For a Stablecoin to facilitate sizable swaps, it is important that it amasses deep Liquidity. By launching a USD+/USDC Pool on Sushiswap, Overnight is now one step closer to this goal. This pool uses the Trident Constant Product Pool and is the first of its kind on Sushi as it features a Stableswap (using the best of both worlds from both Uniswap and Curve).
What is a Trident Constant Product Pool?
DeFi has two major types of AMMs (Automated Market Makers). The first is the Constant Product Pool (being used by Uniswap v2) and the second is a Stableswap (being used by Curve).
A Constant Product Pool — also known as a Volatile Swap — uses the XYK formulae wherein x*y=k. It comprises two tokens (x & y), each constituting a 50% weightage within a pool. The pool is re-balanced after every trade to maintain a stringent 50/50 ratio. Suppose that there are two tokens — A & B. Token B is bought by a trader with token A on an AMM then the price of B will surge in value. As a result, the amount of token As (sold to buy token B) in the Liquidity Pool will increase in quantity to match the higher price of token A. This example is illustrated in Image 1.
Image 1: The X*Y=K formulae being plotted on a graph
The drawback of such a methodology is that a single trade causes token prices to fluctuate. This works like a well-oiled machine when a user transacts for tokens that have unpredictable prices (e.g, eth, btc, etc) yet fails when it comes to trades between Stablecoins; highly correlated assets need minimal price impacts for their prices to remain stable — the XYK formulae does not accomplish this.
This dilemma is solved by Sushiswap’s innovative Trident Pool. It features a Concentrated Pool enabling Liquidity Providers to capture high fees while realizing little to no Impermanent Losses in doing so as the prices of stablecoins are predictable. Hence, the Trident Pool offers Stable prices, deep liquidity, low slippages, and captures more volume from AMM Aggregators (the likes of 1inch, Firebird, etc).
Refer to Sushiswap’s Blog for more information on the trident pool
Details of the Trident Constant Product Pool
The Trident Constant Product Pool on Sushiswap features the following innovations that Overnight can benefit from
1. Low Fees: The LP swap fee is set at a default 0.3% with the ability for Pool creators to choose swap fees as per their preference. In the case of the USD+/USDC Pool, the fee is set at 0.11% to facilitate buys/sells at little to no costs.
2. Efficient Swapping Routes: The Sushiswap AMM searches for the most efficient swapping routes to deliver its users the best rates.
3. Custom Ratios: The Trident Pool is not strictly 50/50. This means that a standard swap from USD to USD+ will not immediately increase the price of USD+ relative to USDC and hence, offers more stability.
Overnight conquers the Trident
Overnight Finance is the very first protocol to leverage Sushiswap’s innovative Trident offerings. It boasts of a USD+/USDC Pool having amassed a $125,000 TVL within 24 hours of it being featured.
Yields generated from USD+ within the liquidity pool are used to buy back $SUSHI — an inherent advantage of this methodology. This means that the emissions directed toward the pool are negated to buy back SUSHI with the use of USD+ yields. Currently, the $SUSHI bought back exceeds the emissions for the pool making it highly beneficial for the Sushiswap protocol. This would not have been the case with any other stablecoin — an inherent advantage of USD+’s Yield-Bearing Nature.
Users can check out the pool on Sushiswap for the Polygon network here.
About Overnight Finance
Overnight Finance is an Asset Management Protocol offering Low to Medium Risk Passive Investment Products & Catering to DeFi’s Stablecoin Needs. The protocol aspires to be the ‘Vanguard of DeFi’ and is an ideal fit for conservative DeFi investors — including both individuals and protocol treasuries.
Its Flagship Stablecoin — USD+ — is Fully Collateralized by the most secure stables and the collateral is deployed across Yield-Generating Pools that are paid out to USD+ holders on a daily horizon.
About Sushiswap
Sushi is building a comprehensive DeFi ecosystem with AMM, leverage & margin trading platform, token launchpad, and NFT artist platform.
