Switcheo Labs 2023: Unlocking a Trustless Future
In our 2022 Retrospective, we expounded on our vision to create a truly decentralized financial system where centralized institutions (and privileged individuals alike) cannot exploit trust to accumulate wealth and power at the expense of others, but instead, value is distributed to all, and upheld by all.
Continuing this mission, 2023 will bring more innovation, with a stronger push towards decentralization and an unparalleled trading experience.
Carbon: A Roadmap for Adoption
It is not seldom that we hear the phrase ‘The bear is good for building’ being thrown around - but what does that really mean, specifically, for Carbon? In a bull, projects are optimized for users, growth and market attention, creating the perfect environment for projects to leverage on existing liquidity and hype in the marketplace to create value for their project. Yet, it is when we are in a bear that we are better positioned to reevaluate and reassess our progress - How can we capture value in the event that the next bull happens? With Carbon, we are providing the network fabric underlying the fully-connected multi-chain ecosystem of the future:
Insurance Fund Token
Carbon will build a native insurance fund token for the futures & perpetuals liquidation module. To recap, the Carbon insurance fund provides additional protection by preventing the need for auto-deleveraging (ADL). ADL is a form of socialized loss that reduces trader profits in order to avoid protocol losses and is therefore used only as a last resort.
Carbon’s insurance fund feature is able to collect funds from liquidated positions that were closed above their bankruptcy price. It will not only cover losses from losing trades but will also payout potential black swan events.
The new insurance fund token will also allow users to contribute directly to the fund, further increasing the insurance fund size and reducing the need for ADL. In return, users who contribute will get a receipt token representing their share of the insurance fund. Users with this insurance fund token will then get fees and payouts when the insurance fund reaches its target size (which will be set by Carbon governance).
New Liquidity Mechanism
Perpetuals have become a cornerstone of crypto, allowing for leveraged trading, hedging and speculation. Deep liquidity ensures that slippage is minimized when trading, ensuring a smooth trading experience. But DEXs use different pools of liquidity for each market. This makes liquidity low, especially in markets that aren't very popular.
Carbon was the first to launch a hybrid liquidity mechanism that used AMM pools and linked the liquidity to an orderbook. However, this still needed sufficient liquidity for an optimal trading experience.
With our new liquidity mechanism, users can supply their liquidity simultaneously across selected markets on the platform.
More Reasons to HODL $SWTH
It’s the little things that matter - which is why we’re enabling $SWTH as withdrawal fees; Withdrawal fees are incurred when one withdraws funds from the Carbon blockchain. For example, withdrawing from your wallet to the Ethereum blockchain incurs an Ethereum network fee. Currently, withdrawal fees are deducted from the amount transacted, resulting in inexact amounts being transacted. By enabling SWTH as withdrawal fee, users on Carbon will be able to transact exact amounts.
As a gesture of goodwill towards our long-term supporters and stakers for securing the blockchain, trading discounts can be applied to wallet addresses with staked SWTH soon! The amount of discount applied will depend on the amount of SWTH staked by the wallet address. Under this tier-based system, accounts with staked SWTH can choose to delegate the trading discounts to an alternative address as well.
Shared Security with Alliance Assets
Carbon is looking to integrate the Alliance module - a Cosmos-SDK module that allows PoS chains to enable staking of larger chain assets, preferably via liquid staking derivatives (LSDs).
Under this module, any IBC-enabled token (e.g. liquid staked ATOM) can be delegated to Carbon validators, improving the security of the chain. In return, this generates block rewards on top of staking rewards, further increasing the yield of the liquid staked asset (LSD APR + staking yield).
Put simply, this allows Carbon to form economic alliances with larger chains, making Carbon network more secure as larger and more liquid assets secure it.
Learn more about the Alliance module here.
Embracing Ethermint
Deriving its name from Ethereum and Tendermint, Ethermint, as its name suggests, is a scalable, high-throughput Proof-of-Stake blockchain that is fully compatible and interoperable with Ethereum.
Similar to other EVM-compatible platforms like Evmos and Canto, Ethermint seeks to provide the capabilities of Ethereum without the associated bottlenecks by porting over the EVM to Cosmos using the Cosmos SDK (which runs on top of Tendermint Core consensus engine).
Decentralized Frontend
In the protocol's next step towards decentralization, Carbon will be open sourcing its frontend UI. This opens up opportunities for Carbon community members to act as frontend operators and host or run a frontend for users to interact with smart contracts on Carbon permissionlessly. Having multiple frontend UIs would increase decentralization and censorship resistance for the Carbon ecosystem.
Frontend operators will be incentivized. More details will be shared in the future.
Deepening Liquidity
Capital efficiency is critical in DeFi, with liquidity providers constantly on the hunt for more ways to increase capital efficiency. This year, we’re tackling liquidity concerns head-on, and this will take place across a few phases:
- Liquidity pools act like additional participants on Carbon’s AMM-backed Central Limit OrderBook (CLOB). With support for multiple pools underway, multiple liquidity pools with the same token pair (of different parameters) can participate on the orderbook at the same time, using the fair-matching system of the orderbook.
That’s not all.
- Under Carbon’s Multi-Pool Linking module, one pool can be linked to multiple markets, enabling the protocol to display liquidity in all markets, instead of just one market!
- Multi-Pool Routing will support the linking of multiple pools to a market via multiple routes, democraticizing liquidity provision further as well. This means that for each order matching block, AMM orders will be generated for a specific market using the aggregate liquidity of all intermediate pools.
- This will provide better slippage for doing any-to-any swap, which Carbon may partner with a DEX swap aggregator to create as well, and will also help with rewards to SWTH Conversion that has been requested for awhile, as Carbon’s real yield feature allows stakers to earn all kinds of assets but they are usually too small.
And lastly, topping these off is Grouped Tokens, a novel DeFi primitive that combines the liquidity of a common asset (e.g. $USDC) from multiple networks into a single token, accumulating liquidity for a seamless trading experience. Read more about Grouped Tokens in the article, Grouped Tokens: A New DeFi Primitive for Deeper Liquidity.
Cross Margin
The next major feature we are developing for Carbon is allowing cross-margin trading, rather than only isolated margin of a single asset. This means you can use a variety of whitelisted assets as margin for trading perps. Combined with our CLOB + LP/AMM model, these two features will make Carbon the most advanced trading protocol in existence!
Spot Margin
Trade with leverage and go short on spot markets by borrowing from other users (i.e. lenders) on Nitron! The introduction of spot margins allows users to borrow additional funds for trading. Previously, when trading spot markets, one must have adequate balances in the quote currency to exchange for the base currency. For example, if you have $10 in your account, you can only buy crypto worth up to $10 in the spot market.
With Spot Margin, as long as you have sufficient margin, you can borrow spot tokens simply by spending beyond your account’s balance. This is done by sending an order to the orderbook on your behalf to borrow the required amount. This way, so long as you hold sufficient collateral, you can enter those trades. Similar to futures, spot margin positions are subject to collateral requirements and liquidation rules.
Keep a close watch on our protocol roadmap for more details!
Demex: An Unrivaled Trading Experience
As we work on building a solid baseline for derivative and spot trading, Demex needs to focus on capturing the attention of traders. Here’s a sneak peek into the range of power features underway:
Perps, perps and more perps!
The beauty of perpetuals is that you can gain exposure (with leverage) to move to the upside and also to the downside: Betting “long” allows you to gain when the price of the underlying asset goes up, while betting “short” allows you to gain when the price of the underlying asset goes down. Currently, Demex already supports BTC, ETH and OSMO perpetual swaps. With the trading volume for perpetuals displaying impressive progress in 2022, we look forward to supporting more highly-demanded perpetuals, from ATOM, GLP, LUNA and more!
Trading Bots
Carbon will start with several bots, such as grid bots, which are automated trading systems that use a grid-like structure to enter and manage trades to take advantage of small price movements and achieve a profit through a large number of trades. Grid bots can be programmed to trade based on various technical indicators, market trends, and other factors. They can operate 24/7, providing an uninterrupted trading experience! DCA bots, and other interesting bots are also being developed.
More Accessibility
To improve the accessibility for users to try out Demex, there will be more on-ramp solutions coming, more wallets being integrated, more bridges and aggregators, and a more mobile-focused UIUX.
Gamified Trading Experience
Demex users will be happy to know that they will soon be able to view their full transaction and PNL history on the trading platform, and will launch a shareable position feature for you to brag about your position to others on social media.
External LP incentives
Carbon's code has a built-in reward module that lets liquidity providers get paid for providing liquidity to LPs. They can do this by getting a percentage of block rewards and taker fees from trades made for that market. The LP rewards module on Carbon will soon be updated to support external LP incentives as well. This will encourage more partnerships across the crypto ecosystem and make it easier for users to become liquid providers on Demex.
Strategies: Automated DeFi Vaults
We are launching a brand new feature called “Strategies”. They help users to automate certain DeFi strategies on Demex. One example of such strategies is that of the upcoming LSD Vault. Rather than having to go through multiple swaps (Deposit USC → Borrow ATOM → Swap into $lsATOM → Enjoy Rewards), the $USC LSD Vault enables users to earn a yield on value-accruing assets (e.g. Liquid Staked Assets) through one-click swaps by simply depositing $USC (Deposit USC → Enjoy Rewards). Such DeFi strategies help to streamline the process, bypassing the in-between steps, such that users need only deposit $USC to enjoy staking rewards from $lsATOM.
Native MetaMask Support
The support for EVM-compatibility on Carbon bolsters protocol security while bringing users greater convenience through the ability to sign transactions directly from MetaMask, without having to use separate addresses, mnemonics and keys on Demex.
Referrals for All!
Currently, the on-chain referral module on Carbon allows dApps and UIs built on the blockchain (e.g. Demex) to attach a referral address to gain a percentage commission from trading fees. This will pave the way towards decentralizing frontend operations in the future - More information will be disclosed in due time.
The referral system will be rolled out on Demex in the coming weeks - Keep updated with the latest happenings by following us on our socials here and here!
Nitron: Navigating the Money Market
Nitron was born to fill a prominent gap in the Cosmos ecosystem: the lack of a money market. To provide users with more flexibility of choices and expand connections within the Cosmos ecosystem, this 2023, Nitron will be looking to support an increasing myriad of collateral.
In line with this, the mid-term goal of Nitron is to integrate with and onboard all in-demand tokens from the entire Cosmos ecosystem! Beyond the Cosmos, being a first-mover, expect more interesting vault tokens from niche projects being whitelisted on Nitron as collaterals too.
With Isolation and Efficiency Mode being worked on Carbon, it’s only a matter of time before Nitron allows users to 1) list new, riskier assets such as receipt tokens, LP tokens, etc, as isolated for borrowing of stablecoins only, and 2) extract the highest borrowing power out of their collateral when supplied and borrowed assets are correlated in price. This opens up a whole new plethora of assets that can be made available for lending, borrowing and listing as collateral.
Put simply, in 2023, users from all walks of (web 3) life will be able to easily onboard Nitron and put up a growing list of assets as collateral to either borrow other assets, or mint $USC (perhaps to take advantage of the Automated DeFi Strategies instrument on Demex? *wink).
Charting the Path Forward
The greatest achievement in crypto in 2022, was again, crypto itself. The faults and fallouts were human, the tale of hubris and fraud one almost as old as time. But protocols continue to move billions of dollars in value across contracts written by code. Founders and builders who care about the importance and impact of the technology are no longer held back by noise. Each day, we move closer to making the decentralized economy a reality.
2022 might have dented ambitions. But 2023? It’s time to put our best foot forward.