Dec 14, 2020
Baccarat prevents the liquidity risks and eliminates the worries of market traders. How does the NGK DeFi project algorithm work?
The new project is based on the transaction model of AMM (i.e. Automated Market Maker) exchange pool. Any NGK token can be deposited into Baccarat. After establishing a new exchange pool transaction pair, any player can perform token and NGK transactions in this exchange pool.
Since the price and exchange rate are determined by the ratio of the two tokens in the pool, when the exchange price in the pool differs from the market price, the users are attracted to carry out arbitrage transactions, so that the price is close to the market price, but the loss due to market arbitrage and impermanence is too high. If the platform’s subsidy to the liquidity provider is not sufficient, no one is willing to take the risk, resulting in insufficient liquidity in the market and increased transaction slippage in the exchange pool, which will also increase the transaction cost of traders.
In order to solve this risk issue, the Spirit Stone technical team found a new way to deal with the problem of insufficient market liquidity from another perspective. Most other exchanges solve the problem of absorbing liquidity from other exchanges to make up for their own liquidity shortage. The users dock with the exchange pool and then connect with other liquidity providers from the exchange pool. However, NGK team directly uses the transaction splitting so that users can achieve the lowest market transaction costs and the overall transaction process is transparent to make transactions fairer and more open. At the same time, like the problem of Uniswap, the order split mode accommodates large transaction orders, the lack of transaction immediacy caused by excessive splitting will create another transaction cost.
The new DeFi project-Baccarat is actively lowering the threshold of market maker to achieve deposit-based market-making. It uses the concept of on-chain liquidity providers, and the Proactive Market Maker (PMM) to improve the liquidity of the market and eliminate the impermanent losses. Besides, the operating mode of Baccarat is simpler. The traditional market-making model requires a quantitative strategy to achieve profitability with order spreads and hedging positions to withstand the large market fluctuations, as well as the risk of excessive unilateral positions. In Baccarat, only separate types of assets need to be deposited. The market making operations through PMM only need to bear the risks caused by the unilateral currency fluctuations. The income aspect has changed from arbitrage and handling fee subsidies to the nature of deposits. The procedures are generated by the traders’ profit sharing from fees. The platform’s PMM adjusts the balance of tokens in the fund pool to better fit the market price curve. When the market maker’s quotation and the market quotation fit more closely, the capital utilization is higher, and the transaction cost is lower. In addition, when the tokens in the fund pool are not balanced, the arbitrageur trades to balance the tokens in the fund pool by selling the tokens with a high proportion at a more favorable price.
