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Hey - so, some jumbled thoughts on Swapr future.

So I guess, to start on something we agree on, the current Uniswap v2 contracts are out of date. The 50/50 pool will probably stick around forever, but it was ~80% of DEX volume in fall of 2020, and maybe it’s 30% now, but I expect that to bottom out at around 15-20% of overall market share.

To see what comes next, it’s important to recognize the appeal of Uniswap v2, Curve, Balancer, and Bancor: they make it easy to be a passive liquidity provider. The 50/50 strategy isn’t the most efficient but it’s easy to understand and can pool lots of liquidity because it acts as a schelling point for liquidity providers.

This ease of use is what created DeFi and allowed it to bootstrap liquidity - note this is true on lending, Compound/Aave were innovative because they had pooled lending. FYI, i wrote about this on my newsletter a year ago: https://doseofdefi.substack.com/p/defi-the-liquidity-revolution?s=w 

So after DeFi found product-market-fit with pooled liquidity, many noticed the capital inefficiency in most protocols. This is when Sam Bankman-Fried kept fighting with Dan Robinson about how order books were more efficient. 

### Unbundling DEXs and liquidity provisioning
What happened is that DeFi liquidity provisioning is being split in two. There’s the most capital efficient base layer (Uni v3, Balancer v2) and then a secondary layer of making that capital efficient design in a more easy to use format for the passive liquidity providers that made DeFi grow initially (Yearn, Arrakis, Pickle).

### Keeping things together
Curve v2 and Bancor v3 look to keep these functions together at the base protocol. With Curve v2, it’s like Uni v3, but it has a self-referential oracle that rebalances LPs automatically. And then with Bancor v3, the core token is basically handling the rebalancing, by taking on the risk of impermanent loss, so that the end Liquidity provider gets a nice experience of providing one-sided liquidity.

In general, I favor the unbundling method, because i think it is more modular, allowing for greater efficiency at the core, while enabling additional innovation on top of it. I’d rather have a bunch of projects/products that deal with rebalancing liquidity rather than just the core protocol level. 

I also think the experience of DODO illustrates this point well. It came out with the “Proactive Market Maker” which basically just moves the price more slowly. The problem is this decreased the incentive for arbitrage bots, which are really what power DeFi. So you can’t get price discovery. Very good thread on this from Andrew kang a while back:
https://twitter.com/Rewkang/status/1310719318405951488 

And a follow up:
https://twitter.com/Rewkang/status/1368503213549264905 

### Impermanent Loss
And then, broadly on Bancor v3. It seems to be focused on ‘eliminating impermanent loss’, which to be honest seems like a perpetual motion machine. If a token moves a lot, there will be major price changes, and someone has to take on that risk. It can’t be waved away. The question is who assumes the risk. The LP or the protocol?

Market makers do this in traditional markets and are aggressively hedged. For Bancor, the protocol (or token holders) are assuming all that risk. Then the token becomes much more about risk evaluation of new tokens, which isn’t necessarily a bad thing, I think it would be better for a standalone service to do that, rather than integrate it into the underlying protocol.

### Swapr Future
Broadly speaking for Swapr, i think there should be a good chunk of DXdao liquidity in the DeFi blue chips (preferably in a more efficient system than a Uni v2 fork), and then have a bunch of smaller tokens that have their primary liquidity on Swapr. These would be DXdao’s own projects, partners and anyone in our ecosystem (DXgov). The question is what is the ideal structure for those projects? Especially ones that have an initial float on Swapr.

CoW is the best example of this. Hopefully there are more of those in the future. What is the ideal scenario for liquidity providers and Swapr for a token like CoW?

To return to the beginning, how can Swapr be an easy place for passive liquidity providers? Could Jolt help?
