Introducing XFai DEX: Evolution of the DLO

The DLO has evolved quite a lot since XFai’s inception. After thorough research, we have concluded that for a DLO-like mechanism to work as intended, i.e., drain liquidity out of centralized exchanges & increase the use of DEXs, we will have to design a new type of DEX that does not have the shortcomings of the current architectural designs. This is why we’ve decided that for the first stage of the product (V1), we are working on a new type of virtually automated market maker (vAMM) to prevent & solve some of the problems we see in the DeFi space.

XFai’s flagship product, the DEX, will allow users to create pools, provide liquidity to pools, and swap between pools. With the DEX design, we are aiming to tackle three crucial problems present in today’s DEXs, which need to be solved for decentralized exchanges to compete against centralized ones:

  1. Liquidity spread — In other DEXs like Uniswap, tokens form token pairs with other tokens to enable swaps. As a result, tokens have to spread their liquidity across several token pairs, which results in increased slippage. In our DEX, there are no token pairs. Instead, every token will have a single pool and every token is by default swappable with every other token on the DEX. This is done with the help of some dynamic weights that each pool will have. DEXs like Balancer also use weights, but unlike Balancer, our DEX will not have an upper bound on the number of tokens hosted on the DEX. Additionally, Unlike in other DEXs like Uniswap, where liquidity providers have to provide two tokens, our DEX allows one-sided liquidity provisioning without influencing token prices.
  2. Slippage minimization — Our DEX uses a novel invariant function for the swaps. In addition, a novel virtual market maker design (vAMM) us to minimize the slippage during swaps significantly. In the center of all this is the XFIT token. The XFIT token will form virtual reserves, which act as dynamic weights, with every pool of the DEX serving as a bridge token between all the other tokens. Thus, instead of tokens having token pairs with every other token, like on Uniswap V2 and V3, in our DEX, every token has only a virtual pair with the XFIT token. Because of the vAMM design and the invariant function that we use, we can use this simple design while still minimizing slippage. Therefore, the value of XFIT will be directly correlated with the capital efficiency of the DEX design, as every swap will benefit XFIT holders.
  3. Capital efficiency — Every time slippage is minimized by the DEX, liquidity providers get additional rewards from f additional swap fees. On top of that, in contrast to Uniswap, where a liquidity provider gets rewards only for a specific pair, in our DEX, liquidity providers get rewards for token pools. So, for example, if you provide liquidity, eg., DAI, you will get rewards whenever DAI is swapped for any other token, not only when it’s swapped with one particular token. By gaining additional rewards from slippage minimization and pair removal, we are confident that our DEX design will significantly outperform others in capital efficiency.


There are lots more details concerning virtual AMMs, the dynamic weights of the architecture, the invariant function used, and much more, which we will continue to share with the XFai community as soon as they become formalized. Follow our social media channels to keep up-to-date with the latest news!

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XFai develops tooling for the DeFi space – we graph the DeFi space to build game-changing products. Starting with the DLO: the DEX Liquidity Oracle