KLAYswap: V3 Pair Deposit Update
Expanding the scale of liquidity is the key to the growth of the KLAYswap ecosystem. A higher liquidity level results in a greater trade volume, creating greater transaction fee profits. By distributing the additional transaction fee profits to users, the ecosystem can attract new liquidity and users.
The scale of new liquidity is, however, limited by the flow of the entire Klaytn chain liquidity, so it cannot be expanded infinitely. Further, the current liquidity pool structure based on the CPMM model (Uniswap V2) has low efficiency, in which not all deposited liquidity is utilized.
With the V3 pair deposit update, KLAYswap aims to make its DEX more competitive by creating a lively liquidity pool that will attract more trade demand and enable assets to be actively traded in the market.
1. Features of V3 Pair Deposit
KLAYswap’s V3 pair deposit has the following features.
- In contrast to the V2 Pair Deposit, which deposits assets in all price ranges (0~∞), the V3 Pair Deposit concentrates assets within a specific price range. Limiting the price range like this enables users to provide assets with less liquidity compared to providing assets at all price ranges (V2 pair deposit), thereby increasing liquidity supply efficiency.
- Users can customize the price range for deposits. Based on their investment propensity and skills, depositors also can conveniently deposit assets by selecting one of three types: spot, wide, or full range. Assets are deposited in narrower price ranges in the order of Full Range>Wide>Spot. Liquidity supply efficiency rises with a narrower price range. Each price range has the following characteristics.
Comparing Spot, Wide, and Full range V3 pool
- In general, trades do not take place at an infinite range of prices (0~∞). Rather, they occur within a specific price range, so depositing liquidity at a specific market price will allow frequent utilization of liquidity.
- The V3 pair deposit thus reduces slippage caused by the price difference between the market price (swap traders) and the liquidity supply price (pool depositors), enabling more profitable swap trades.
- Liquidity providers receive a portion of the transaction fee profits, with more profits earned as more assets are deposited in the price range where more trades occur.
- Since V3 pair deposits concentrate liquidity in price ranges where it is most efficiently used, depositors of V3 pairs can earn higher transaction fee profits even with less liquidity.
As a result of the low efficiency of the V2 pool, even though transactions between stable assets designed to maintain $1 require almost 1:1 asset exchange, there was a high level of slippage with V2 pair deposits. However, high-efficiency pair deposit pools such as V3 can solve this problem effectively. When KLAYswap’s V2 liquidity migrates to V3, Klaytn’s most significant liquidity asset, existing liquidity assets can be utilized more efficiently, and the protocol can absorb more Klaytn trading volume.
2. TX Fee Rate and Fee Profit Distribution
Although KLAYswap’s V3 pair deposit offers a highly efficient trading environment, it offers a significantly lower transaction fee than KLAYswap’s V2 pool. V2 pool transaction fees were used exclusively as rewards for pool voters (vKSPs) and KSP buybacks, whereas V3 pair deposit pool transaction fees are distributed to liquidity depositors (LPs), providing a better incentive to supply liquidity.
- With the V3 pair pool (V3), transaction fees are as low as 0.05% for stable pairs and 0.2% for volatile pairs.
- Transaction fee profits generated in V3 pair pools are distributed to liquidity providers (40%) and pool voters (30%) and used as KSP buybacks (30%).
A favorable trading environment with low slippage and transaction fees can trigger the entire transaction demand for the Klaytn ecosystem to KLAYswap and generate more transactions. The increased transaction fee profit will be distributed to liquidity depositors to accelerate the inflow of LPs. Since the change will create a virtuous cycle, KLAYswap will no longer rely solely on KSP rewards to support liquidity pools, and it will become a steady and long-term profit-generating DEX.
3. KSP Tokenomics
60% of the transaction fees generated by V3 pair deposits are used to support KSP Tokenomics. Specifically, 30% is distributed as a reward to pool voters, and the remaining 30% is used to purchase KSPs. Concentrated liquidity will create a more favorable trading environment, leading to higher trading volumes and profits than the V2 pools. vKSP holders, the primary supporters of KSP value, will receive this profit, and holding KSP for extended periods will result in additional profits. At the same time, more KSP buybacks will help enhance the solid cycle for supporting KSP value growth.
- vKSPs holders who voted for V3 pair pools will receive transaction fees from the pools they voted for.
- KSP distribution to V3 pools is determined by pool vote rate (vKSP) and KSP buyback indicator according to the KSP distribution automation policy.
- Liquidity depositors can earn additional KSP rewards based on their stake in each pool.
4. Growth of KLAYswap Ecosystem
KLAYswap’s updated V3 pool liquidity model is designed to expand liquidity, which is the foundation of KLAYswap, increase trading volume, and improve KSP’s reward-generating capabilities to drive continuous growth. KLAYswap has an automated routing pathfinding feature that utilizes V2 and V3 pools to improve trader experience and reduce slippage. And a drastic reduction in trading fees leads to further cost savings.
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Liquidity Providers (LP) earn 40% of the transaction fee from their pool, and even with the same assets, V3 depositors can provide their assets effectively and earn higher profits. Furthermore, with its high efficiency, the V3 pool generates a higher trade volume, allowing more KSP reward distribution, ultimately leading to users’ sufficient earnings. As sufficient earnings attract users, TVL will increase, and increased TVL will increase TX fee profits, creating a virtuous cycle.
Rewards for vKSP holders, who are the most significant participants of the KLAYswap ecosystem, will also continue to grow, with 30% of TX fee profit distributed to pool voters and 30% used for KSP buybacks. Hence, KSP’s value increases due to the strengthened reward distribution structure, and the demand for vKSP increases.
Events
A V3 pair deposit event is going on! Check out the newly updated V3 pair pool and receive additional rewards!
1️⃣ V3 Pair Deposit Event
- Deposit in V3 pair pools and receive interest & airdrop rewards! 🎉
https://gleam.io/L0unh/klayswap-concentrated-pool-deposit-event
2️⃣ Review Campaign
- Try out the V3 pair and rate it!🎉
https://gleam.io/X4SRu/klayswap-concentrated-pool-review-campaign
Useful links
1. How do I deposit in V3 pools?
Detailed information on the V3 pair deposit can be found at the link below. https://docs.klayswap.com/v/kr/product/v3/v3/v3
2. I would like to migrate my assets from the V2 pool to the V3 pool.
Assets from the V2 pool can be migrated to the V3 pool through one-stop migration. This function is available on the details page of the pair you are depositing. Check out the link below and join the V3 pair deposit.
https://docs.klayswap.com/v/kr/product/v3/v2-to-v3/v2-to-v3
3. What do I do when the asset price exceeds the price range?
Monitoring the V3 pair deposit is important since V3 pools require assets to be deposited within price ranges where trades actually take place. KLAYswap offers one-stop migration, which allows users to migrate their assets in a single transaction. Check out the link below for information on asset migration.
