Autonio’s Swarm is a liquidity mining protocol that takes a market-driven approach to incentivizing market making on order book-based exchanges and produces robust and consistent liquidity.
Since the terms “liquidity” and “liquidity mining” are widely used in crypto circles these days, often without elucidation, some definitions might enable a clearer understanding of what makes Swarm so distinctive.
What is Liquidity?
Simply put, liquidity is a measure of how easily an asset can be bought or sold in a given marketplace without adjustments to its price.
A natural indication of liquidity is the gap--or spread--between an asset’s asking price and offer price in a given market, whether an exchange or a bazaar.
If a trader wants to sell an asset for a certain amount, he or she must find a buyer willing to pay that price. If there are no willing buyers, the seller may be forced to reduce the price to a point where a deal can be agreed or wait until conditions change. The reverse also holds true: buyers in search of an asset at a given price may have to offer more if there is no one ready to sell for that sum.
This is why asset offer prices often include a premium that is the cost of doing a deal right away versus waiting for the price to drop or rise to a desired level.
What is Liquidity Mining?
Liquidity mining is the act of providing liquidity in a given market in exchange for rewards.
Traditionally, the provision of liquidity has been concentrated in the hands of a limited number of participants, primarily including large financial institutions, hedge funds, and trading desks. This has changed with the advent of blockchain technology and the rise of decentralized finance (DeFi), which are enabling investors of all levels of experience to access sophisticated trading tools.
Because they are relatively new on the scene, crypto exchanges often lack the volume of traditional financial markets, so must find other ways to provide liquidity to ease the flow of transactions.
Among these solutions is the Automated Market Maker (AMM), an algorithm-based tool that can deploy capital into a market in exchange for incentives. Typically, a liquidity provider will deploy two assets into the liquidity pool to ensure there is always a buyer and seller available for investors who want to make a deal. Rewards based on the fees paid by the traders who have benefited from the provided liquidity are then distributed to providers.
But AMMs, most of which rely upon simple algorithms to determine prices and do not factor in outside information, are not the only option for improving transaction speed and efficiency in a crypto marketplace.
Many crypto exchanges rely on order books, a more traditional method for mapping out market activity. Order books set out the volume of assets currently on offer (the sell-side) and the volume of assets sought (the buy-side), along with desired selling (ask) and buying (bid) prices for each.
How does Swarm fit in?
Swarm is a liquidity mining tool that offers robust and consistent liquidity by crowdsourcing it from a diverse audience. As we explain below, crowdsourcing also reduces the risk of market manipulation.
A swarm is a marketplace-driven tool for liquidity mining on order book-based exchanges that connects market makers (liquidity providers) to liquidity buyers (individuals, token issuers, and exchanges) through campaigns and rewards.
Swarms enable liquidity buyers to launch campaigns with set parameters (e.g. the asset pair concerned, l, the rewards for market makers, maximum speed, and duration of order book snapshots, and order size).
Autonio’s Swarm matches the liquidity provided by miners to the campaigns launched by various liquidity buyers. Liquidity providers are then rewarded based on the order size they fulfill, the spreads they maintain (the tighter the spread between bid and ask, the higher the reward), and the duration of liquidity provision.
The whole process is automated and integrated with the other tools in the Autonio Trading Suite, including Maker, our intelligent market-making interface, and Smartdex, our decentralized exchange. Autonio’s entire offering is dedicated to a single mission: Enabling democratized trading with crowdsourced liquidity.
Swarm’s unique advantages
The main advantage Swarm offers over many other liquidity provision tools is that it compensates liquidity providers directly through campaign rewards. This is considered the most effective incentive for liquidity provision, particularly in illiquid markets.
Since Autonio understands that a market is only as healthy as the source of its liquidity, Swarm has also been carefully designed to reduce the risk of both market manipulation and control.
First, Swarm rewards liquidity providers based on snapshots of an order book in ongoing timeframes, rather than merely for maintaining a predefined uptime percentage over a given month, as is the case with bilateral contracts. By giving market makers the scope to deploy liquidity only when the risks benefit them, liquidity mining protocols with bilateral contracts are vulnerable to manipulation and inconsistencies in liquidity. With Swarm, the incentive for gaming the system is removed.
In addition, Swarm reduces the risk of liquidity monopolization by crowdsourcing liquidity from a diverse audience with uncorrelated behaviors and interests.Finally, Swarm deploys machine learning to spot unusual trading patterns, which makes it easy to detect--and address--various forms of market manipulation. These include wash trading, where traders exchange a given asset among themselves to inflate that asset’s trading volume.
The future of liquidity mining
The rise of decentralized finance (DeFi) promises to change the face of the financial industry forever. Liquidity mining protocols like Swarm are an essential part of this revolution. By easing the flow of transactions on crypto exchanges, they offer investors an alternative to traditional asset markets and freedom from the long-standing gatekeepers of the financial industry.
With Swarm, anyone can supply, withdraw, or instantly access liquidity as long as the parameters are set.As markets fragment and compete for volume, the need for transparent crowdsourced liquidity will only grow. With all its advantages, Swarm stands to be a pioneer in this space--and a vital part of Autonio’s mission to democratize trading in financial markets everywhere.
Autonio Foundation is a decentralized autonomous organization built around developing accessible, easy to use and affordable trading tools and services for the DeFi ecosystem.
Autonio is building a prosperous community around algorithmic trading by democratizing access to intelligent automated trading tools and infrastructure. These tools make it easier for crypto traders to conduct trading analysis, deploy trading algorithms, exchange crypto currencies, sell their strategies and pool funds for trading purposes, all with profitability, security and ease.