Ecosystem Liquidity Aggregator

As part of any functioning DeFi ecosystem, several key functions need to be in place to allow a market to function. One of those is market makers (MM) and automated market makers (AMMs). These facilitate permissionless buying and selling and ensure there is enough liquidity for trades to be completed.

While these systems are effective at managing capital flows, they tend to be inefficient. By that we mean, a lot of liquidity is sitting idle, when it could be deployed in more efficient ways.

In this document, we’ll explore how AQTIS has created its own mechanism to ensure the ecosystem can function, but also more efficiently than other comparable DeFi ecosystems.

What is the Ecosystem Liquidity Aggregator?

The Ecosystem Liquidity Aggregator is AQTIS’ own approach to increasing the efficiency of liquidity pools attached to our LSTs.

It does this in two unique ways: provides deep liquidity to facilitate easy entry and exit from the AQTIS ecosystem, creates a dynamic liquidity system that provides liquidity where it matters most, and helps eliminate idle liquidity.

We’ll explain this in more detail in the next section.

When liquidity is inefficient

With the advent of Automated Market Makers (AMMs), the reliance on Market Makers (MMs) has significantly decreased, leading to the creation of liquidity pools that are easily accessible for entry and exit. However, this evolution has introduced challenges in capital efficiency. Let’s look at an example.

stETH is the largest staking ecosystem in crypto with approximately 31 million in ETH staked, or around $107 billion - according to figures in March 2024. To function, providers like Curve and Uniswap have liquidity pools of roughly $250 million. That is, there is almost always $250 million in a pool available for withdrawal for users who no longer want to stake their ETH.

However, the average amount that moves in and out of these pools is around $10 million per day. This means that only 3-4% of those liquidity pools are used under typical market conditions.

Even during periods of intense trading activity, volume may rise to ten times that amount, to $100 million. This is still only an efficiency rate of 10%. This means that the majority of the time, 90% of the liquidity in the staked Eth ecosystem remains idle.

AQTIS has a solution that increases efficiency, maintains liquidity, and still protects users.

How is the ELA different from other approaches?

Our approach diverges from the traditional model of locking up liquidity in multiple LPs (Liquidity Pools). Instead, we allocate approximately 50% of our liquidity to a primary LP and the remaining 50% to the ELA. This structure allows for aggregated liquidity across the pools that serve the LSTs, freeing up capital and enhancing efficiency.

This approach is sufficient for maintaining a price peg, as we saw in the stETH example above. The remaining 50% of liquidity is then utilized in diverse ways to maximize efficiency, reduce LP risks, and facilitate aggregate performance improvements across the protocol.

It’s important to note that funds in the ELA will only be used for liquidity management. We will not use this fund for any other purpose. Funds in the ELA will only be used for liquidity provision and management.

The ELA is designed to offer complete exit potential for any individual pool based on its specific metrics during emergencies.

It holds 20% of the full liquidity demand in its pool, accessible via individual LP-management smart contracts tailored for each LST. This ensures that liquidity can be efficiently mobilized when necessary, maintaining the protocol's stability and user confidence.

Instead of allocating 50% of qETH liquidity into an LP, we would commit 25%, aligning with the stETH ratio. The rest sits in ELA, ensuring it can be allocated where and when it's needed.

It also means the entire AQTIS ecosystem is not served by one liquidity pool, but by pools tailored to each LST, further enhancing efficiency.

What benefits does the ELA bring to the AQTIS ecosystem?

The implementation of the Ecosystem Liquidity Aggregator (ELA) within our protocol has several direct benefits. We’ve detailed these below.

Optimized Liquidity Usage

By not over-allocating liquidity in the LPs and instead balancing it with the ELA, we ensure more efficient capital utilization. This reduces the idle capital scenario, thus maximizing the productivity of the assets held within our ecosystem.

Risk Mitigation for Users:

The ELA is designed to provide 100% exit potential in emergencies, by creating an additional layer of security for users’ funds. In volatile markets or unexpected scenarios, this feature ensures that users can exit positions, thereby mitigating potential losses.

Enhanced Protocol Stability

By maintaining an optimal liquidity ratio — demonstrated through our strategy with qETH — the protocol avoids excessive liquidity that can lead to inefficiencies. A leaner, more efficient liquidity model contributes to the overall stability and reliability of the protocol.

Adaptive Liquidity Management

The ELA's ability to dynamically manage liquidity based on market conditions and individual LST requirements allows for agile responses to market changes. This adaptability benefits users in terms of available liquidity and enhances the protocol's ability to navigate various market scenarios effectively.

Aggregated Performance Improvement

The allocation of liquidity between the primary LP and the ELA, along with the strategic deployment of assets, creates an aggregated effect. This results in an overall increase in the protocol's performance, benefiting all stakeholders within the ecosystem.

Building User Trust

The strategic and transparent management of liquidity instills confidence among users. Knowing their tokens are part of an efficiently managed and risk-conscious ecosystem encourages long-term engagement and trust in the protocol.

In summary

In summary, the ELA serves as a cornerstone in our commitment to risk mitigation and capital efficiency. Its implementation is a testament to our dedication to providing a secure, stable, and high-performing protocol, aligning with our users' interests and contributing to the overarching success and sustainability of our financial ecosystem.

Any questions? Hop into Discord. ​