1) USwap Operation Mode
USwap is an automatic Market-Making protocol supported by a Constant Product formula and runs on a non-upgradable Smart Contract system on the Unihash blockchain. USwap eliminates the need for intermediaries, therefore achieving decentralization, censorship resistance and security.
The automatic Market-Making agreement is like a store with basic functions. In USwap, the Liquidity Provider plays both the roles recycler and a seller roles.
USwap can provide exchange services for any two of Unihash blockchain tokens, but Liquidity Providers are required for this.
Anyone can become a Liquidity Provider. Deposit tokens of equal proportions into both sides and receive a share certificate, often referred to as an LP. The amount of LP may be exchanged proportionally according to the amount of assets in the current reserve, which guarantees that the proportion of your deposit will be equal before any transactions are performed.
Provide Liquidity
The exchange basis of USwap is entirely derived from liquidity added by Liquidity Providers. When there are no tokens in the reserve, users may add liquidity in any proportion and the first Liquidity Provider shall be the provider who sets the initial price of the mining pool. Expectedly, a proportionate risk of loss shall also be assumed. For example, if the first Liquidity Provider deposits tokens into the trading pair at a rate different from the current market exchange rate, it immediately creates profitable arbitrage opportunities for other users to easily take advantage of, thus bringing exchange rates back to market prices. This rule shall always apply, therefore, all Liquidity Providers are incentivized to deposit tokens proportionate to market exchange rates.
Automated Market-Maker Algorithm
The price curve principle of USwap is simple, X * Y = K, where “X” and “Y” are two types of capital reserves. For example, when you create a reserve token trading pair of Unihash and Unigram at a 100:100 ratio, then its Constant Product is 10,000 and this will not change before new liquidity is added.
Therefore, if you use 50 Unihash to exchange for Unigram, the assets received are 150 Unihash * (100-X) Unigram = 10,000, where “X” is the asset received, which is 33.33 Unigram. In this instance, an obvious large slippage has occurred, and the only way to reduce this slippage is for more participants to provide liquidity support. If bilateral reserves at this time are 10,000Unihash: 10,000 Unigram, then the product, “K”, is 100,000,000.
During this time, we are still redeeming with 50Unihash, and by applying the formula, 10,050Unihash * (10000-X) Unigram = 100,000,000, and “X” is calculated as 49.75 Unigram. With reserves that are large enough, more quantities may be obtained the best price. To attract users in providing liquidity, USwap shall re-inject 1% of the token amounts paid for each exchange into the reserve. Given that, handling fees are shared equally among all liquidity providers, which is one of our value capture methods.
2) Ecosystem Participants
The USwap ecosystem is mainly comprised of three types of users: Liquidity Providers, Traders and Developers. Liquidity providers are incentivized to contribute tokens to the ordinary liquidity pool. Traders may exchange these tokens for a fixed fee of 1% (Liquidity Provider's profit). Developers can jointly develop USwapand usher in an exciting future for USwapby improving user experiences, transaction processes, etc.
