How XFai can enable DeFi expansion into any token
A common problem faced when holding small cap tokens (realistically any token with a market cap below $400m) is liquidity. Whilst BTC, ETH, DAI etc. holders have a range of options to gain yields and maximise passive income, users holding small cap tokens have a significantly harder time of it.
One of the major obstacles underpinning this is the fact that price discovery usually takes place on centralized exchanges. This creates the issue of poor liquidity, making it difficult to put these tokens to work for many holders. It also creates a significant barrier to entry to many promising projects, due to the shortfall in liquidity across the numerous CEXs and DEXs.
Where does XFai come into this story?
XFai have created the DEX Liquidity Oracle (DLO). This innovative new type of oracle not only provides data in the form of price feeds and the ability to trigger 3rd party contracts, it also actively provides and manages token liquidity on Uniswap and similar DEXs. This in turn allows small cap token holders to earn token denominated returns on autopilot.
The DLO deploys small cap tokens loaned by their holders via its strategy contract to Uniswap (and similar pools). These are then used for shaping curves in such a way as to match and exceed the prices to volume ratio of CEXs. Liquidity, price discovery, and therefore fees will migrate organically from CEXs to DEXs. Fees which are accumulated, are then given to the small cap token lenders — increasing their financial position in those tokens.
The DLO strategy works by creating synthetic curves across relevant pairs from multiple exchanges — both CEX and DEX. This synthetic curve is then used as the reference curve (liquidity target) against Uniswap, until the Uniswap liquidity matches or exceeds the combined liquidity of all exchanges.
A by-product of the multi-exchange data the DLO generates will be more reliable data for smart contract execution across a range of CEXs and DEXs. This will hugely benefit the likes of Maker or Aave for example, who can now gather more reliable information and price feeds on a huge range of these tokens.
By balancing liquidity across exchanges, slippage is avoided and the opportunities to leverage small cap tokens for yield is greatly increased.
What does the future hold?
With further adoption of the DEX Liquidity Oracle throughout the DeFi space, more liquidity and trading of long-tail crypto assets will be gradually shifted from centralized exchanges, to decentralized exchanges. This will lead to more utility of long-tail assets, and better composability and interoperability within the DeFi space.
What’s really interesting are the potential network effects that could take place. As more and more small cap tokens are liberated through greater liquidity, it would open the door for a greater number of use cases for DLO-supported tokens. This would feed into growth in DEX volume, benefiting DLO as a liquidity provider; and as a result, the small cap holder pools which are at its heart.
The thinking here is that 3rd party DeFi contracts (such as future implementations of the likes of Maker and Synthetix) which today use trusted delegates for CEX based liquidation, will move to DLO and liquidate without any delegates directly on-chain. Ultimately, ensuring that any price movements and slippage will become deterministic. This will likely have a number of measurable benefits:
- Greatly increase the number of tokens which can be included.
- Reducing the collateral ratio of those tokens — effectively increasing the liquidity to which they have access to and/or reducing their loan origination interest rate which they have to pay.
- Increasing overall protocol stability in case of black swan events by removing trusted delegates and CEXs completely from the picture.
By helping to move liquidity that is currently trapped on centralized exchanges on-chain, the DEX Liquidity Oracle looks set to add a significant amount of value and utility for small cap token holders within the DeFi space. By opening up and aggregating multiple exchange datasets to create synthetic curves, DLO looks set to finally allow token and user flow out of centralized exchanges, and into decentralized exchanges where value can be unlocked; and holders can start generating passive income. All of this, while providing true scalability for exciting new projects in need of liquidity.
If you’re interested in getting involved early on, then the team at FXai are holding a Liquidity Generation Event (LGE) on April 8th. The LGE allows participants to have a unique opportunity to get involved with XFIT tokens at an early stage, stake them within the liquidity pool, and earn increased, sustained yield throughout the launching period, all in one step.
The event allows users to make an early and safe investment into XFai, with a simple one-step process that eliminates slippage and high gas fees (even for failed transactions), whilst also greatly reducing impermanent loss. Find out more here https://www.xfai.com/LGE.html