Due to the explosive growth of DeFi, multiple assets were introduced into the Ethereum network as anchor coins, such as BTC, USD, and GOLD. At present, there are more than 20 asset-backed tokens in the current market, multiple among which are backed by the same assets. In the future, more tokens that are effectively backed by the same underlying assets are expected to be introduced into the network. Theoretically, the swap ratio between these tokens should be 1:1 given that they are effectively backed by the same underlying assets. However, for the current DEX in the market, this fundamental point was not fully considered when designing the exchange protocol, thereby causing unnecessary high costs for users because of the slippage. Thus, a better-designed product that specializes in the assets that are effectively backed by the same underlying assets is urgently needed in the market.
Curve.fi and mStable are the two representative products that are dedicated to swapping tokens effectively backed by the same underlying assets (such as stablecoins). Curve.fi uses StableSwap protocol utilizing an invariant as a combination of constant-product (Uniswap) and constant-sum invariants. It achieves great success by providing low-slippage swap compared to Uniswap. However, due to the mathematical complication of StableSwap curves, a pool in curve.fi supports only up to 4 assets - meaning that to support more assets, it has to open more pools (10+ pools) with some assets spreading over multiple pools (such as DAI, USDC). The disperse of the asset in multiple pools greatly reduces liquidity and thus increases slippage.
A list of stablecoin pools in Curve.fi.
mStable offers a single pool solution and offers 1:1 swap as long as the percentages of the tokens are below the predefined weights. However, it lacks flexibility, where a swap is prohibited a percentage of token exceeds a predefined weight. Further, it incurs a high cost for swapping mainly because of the high gas fee by withdrawing/depositing tokens in the underlying interest-earning protocols (Compound/AAVE).
An example of percentage and weight of each token in mStable.
Smoothy has been developed from scratch to address the issues of existing protocols. Smoothy's goal is to offer one pool to swap all tokens with
- Simple and smooth swap
- Extremely low gas fee
- Flexibility to add/remove any stablecoins
- Better liquidity/lower slippage and better LP token incentives