The Spicenet Liquidity Network
Last updated
Last updated
One of Spicenet's flagship solution is the innovative liquidity network, containing of 3 pillars -- Market Makers, Solvers and Network-Owned Liquidity. The Spicenet liquidity network supplies liquidity across Spicenet's products and instruments, ensuring deep liquidity for traders. By increasing diversity of liquidity provision, Spicenet is able to build a stronger foundation of liquidity, allowing users to trade large sizes without excessive slippage. Let's dive into how the liquidity network works.
One of Spicenet's main innovations is the Network-Owned Liquidity product, built to deploy Uniswap-V3 style liquidity on Dexterity. With NoL, Spicenet aims to merge the liquidity efficiency of AMMs with the capital efficiency of orderbooks. NoL builds concentrated liquidity positions on orderbooks, mimicking Uniswap-V3. This ensures high yield for depositors, attractive fills for traders, and NoL benefits from the turbocharged capital-efficiency of quoting liquidity on an orderbook. It's a match made in heaven.
For users, NoL curates a set of strategy vaults created and managed by the Spicenet DAO. Users can deposit in vaults as per their risk profile and as they see fit. However, NoL vaults are different because their working is fully transparent, and controlled by the DAO. The public can participate in the decision-making that goes into curating a new vault, such as setting genesis parameters, OI caps, markets and instruments to focus/deploy on, etc. This is quite different from the current status-quo, where vaults are mostly curated and managed by the team. In the future, we see different risk organizations curating vaults on Spicenet that contribute to NoL.
Vault curators enjoy a symbiotic relationship with the protocol and users. The protocol recognizes the pivotal role that vault curators play, and allow them to charge a "carry", which can be divided into a share of deposits, and a share of the yield. Similarly, the protocol also recognizes stakers, and rewards 5% of all NoL yield to $SPICE stakers. To curate a vault, vault curators need to create a DAO proposal, outlining all of the various parameters, configurations and strategies that the vault will employ, and upon passing of the proposal, setup the vault and start operations.
Initially vault curation will be a protocol-run function, with the goal to boostrap Spicenet's orderbooks via blending Uniswap-v3 style liquidity curves and CLOBs. As the network decentralizes with the introduction of the Spicenet DAO, vault curation will be decentralized too. Reach out if you want to curate a vault! We're happy to assist.
Solvers are the second piece in Spicenet's Liquidity Network. They are just-in-time liquidity providers bidding on the right to fill user orders depending on the value they can extract from them. Spicenet features a unique solver auction that leverages the core matching engine of Spicenet's Dexterity orderbook to select the most competitive bid. Spicenet combines both solvers and market makers into a single unified, and competitive environment(Dexterity), thereby building deep liquidity, and reducing the cost of fills(slippage). Solvers place JIT orders on Dexterity, alongside already existing resting orders of market makers. The Dexterity matching engine determines the optimal order(s) that can be filled using price-time priority, incentiving both types of liquidity providers to a) provide a better price, and b) optimize for speed while quoting liquidity.
However, solvers on Spicenet aren't just limited to providing JIT liquidity. Utilizing the flashloan primitive, solvers can provide liquidity at ~0 inventory.
Market Makers on Spicenet are ahead-of-time liquidity providers that quote resting orders on Spicenet's global orderbook, Dexterity. Market Makers experience heightened capital efficiency on Spicenet due to the ability to turnover inventory faster. Spicenet has multiple polished tools for market makers, such as real-time Rest APIs to query L2 orderbook feeds, Rust and Go SDKs to interface with Spicenet's margin accounts and place orders, etc.
On Spicenet, oracles updates every 5-10 transactions, providing extreme price granularity for market makers. This allows market makers to price products like derivatives much accurately, with little drift. Moreover, Spicenet makes high-frequency trading a reality. Currently, intra-block trading on major blockchains is not possible to do. As Spicenet does not feature the concept of a block, transactions can be highly atomic, and market makers can execute multiple orders within a very short timespan(within milliseconds).
