Trader Joe Launches New “Liquidity Book” Feature

liquidity book trader joe

Trader Joe is a popular DEX (Decentralized Exchange) on the Avalanche blockchain. It performs multiple functions such as trading, farming, lending, and staking. It even has its own NFT marketplace. Recently, Trader Joe launched version 2 of the platform, dubbed Joe V2. Several upgrades exist, but its new Liquidity Book feature is particularly important to crypto traders and liquidity providers. Some of the new functions and benefits will likely interest a wide range of traders. 

Zero or Reduced Slippage

Slippage is when crypto traders buy or sell crypto at a certain expected price, but once the trade is completed, the price changes due to the fast-moving nature of the market. The price change affects the amount of crypto the trader was able to buy or sell. This can be beneficial or detrimental depending on whether the price of the asset went up or down in the brief time it took to make the trade and the size of the trade.

To help with this problem, the liquidity book feature in Joe V2 introduced zero or reduced slippage. This is done by offering liquidity providers the ability to select a price range when they deposit crypto into a liquidity pool. The liquidity pair in the pool is then put into bins based on the price range selected by the user. When a trader uses Trader Joe to buy or sell crypto, the liquidity provider will earn a small fraction of the trade when the trade occurs within the price range selected by the liquidity provider and the trader receives zero or reduced slippage rates compared to Joe V1 and other DEX’s.

Trader Joe calls this new method of price selection and asset bin placement “concentrated liquidity,” and it offers three specific benefits. First, liquidity providers will receive more fees with fewer tokens deposited if their selected price range matches the current trading prices for the asset. Second, traders will be able to trade crypto at more predictable prices with zero to little slippage. Finally, traders benefit in a general sense from greater capital efficiency when using the platform.

Reduced Impermanent Loss

Impermanent loss happens when the value of a deposited asset in a liquidity pool decreases from when it was deposited. Trader Joe’s new liquidity book feature in Joe V2 helps to reduce impermanent loss experienced by liquidity providers.

This is achieved by providing variable fees to liquidity providers and farmers. Fees from trades are the main way liquidity providers earn crypto for providing liquidity into the protocol. To combat impermanent loss, Joe V2 implemented variable fees. The fees collected by liquidity providers on each trade now depend on the volatility of the market and use a tool called the volatility accumulator. When the market is especially volatile, the fees collected increase, and vice versa when the market is less volatile. This is important because the most impermanent loss occurs in volatile market conditions when prices are fluctuating radically. By increasing fees in volatile markets, liquidity providers take on less risk, earn more fees, experience less impermanent loss, and are more likely to keep their position in the protocol, which benefits everyone using the platform.  

Final Thoughts

To wrap things up, the new liquidity book feature in Joe V2 offers many benefits to crypto traders and liquidity providers over Joe V1. These benefits include zero or reduced slippage, increased capital efficiency, and reduced impermanent loss. Combined, these new features make Joe V2 a solid option for those looking to trade or provide liquidity on the Avalanche blockchain. 

This is a Contributor Post. Opinions expressed here are opinions of the Contributor. Influencive does not endorse or review brands mentioned; does not and cannot investigate relationships with brands, products, and people mentioned and is up to the Contributor to disclose. Contributors, amongst other accounts and articles may be professional fee-based.

Tagged with: