Author：@FINT1121

Translator：@Chendashan_pat

Edit: Crush

*This article is about 1280 words. The estimated reading time is 3minutes.

As the market focused on the series of market shocks caused by the FTX bankruptcy, the number one DEX in the Avalanche chain, Trader Joe, quietly went live with a newly structured automated market maker model, Liquidity Book.

Joe's technology upgrade path is similar to that of Uniswap, with both Joe v1 and Uni v2 being built on the x*y=k Automated Market Make model (AMM), which has seen exponential growth and adoption throughout DeFi in the past.

The x*y=k model provides a directly accessible and convenient way for users to secure a liquid trading token venue. However, this protocol design runs the risk of capital inefficiencies and high impermanent loss, so the model is destined to be a transitional solution.

Joe's Liquidity Book is a benchmark for Uni v3. It is much more potent than Uni v3. To illustrate, it offers more efficient capital utilization, flexibility in providing liquidity settings, and better combinability.

Similar to the benefits of Uni v3, liquidity providers using Liquidity Book can earn more commissions than traditional AMMs while putting less capital at risk of infrequent losses. Traders can get better quotes and lower slippage on trades, thus optimizing capital efficiency. In traditional x*y=k AMMs, deposited liquidity is spread evenly across all price ranges - from zero to infinity.

While this means that the liquidity pool always has tokens available for trading at any price, it also means that a large proportion of the liquidity remains unused.

Bins are the most important new concept in Liquidity Book. The graph below shows the liquidity distribution of a token X (blue) - token Y (orange) pair, with the horizontal axis representing the price and the vertical axis representing the depth of liquidity.

The current price of Token X can be described as the price set by the price bin containing both Token X and Token Y.14 (Figure P14 below, within the mixed blue-orange bar, P refers to price).\ It can be seen that the price bins exclusive to token Y are all located on the left and consist of (P11-P13), while the price bins exclusive to token X are on the right and consist of P15-P17. Once the liquidity of the current bin (P14) is completely exhausted (i.e., the price bin consists of only one token at this point), the price will be updated (It may move to the left or right) to the next bin.

[As an example, suppose a user sells Y and buys X in a frenzy while trading against the price of P14. As X tokens are bought, Y is gradually injected, and the percentage of orange in P14 increases till P14 becomes completely orange. At this point, the Y that continues to be sold is injected into P15, and thus the price becomes 15].

The price position allows for zero slippage on some trades, as each position is set to represent a fixed price and the price impact of the trade only occurs when the current price position runs out of liquidity and needs to be moved. That is to say, if the current price position is deep enough and the trade volume is small, no slippage will occur. This is the condition for a zero-slippage trade to occur.

Another advantage that price positions bring is composability. After depositing liquidity, the liquidity provider receives a fungible token (ERC 20) instead of a non-fungible token (NFT), as with other centralized liquidity solutions such as Uni v3. This design opens up new possibilities for Joe to integrate with third-party DeFi protocols.

In contrast to Uni v3, which can only choose to provide uniform liquidity in one band, Liquidity Book allows users to choose in a more flexible way at what price to provide non-uniform liquidity. In addition to the traditional Uni V2, the official front-end page offers three strategies for adding liquidity structures.

This strategy can spread liquidity evenly over a specific range or place it entirely within a single position. This approach is equivalent to the way Uni v3 is set up. If funds are concentrated into the same price bin, it is equivalent to setting a narrow range in Uni v3, allowing for a zero-slip buy-sell pending order operation.

This strategy allocates liquidity along a "normal distribution curve" using a given price as the axis of symmetry, making it quantitatively similar to an order book exchange liquidity.

The liquidity provider will take a fee for allowing price rises and falls while concentrating liquidity around certain price points. The advantage is that it can earn fees whether the market is flat or volatile, and the value capture ability is better than the Spot Uniform strategy when the market is range bound with small shocks.

However, the risk of impermanent losses is magnified in extreme one-sided markets.

This strategy mimics the bid/ask spread of the exchange order book, allowing the liquidity provider to capture fees in times of market volatility. This strategy can be used in pairs with concentrated liquidity and stable prices (e.g., sAVAX-AVAX) to capture large buy or sell orders. It avoids unpredictable losses when the pair regains stability.

In addition, Joe also supports customized liquidity provision strategies that can further customize the user's liquidity structure. Professional users can create and manage any form of liquidity structure through execution at the contract level, such as Ranged Limit Orders, De-peg Bet, Ladder Orders, etc.

For more instructions, please refer to the official documentation at

https://docs.traderjoexyz.com/guides/manage-a-liquidity-position

Research has shown that up to three-quarters of liquidity providers on Uniswap v3 are losing money compared to those who hold tokens. The narrow range of liquidity, coupled with the violent unilateral movement of the market, is key to the increased impermanent losses.

For this reason, Liquidity Book has introduced an innovative Volatility Accumulator to measure the market's volatility to reduce erratic losses. The Volatility Accumulator calculates the currency pair's volatility based on the cumulative value of the number of price pins spanned by each trade minus the time elapsed since the last trade.

If the interval between trades is short and the volume of trades is high, then the volatility will increase. In this way, Joe can measure the volatility of a pair without bringing in external data sources, which as a Dex, is a good way to keep the bottom line of not introducing external risk.

With the Volatility Accumulator, Liquidity Book's LP can automatically adjust the transaction fee rate based on volatility. Joe divides the transaction fee into two components, Base Fee and Surge Pricing.

The base fee represents a fixed rate of fees for the transaction pair, while the variable fee depends on the volatility accumulator.

If volatility is high, fees rise to compensate liquidity providers for their risks and costs. On the other hand, when volatility is low, fees are reduced. In addition, variable fees allow volatile market conditions to attract liquidity to join, helping maintain liquidity depth when it is most needed.

Overall, Joe has been able to deliver this upgrade that does optimize many of the pain points of Uni v3 in the face of the recent downturn in the market environment.

However, for well-known reasons, Joe's Avalanche ecosystem is shrinking, and as Joe is still a single-chain Dex, Success or failure will depend on whether his ecosystem recovers mainly.\ If the market (Avax) recover or Joe chooses to move to another ecosystem, and with the current DEX>CEX narrative, it is possible that Trader Joe could become a super star in the Dex race.

Author：@FINT1121

Translator：@Chendashan_pat

Edit: Crush

*This article is about 1280 words. The estimated reading time is 3minutes.

As the market focused on the series of market shocks caused by the FTX bankruptcy, the number one DEX in the Avalanche chain, Trader Joe, quietly went live with a newly structured automated market maker model, Liquidity Book.

Joe's technology upgrade path is similar to that of Uniswap, with both Joe v1 and Uni v2 being built on the x*y=k Automated Market Make model (AMM), which has seen exponential growth and adoption throughout DeFi in the past.

The x*y=k model provides a directly accessible and convenient way for users to secure a liquid trading token venue. However, this protocol design runs the risk of capital inefficiencies and high impermanent loss, so the model is destined to be a transitional solution.

Joe's Liquidity Book is a benchmark for Uni v3. It is much more potent than Uni v3. To illustrate, it offers more efficient capital utilization, flexibility in providing liquidity settings, and better combinability.

Similar to the benefits of Uni v3, liquidity providers using Liquidity Book can earn more commissions than traditional AMMs while putting less capital at risk of infrequent losses. Traders can get better quotes and lower slippage on trades, thus optimizing capital efficiency. In traditional x*y=k AMMs, deposited liquidity is spread evenly across all price ranges - from zero to infinity.

While this means that the liquidity pool always has tokens available for trading at any price, it also means that a large proportion of the liquidity remains unused.

Bins are the most important new concept in Liquidity Book. The graph below shows the liquidity distribution of a token X (blue) - token Y (orange) pair, with the horizontal axis representing the price and the vertical axis representing the depth of liquidity.

The current price of Token X can be described as the price set by the price bin containing both Token X and Token Y.14 (Figure P14 below, within the mixed blue-orange bar, P refers to price).\ It can be seen that the price bins exclusive to token Y are all located on the left and consist of (P11-P13), while the price bins exclusive to token X are on the right and consist of P15-P17. Once the liquidity of the current bin (P14) is completely exhausted (i.e., the price bin consists of only one token at this point), the price will be updated (It may move to the left or right) to the next bin.

[As an example, suppose a user sells Y and buys X in a frenzy while trading against the price of P14. As X tokens are bought, Y is gradually injected, and the percentage of orange in P14 increases till P14 becomes completely orange. At this point, the Y that continues to be sold is injected into P15, and thus the price becomes 15].

The price position allows for zero slippage on some trades, as each position is set to represent a fixed price and the price impact of the trade only occurs when the current price position runs out of liquidity and needs to be moved. That is to say, if the current price position is deep enough and the trade volume is small, no slippage will occur. This is the condition for a zero-slippage trade to occur.

Another advantage that price positions bring is composability. After depositing liquidity, the liquidity provider receives a fungible token (ERC 20) instead of a non-fungible token (NFT), as with other centralized liquidity solutions such as Uni v3. This design opens up new possibilities for Joe to integrate with third-party DeFi protocols.

In contrast to Uni v3, which can only choose to provide uniform liquidity in one band, Liquidity Book allows users to choose in a more flexible way at what price to provide non-uniform liquidity. In addition to the traditional Uni V2, the official front-end page offers three strategies for adding liquidity structures.

This strategy can spread liquidity evenly over a specific range or place it entirely within a single position. This approach is equivalent to the way Uni v3 is set up. If funds are concentrated into the same price bin, it is equivalent to setting a narrow range in Uni v3, allowing for a zero-slip buy-sell pending order operation.

This strategy allocates liquidity along a "normal distribution curve" using a given price as the axis of symmetry, making it quantitatively similar to an order book exchange liquidity.

The liquidity provider will take a fee for allowing price rises and falls while concentrating liquidity around certain price points. The advantage is that it can earn fees whether the market is flat or volatile, and the value capture ability is better than the Spot Uniform strategy when the market is range bound with small shocks.

However, the risk of impermanent losses is magnified in extreme one-sided markets.

This strategy mimics the bid/ask spread of the exchange order book, allowing the liquidity provider to capture fees in times of market volatility. This strategy can be used in pairs with concentrated liquidity and stable prices (e.g., sAVAX-AVAX) to capture large buy or sell orders. It avoids unpredictable losses when the pair regains stability.

In addition, Joe also supports customized liquidity provision strategies that can further customize the user's liquidity structure. Professional users can create and manage any form of liquidity structure through execution at the contract level, such as Ranged Limit Orders, De-peg Bet, Ladder Orders, etc.

For more instructions, please refer to the official documentation at

https://docs.traderjoexyz.com/guides/manage-a-liquidity-position

Research has shown that up to three-quarters of liquidity providers on Uniswap v3 are losing money compared to those who hold tokens. The narrow range of liquidity, coupled with the violent unilateral movement of the market, is key to the increased impermanent losses.

For this reason, Liquidity Book has introduced an innovative Volatility Accumulator to measure the market's volatility to reduce erratic losses. The Volatility Accumulator calculates the currency pair's volatility based on the cumulative value of the number of price pins spanned by each trade minus the time elapsed since the last trade.

If the interval between trades is short and the volume of trades is high, then the volatility will increase. In this way, Joe can measure the volatility of a pair without bringing in external data sources, which as a Dex, is a good way to keep the bottom line of not introducing external risk.

With the Volatility Accumulator, Liquidity Book's LP can automatically adjust the transaction fee rate based on volatility. Joe divides the transaction fee into two components, Base Fee and Surge Pricing.

The base fee represents a fixed rate of fees for the transaction pair, while the variable fee depends on the volatility accumulator.

If volatility is high, fees rise to compensate liquidity providers for their risks and costs. On the other hand, when volatility is low, fees are reduced. In addition, variable fees allow volatile market conditions to attract liquidity to join, helping maintain liquidity depth when it is most needed.

Overall, Joe has been able to deliver this upgrade that does optimize many of the pain points of Uni v3 in the face of the recent downturn in the market environment.

However, for well-known reasons, Joe's Avalanche ecosystem is shrinking, and as Joe is still a single-chain Dex, Success or failure will depend on whether his ecosystem recovers mainly.\ If the market (Avax) recover or Joe chooses to move to another ecosystem, and with the current DEX>CEX narrative, it is possible that Trader Joe could become a super star in the Dex race.