Trader Joe V2 - Liquidity Book

• similar to Uniswap V3's concentrated liquidity with different pooling dimensions

  • price ranges are discretised into bins instead of ranged ticks

  • liquidity is aggregated vertically instead of horizontally

  • liquidity positions are fungible, LPs' bins are composable

  • liquidity positions are not restricted to uniform distribution across its price range, they can be distributed in any shape desired

Concentrated Liquidity

• LPs are able to customise liquidity range to improve capital efficiency

• reduce price impact for traders by offering lower slippage trades

• smart routing trades between V1 & V2 to ensure traders always receive the best rates

• Liquidity Bins

  • separates price range into individual bins

  • range of bin is based on bin step, % of price change

    • Uniswap uses tick range, so $0.99-$1.01 liquidity are shared by LPs of $0.8-$1.2, $0.9-$1.1, $0.99-$1.01

    • Trader Joe uses bin step, there is only 1 specific bin for $0.99-$1.01 when 2% difference is used

  • bins as a collection of bundled constant sum pools use x+y=k instead

    • zero price impact when the trade happens within a single bin

  • bin design retains liquidity positions in ERC-20 format instead of ERC-721 for the ease of integration

Novel Volatility Accumulator

• volatility accumulator keeps track of bin changes over a fixed interval without relying on 3rd party oracles

• increases liquidity pairs' fee when volatility increases (more bins being used), vice versa

• each bin has separated volatility fee

• liquidity fees are broken down into base fee (minimum rate for all trades) & variable fee (adjusted based on volatility)

Liquidity Management Strategies

• Liquidity Book provides separate bins for different liquidity positions

  • deposit all tokens into one bin can capture maximum fees of a bin

  • deposit balanced positions over bins' active trading range to capture most liquidity fees

1. Full Ranged Liquidity - allocate liquidity to all bins to capture all prices

2. Uniform Ranged Liquidity - allocate liquidity to specific bins to maximise advantages of discrete liquidity

3. Bell Curve Liquidity - capture price fluctuations within a range, work best in clam market

4. Bid-Ask Liquidity - capture market volatility with higher spread, can be used to DCA-ing in/out positions