Dynamic Liquidity Provision: AI-Powered Capital Efficiency

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Introduction

Decentralised finance (DeFi) at its core is fundamentally reliant on decentralised exchanges (DEXs). These pieces of web3 infrastructure are the arbiters of liquidity, facilitating the exchange of cryptocurrencies. Most of these DEXs, being reliant on automated market makers (AMMs), decide which price ranges to allocate liquidity towards in a token pool. The more accurate the allocation, the more efficient and performative the trading experience. Therefore, the success of any DEX is contingent on the effectiveness of its AMM. An ecosystem without efficient DEX infrastructure is less likely to succeed under the financial strain it places on users.

Without the development and deployment of DEXs atop advanced AMM infrastructure, DeFi itself would not be where it is today. Nevertheless, DeFi trading infrastructure has a long way to go before it catches up to the efficiency of TradFi infrastructure. This will necessitate the implementation of more advanced AMMs which rival the order book and market maker model employed by most TradFi exchanges. Hence, the development of Elektrik’s dynamic liquidity provision model, a next generation AMM designed in pursuit of unprecedented capital efficiency.

The Monumental Importance of Capital Efficiency in DEXs

‘Capital efficiency’ is a phrase which pops up often when discussing financial systems. At its core, capital efficiency refers to the strategic ability of a financial system, whether a business or otherwise, to maximise the work done by every dollar of capital expended. In simpler terms, it is the art of getting the most bang for your buck, ensuring that every financial resource is judiciously allocated and intelligently leveraged to reach its utmost potential. It is a concept especially pertinent for marketplaces and exchanges, since as costs of trading rise on an exchange, fewer users are likely to trade on it.

For exchanges, particularly DEXs, capital efficiency is not merely an operational best practice; it is the lifeblood that largely determines their viability. These platforms operate at the nexus of rapid trade execution, minimal slippage, and optimal order matching, wherein the significance of capital efficiency becomes glaringly evident. A DEX that cannot judiciously manage its capital will find itself dwarfed by competitors, as

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Author: Laurie Dunn

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