Five Minutes to Understand the Liquidity Optimization Protocol iZUMi Finance
iZUMi Finance is a liquidity optimization protocol located on the Ethereum network. The protocol is based on Uniswap V3 and proposes the concept of "Programmable Liquidity as a Service (LaaS) ". By using the liquidity aggregation characteristics of Uniswap V3, it helps project teams and liquidity providers (LP) to concentrate liquidity within a specific price range, improving liquidity supply efficiency and LP income. At present, iZUMi Finance's liquidity optimization tool product LiquidBox has been developed, while the cross-chain liquidity aggregating AMM service iziSwap and asset cross-chain bridge service C-AMM Bridge provided with LiquidBox are still under development.
LiquidBox, a liquidity optimization tool, is the core of iZUMi Finance and is based on Uniswap V3.
In the course of practice, the traditional on-chain fluidity mining mode based on the constant product curve of Uniswap V2 has exposed a series of shortcomings. On the one hand, in this model, LP can only provide liquidity for the pool with two tokens (stablecoin and project token) at the same time, and its liquidity provision scope covers the entire price range. On the other hand, LP faces the problem of impermanent loss caused by the price fluctuation of the project token.
In response to the above problems, Uniswap has improved the liquidity provision mechanism in the V3 version. LP can manually choose to provide liquidity in a certain price range to improve capital efficiency or choose to provide liquidity to one token outside the current asset price range. When the project token price is within the liquidity provision range, LP can receive transaction fee dividends based on its share in the liquidity pool. However, Uniswap V3's solution to the problem of impermanent loss is still relatively limited.
Based on Uniswap V3, iZUMi Finance subdivides the LPs in the liquidity mining process into project teams, professional market makers, and other roles, then make a series of optimizations for these roles in liquidity mechanism to maintain the price of project token, improve LP income, and reduce impermanence loss.
For the project side, considering the need for the project side to maintain the token price, iZUMi Finance allows the project side to limit the liquidity mining reward to a certain price range through LiquidBox. When the LPs provide liquidity to the price range set by the project side, they can obtain corresponding rewards according to the proportion of liquidity provision within the set range and the duration of liquidity provision. If the price range provided by the LP is too narrow, the liquidity provided by the LP will be discounted according to a certain proportion, thereby reducing the income of the LP and prompting it to provide liquidity according to the range set by the project side.
As shown in the figure, if and only if the LPs concentrate liquidity in the price range of 1-3 in the figure, they can obtain the corresponding reward.
In addition, in response to the demand of the newly listed project that wants to push up the token price, LiquidBox uses the Uniswap V3 single token mining mechanism to split the two liquidity tokens provided by LP into two parts, in which the stablecoin part is placed in the trading pool with a price range slightly lower than the current price of the project token, while the project token will be placed in the additional staking pool instead of the trading pool. The staking rewards will be given to LP.
After LP deposits funds into LiquidBox through the interface provided by the project teams, since the number of project tokens in the trading pool is smaller than the USDC, a potential situation of "buying is better than selling" is formed, thus investors' speculative psychology will push up the price of tokens. At the same time, because the project tokens provided by LPs in this scheme do not enter the trading pool, the problem of impermanent loss of the project token is solved to a certain extent.
To guarantee the income, LP can also stake the Uniswap V3 LP NFT obtained during single token mining in LiquidBox for a while to get project token rewards provided by the project team.
As shown in the figure, after the liquidity provided by LP is "split into two", the stablecoin part enters the trading pool to provide liquidity, while the project token part is put into the staking pool (indicated by dotted lines here).
LiquidBox also offers a liquidity yield boosting feature for projects looking to attract market makers to provide their liquidity. If the transaction fees are low, market makers can stake their Uniswap V3 LP NFTs in LiquidBox to receive double returns or more (depending on the project). This feature guarantees the market maker's revenue and helps the project to attract liquidity. The liquidity yield boosting feature are usually settled in project tokens.
- Token: iZi, in ERC-20 standard on Ethereum
- Total supply: 2 billion
- Usage: iZi can be used to pay for platform-related fees. Users can get governance token ve-iZi to participate in project governance after staking iZi, get benefits such as revenue acceleration (up to 2.5 times) and project eco-dividend.
- Allocation and unlocking plan:
- Financing Information:
In December 2021, $3.5m Series A funding was completed. Participants in the Series A funding include Mirana Ventures, IOSG, Cadenza, Fenbushi Capital, EVG, Hashkey, GSR, CyberX, Bixin, Kronos, Dorahacks, Gate Labs, MEXC and individual investors from Nansen, Perp, Chainlink, Babel. The latest financing funds will be used to promote the release of iZUMi's native token iZi.
A private round of funding was closed in November 2021 for $2.1m from Mirana, EVG Ventures, Youbi Capital, LucidBlueVC, PuzzleVentures, ICG and others.
- At present, the token has not been generated.