Sovryn is completing Satoshi’s vision of monetary sovereignty beyond simple peer-to-peer transactions. Its layer 2 solution facilitates an open-source operating system for financial primitives, including margin trading, swapping, lending, and borrowing of multiple assets over multiple chains. Operating on the Rootstock (RSK) Bitcoin side-chain, Sovryn transactions are merge-mined with Bitcoin, by bitcoin miners, to capitalize on its security model and network effects. The Sovryn financial platform is decentralized, permissionless and never takes custody of your keys/coins. To enable trustless trades and swaps, Sovryn uses an oracle-based Dynamic Automated Market Maker (DAMM).
An Automated Market Maker is a decentralized protocol that prices assets based on a mathematical formula. This differs from a conventional order book, which simply stores and matches buy and sell orders. For an order-book system to fulfill an order of “buy asset X at price Y”, there must also be a parallel order of “sell asset X at price Y” to match to. Alternatively, AMM’s use liquidity pools that contain a balance of both assets.
The Sovryn Dynamic Automated Market Maker (DAMM) is an on-chain liquidity protocol that enables automated decentralized token exchange. The Dynamic aspect of the AMM tackles impermanent loss and exposure to multiple assets through dynamic pool asset ratio balancing and enabling single-sided liquidity provision.
By removing the centralized service that traditionally provides market-making, there is a need for liquidity to facilitate trades or swaps. AMM’s achieve this by using liquidity providers. Liquidity providers (LPs) lock their assets in a pool to act as market-makers in return for LP tokens – a representation and receipt of their share within the pool. Fees are generated in the denomination of the target asset. For example, a trade of USDT to BTC generates a fee amount in BTC. This fee is distributed between liquidity providers as a reward, in exchange for their market-making service. The fees collected by the system and rewarded to providers can be seen here - What are the fees?
Whilst other AMMs require LPs to take on exposure to multiple assets, some pools on Sovryn do not. Any user can provide liquidity to a pool with a single token and maintain 100% exposure to that token. For example, in the RBTC/RUSDT pool, an LP can provide RBTC only, or RUSDT only as liquidity to the pool. This allows them to maintain exposure on a single asset while earning fee rewards and mining rewards. This is known as a v2 pool.
IMPORTANT NOTE: Some other pools, like the SOV/BTC and ETH/BTC Liquidity Pools are double-sided - Please read the section below for details.
Pools like the SOV/BTC and ETH/BTC Liquidity Pools are double-sided (v1) liquidity pools. Therefore, in order to provide liquidity to the SOV/BTC pool, for example, you must provide equal liquidity value to both assets of the pool, SOV and RBTC. Other than this, the overall process of providing liquidity in the SOV/BTC pool is the same as single-sided liquidity pools. The amount of RBTC required will be automatically calculated by the protocol. Be sure to have adequate RBTC in your wallet for the amount of SOV you wish to supply to the pool AND to cover the tx fees of providing and eventually withdrawing.
The staked balance indicates the total amount of tokens staked by liquidity providers, it is a record of the pool’s obligation to its LPs. The contract (or current) balance indicates the amount of tokens actually held by the contract at any time. The current balance can diverge from the staked balance due to the volatility of one of the assets in the pool. When the current balance differs from the staked balance, the pool’s weights are adjusted in order to incentivize arbitrageurs to return the current balance back to its staked balance. Although the arbitrage incentive does not always push the balance back to 100% equilibrium, frequent arbitrage operations guarantee that it always remains very close (slightly below or above) to the staked balance.
Within the DAMM's liquidity pools, the current balance can deviate from the staked balance between the time somebody provides liquidity and the time they wish to withdraw it. This could mean, if the current balance is lower than the staked balance at the time of withdrawal, the liquidity provider's share of the pool is actually worth less than the initial liquidity amount they provided. This is called impermanent loss. It is impermanent because providers can wait for a time where the balances have equalized and withdraw without suffering a loss. Impermanent loss is a present risk that every LP should be aware of when providing liquidity. There are several mitigating factors that could outweigh, or at least offset, impermanent loss. Example: LPs can earn from trade fees and liquidity mining.
The following video will walk you through the process of providing liquidity on the Sovryn platform. Alternatively, you can use the step-by-step process outlined below the video.
The following step-by-step guide will walk you through the process of removing liquidity on the Sovryn platform. The first three steps are identical to the above mention chapter about depositing (screenshots included).
You can add the following token Contract address for each pooled asset to your Metamask wallet, which will allow you to see your pooled assets from within your browser wallet:
NOTE: You may get a notice that the Token Symbol needs to be less than 11 characters. To resolve this, click the edit button as show in the image below, then delete any characters of your choosing to get the character count to 11 or less.