Lifinity released its Litepaper recently. There are no more details than the concept of modifying the liquidity distribution curve and the necessity to balance the single currency pool. By no chance we can get the real answer to its magics, at least from the litepaper.

There's no mention of any argumentation process for its algorithm, like how to introduce the oracle price p in their freshly constructed xy=ck formula. But this is important to the point that they'll use oracle price to realize the liquidity distribution.

It doesn't matter though. I suggest anyone who is interested in Lifinity to read DODOex's PMM algorithm first. Dodo's whitepaper can give you even more details about it. Yes, no one can deny that Lifinity is a product forked from Dodo.

Thankfully, the PMM algorithm document described the algorithm more clearly and we can continue with the analysis (so ironic). Next, we can refer to this type of liquidity market-making algorithm as the PMM-Style algorithm because it is dependent on the price of the oracle.

The crucial risk of the PMM algorithm is that the Liquidity Providers who provide their liquidity into Lifinity will lose money.

Assume that a user buys 100 SOLs for $100 and sells 100 SOLs for $103 on SOL-USDC pool, in which case the market-making LP's floating loss is -300 dollars. This element of the loss is referred to as impermanent loss on CPMM, and it is a time-weighted long option. The PMM-Style algorithm, on the other hand, depends on the rate at which the oracle's pricing changes.

Therefore, as price changes fast, this loss may continue to appear to lose LP.

When considering the volatile market conditions, 100x trading depth as indicated by Lifinity, the price of CEX tends to be more erratic. Lifinity may provide the best liquidity at the worst pricing during extreme market situations.

We also discovered that this fraction of the loss was unavoidable. The LP will lose money as long as the user's profit exceeds the total of the two fees.

Speaking of which, some may believe that if the staking period is long enough, the LP may always recoup its losses through fees, so subsidizing the price of token. The remaining issue is that the PMM-Style algorithm's mechanism does not totally restore the taker order fee to the LP pool, but instead maintains the single currency pool's balance by supporting arbitrageurs.

from the 7-11,we can get the conclusion that the PMM-Style algorithm will always bear the LP loss risk, and the expected return will be significantly lower than the market average.

Is this what Lifinity purports to be in the absence of impermanent loss? It's nothing more than raising the trading volume to smooth out this component of the loss and hide this element of the loss data. This is why DODO created an aggregate transaction and an IDO launch platform after finishing the PMM. This is primarily to increase trading volume of the platform in order to compensate for this portion of the loss.

In this extreme situation, the loss is related to the PMM value “ k”. The greater the value of k, the greater the trading depth and the lower the LP loss. Lifinity changed the parameter c to a number significantly higher than the typical level based on his crazy alteration of DODO. This means it takes far more risk on permanent losses than DODO.

Lifinity is currently using a custodial fundraising approach. There is no data to be found. I have every reason to believe they are concealing the truth that the entire system is losing money on purpose. This is also why it refused to allow ordinary users to deposit into LP before IDO.

The second risk is that smart contracts are unable to quantify trend trading.

Smart contracts are completely incapable of quantifying trend trading using current technical techniques. The same market-making algorithm is either neutral, long-biased, or short-biased (CPMM is a typical long attribute AMM algorithm). According to Lifinity’s description, its protocol will actively judge the trend to buy low and sell high, which is absolutely irrational.

I've attached two photos of the SOL-UST and SOL-USDC pools, which I took on April.4th. The SOL-USDC pool was created on February 17th, where price of SOL was $100. The SOL-USDT pool was created on March 16th, where price of SOL was $90. Then, I found that SOL's market price was $137 on April 4th, . Why does a pool built at a low cost of $90 is losing money while a pool built at a higher cost of $100 is making money?

The logic of market-making algorithms in general cognition is absolutely incompatible with this. It also proves beyond a shadow of a doubt that Lifinity's ostensibly "smart contract market making" does not exist. We have to believe that they are manipulating the funds in the pool to carry out so-called "smart market-making." Only this can account for the disparities in the outcomes of the same pool in the same market.

The third risk is the massive veLP profit redemption pressure was used to keep the deceit going.

Following the Lifinity ve-IDO crowdfunding, the funds raised will be controlled by the project party, who will also manage the liquidity. As we previously discussed, using the PMM algorithm in this manner will result in LP losses, and their ostensibly smart market-making does not exist at all. In other words, the LP's income is entirely unpredictable. In other words, Lifinity IDO participants are making a rug pull by purchasing Lifinity’s token with legit money.

So, how do you get the Lifinity-promised ultra-high market-making income? I believe that following IDO, Lifinity was confronted with veLP redemption pressure and had to choose between lowering profit on data or using funds from IDO to support veLP holders in the long run while continuing to entice Liquidity providers to deposit funds by faking data.

In any case, this is unsustainable. This is why I believe Lifinity is a rug - I'm not squandering it on malice.