of concentrated liquidity with dynamic adjustments maximizes capital efficiency and minimizes manual LP effort, representing a significant advancement in DeFi liquidity management.

In addition, according to the testing data, OrdiFi can increase the efficiency of capital by 100x compared to normal Swaps, which means that the same amount of capital in OrdiFi can earn 100x fee input than normal Dex.