2. Liquidity pools
Make Liquidity great again - Zero Knowledge Liquidity Pools
Liquidity is an essential aspect of any financial market, and the cryptocurrency space is no exception. In addition to the benefits mentioned earlier, increased liquidity also helps to:
- Reduce slippage: With a highly liquid market, traders can execute large orders without causing significant price movements. This reduces the slippage experienced during the trading process, resulting in more favorable execution prices for traders.
- Attract institutional investors: Enhanced liquidity can attract more institutional investors to the cryptocurrency market. These investors typically trade in large volumes and require a liquid market to facilitate their trading activities without causing excessive price fluctuations.
- Boost investor confidence: A liquid market is often perceived as a more mature and stable environment, which can help to boost investor confidence in the asset class. This, in turn, can contribute to increased adoption and mainstream acceptance of cryptocurrencies.
With zkMakers Liquidity Pools, the protocol is building a more robust and efficient market for cryptocurrency assets, ultimately benefiting all participants in the ecosystem.
Enhanced liquidity is particularly crucial for projects and exchanges within the cryptocurrency ecosystem. By incentivizing users to provide liquidity, our dApp can offer significant benefits to these entities:
- Easier fundraising: Projects with more liquid tokens can raise funds more easily, as investors are more likely to purchase tokens that can be easily traded in the market.
- Enhanced reputation: A liquid market for a project's token is often seen as a sign of success and credibility, which can help the project build a positive reputation in the industry.
- Lower price manipulation risk: Improved liquidity makes it more challenging for bad actors to manipulate the token's price, ensuring a fairer market for all participants.
- Wider adoption: When a token has a liquid market, it is more likely to be listed on multiple exchanges and accessible to a broader range of investors, leading to increased adoption of the project's token and, ultimately, the project itself.
- Increased trading volume: As more users are attracted to a liquid market, trading volume is likely to increase, generating higher revenues for the exchange through trading fees.
- Attracting new users: A liquid exchange is more appealing to traders and investors, as they can efficiently execute orders without causing significant price impact. This can lead to an influx of new users, further increasing the exchange's trading volume and revenues.
- Competitive advantage: Exchanges with liquid markets can differentiate themselves from competitors by offering a superior trading experience, enabling them to capture a larger share of the market.
- Enhanced reputation: A reputation for offering a liquid trading environment can attract more users, projects, and institutional investors to the exchange, further solidifying its position in the industry.
In addition to projects and exchanges, enhanced liquidity can also benefit other key players within the cryptocurrency ecosystem:
- Traders: A liquid market allows traders to execute orders quickly and with minimal price impact, resulting in more efficient trading and reduced trading costs.
- Market makers: Market makers who provide liquidity by placing buy and sell orders on exchanges can benefit from tighter spreads, enabling them to capture more significant profits from their market-making activities.
- Token holders: Improved liquidity can lead to reduced price volatility, which is generally desirable for token holders as it makes the value of their holdings more stable.
The rewards offered to liquidity providers in zkMakers protocol is designed to incentivize users to actively participate in the market by placing orders that contribute to improved liquidity. To encourage this behavior, the rewards system is structured as follows:
- The closer an open order is to the current market price, the higher the points earned by the user. This promotes placing orders that are more likely to be filled, thus contributing to enhanced liquidity.
- The longer an open order remains active, the more points a user earns. This incentivizes users to maintain their orders in the market, which provides consistent liquidity over time.
By rewarding users for placing and maintaining orders that contribute to improved liquidity, zkMakers encourages active participation in the market, leading to a more efficient and stable trading environment for all users.
zkMakers uses the following code to calculate rewards for liquidity providers:
calculateTotalPointsOpenOrdersfunction takes an array of open orders as input. It iterates through each order and calculates the points earned based on:
- The distance between the desired price (
tickerPriceIWant) and the actual market price (
- The sine of the angle formed by the tangent of this distance.
- The time duration for which the order has been active in seconds.
These values are then used to determine the intrinsic point per second value, which is multiplied by the amount of the order. The resulting order points are then added to the total points earned by the user.
In summary, zkMakers aims to improve liquidity in the cryptocurrency market by rewarding users for providing liquidity on centralized exchanges. This will, in turn, benefit projects and exchanges, fostering a more efficient and stable trading environment.