SheepDex — — 1st V3 DEX on BSC

V3 Concentrated Liquidity

In AMM v2, liquidity is distributed evenly along an x*y=k price curve, with assets reserved for all prices between 0 and infinity. For most pools, however, a majority of this liquidity is never put to use, especially for stablecoins. For instance, DAI/USDC pair almost drifts between $0.98 and $1.02 , which means the liquidity out of this range is wasted.

In Uniswap v3, LPs can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices. In doing so, LPs construct individualized price curves that reflect their own preferences. Again, the previous example, on condition that you think DAI/USDC pair remains at $1, you can choose to allocate your liquidity to the price ranges $0.98 and $1.02, which can significantly improve the utilization rate of funds. In theory, therefore, LPs can provide liquidity with up to 4000x capital efficiency relative to AMM v2. Capital efficiency paves the way for low-slippage trade execution that can surpass both centralized exchanges and stablecoin-focused AMMs.

In fact, the actual yields are not that high. Owing to competition, rational LPs tend to concentrate their liquidity on the middle position, resulting in every LP earning as much as before. The pool of non-stablecoins are not such concentrated, though, the liquidity distribution often represented as a bell-shaped distribution. Hence, the actual yields are about 3x or less.

Source: SheepDex

By concentrating their liquidity, LPs can provide the same liquidity depth as v2 within specified price ranges while putting far less capital at risk. The capital saved can be held externally, invested in different assets, deposited elsewhere in DeFi, or used to increase exposure within the specified price range to earn more trading fees.

Not only that, but LPs can combine any number of distinct concentrated positions within a single pool, as a personalized LP strategy. For example, an LP in the ETH/BUSD pool may choose to allocate $100 to the price ranges $4400-$4600 and an additional $50 to the ranges $3700-$4000. As shown above, most LPs think the price is unlikely to the range of $4000-$4200 for some reason, therefore, there is less liquidity between $4000 and $4200.

By doing so, an LP can approximate the shape of any automated market maker or active order book. Users trade against the combined liquidity of all individual curves with no gas cost increase per liquidity provider. Trading fees collected at a given price range are split pro-rata by LPs proportional to the amount of liquidity they contributed to that range.


The personalized LP strategy requires more complex operations, therefore the gas fee is higher than V2. That’s why the Ethereum network, which the gas fee is extremely high, is only suitable for large investors to participate. For retail investors, the number of V3 users will rise exponentially if they can perform complex operations on a low gas fee network.

SheepDex is the first V3 DEX built on BSC, which just went live on October 10. It has four main features:

1. Low-slippage trade.

2. High liquidity mining yield. The APR of stable coins is about 30%, and the APR of non-stable coins is mostly above 100%.

3. The gas fee is extremely low and the network is smooth, which also reduces the cost of the V3 position adjustment strategy.

4. Trans-Fee Mining. Like other exchanges, SheepDex has a transaction fee of 0.2%, but most of the fees will be refunded to users through the platform token SPC.

The first feature is the advantages of V3 itself, as mentioned above. The second feature is the advantage created by the aforementioned increase in capital utilization. After Uniswap stops liquidity mining, this part of the advantage is not so significant compared to V2, but SheepDex can amplify this part of the income. The third feature is the biggest advantage of SheepDex compared to Uniswap, the extremely low cost and smooth speed of position adjustment provides the opportunity for retail investors to participate.

The last feature is the method used by SheepDex to attract users, which has become a common trick for new online DEX. This strategy, called Trans-Fee Mining, has both opportunities and risks, which can bring a large amount of trading volume to DEX in the early stage, but it also causes a large-scale selling. Trans-Fee Mining can lead to a token price collapse if the token economics model cannot be handled well, as exemplified by the historical Fcoin. So far, Dydx is successful (doesn’t mean it won’t crash in the future). The biggest improvement of its economics model is that the release of tokens through Trans-Fee Mining is carried out in epochs for five years, and there is a cap on the rewards for each epoch, whereas Trans-Fee Mining for Fcoin back then was not done in epochs.

How about SheepDex? The following is SheepDex’s tokenomics:

Total supply: 90 million

Block Time: 3 seconds

Emission: 3.5 SPC / block

Deflation: reduced by 20% every 90.

Source: SheepDex

As shown above, the daily supply amount of transaction rewards is 25200 at the beginning. After 90 days, the amount decrease to 20160, and so on. It’s known by calculation that transaction rewards will never be released completely and the amount of that will approach to 11.34 million (the total amount is 22.5 million) if the deflation happens every 90 days. From this perspective, SheepDex’s token economics model is more similar to Fcoin’s. Since tokens are under heavy selling pressure in the early stages, you need to beware if you buy tokens in early time.

On the other hand, however, SheepDex is not only a V3 on BSC, it also has a very ambitious development plan in the future. The development team states that they intend to build SheepDex into a decentralized cross-chain liquidity aggregation platform that integrates spot and derivatives. In addition to spot trading, SheepDex will also support derivatives trading. The derivatives on SheepDex will be perpetual contracts with no funding fee, which is quite similar to dydx. In addition, SheepDex will also launch traditional financial products such as commodities and foreign exchange, which seems to be an attempt to combine DEX with synthetic asset trading. It is just a great innovation if SheepDex can do a combination of spot, contract and synthetic assets, then I may no longer worry about the selling pressure caused by Trans-Fee Mining.

Sponsored by sheepdex

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