LOVELY V3 SWAP (DEX)
Decentralized Exchanges (DEX) are a return to the ‘roots’ of crypto currency. The decentralized finance (DeFi) revolution promised the potential to disrupt global markets.
LOVELY V3 Swap is a Multi Chain Supported Automated Market Maker, Implemented first on the Binance Smart Chain. In comparison to V1/V2 Swap of the protocol, LOVELY V3 Swap provides increased capital efficiency and fine-tuned control to liquidity providers, improves the accuracy and convenience of the price oracle, and has a more flexible fee structure.
The LOVELY V3 Swap protocol is a peer-to-peer1 system designed for exchanging cryptocurrencies (BEP-20 Tokens) on the Binance Smart blockchain. The protocol is implemented as a set of persistent, non-upgradable smart contracts; designed to prioritize censorship resistance, security, self-custody, and to function without any trusted intermediaries who may selectively restrict access.
LOVELY V3 Swap is open source with slight modifications, which are viewable here. Each version of LOVELY V3 Swap, once deployed, will function in perpetuity, with 100% uptime, provided the continued existence of the Binance Smart Chain.
To understand how the LOVELY V3 Swap protocol differs from a traditional exchange, it is helpful to first look at two subjects: how the Automated Market Maker design deviates from traditional central limit order book-based exchanges, and how permissionless systems depart from conventional permissioned systems.
Most publicly accessible markets use a central limit order book style of exchange, where buyers and sellers create orders organized by price level that are progressively filled as demand shifts. Anyone who has traded stocks through brokerage firms will be familiar with an order book system.
The LOVELY V3 Swap protocol takes a different approach, using an Automated Market Maker (AMM), sometimes referred to as a Constant Function Market Maker, in place of an order book.
At a very high level, an AMM replaces the buy and sell orders in an order book market with a liquidity pool of two assets, both valued relative to each other. As one asset is traded for the other, the relative prices of the two assets shift, and a new market rate for both is determined. In this dynamic, a buyer or seller trades directly with the pool, rather than with specific orders left by other parties. The advantages and disadvantages of Automated Market Makers versus their traditional order book counterparts are under active research by a growing number of parties. We have collected some notable examples on our research page.
The second departure from traditional markets is the permissionless design of the LOVELY V3 Swap protocol. Permissionless design means that the protocol’s services are entirely open for public use, with no ability to selectively restrict who can or cannot use them. Anyone can swap, provide liquidity, or create new markets at will. This is a departure from traditional financial services, which typically restrict access based on geography, wealth status, and age.