Just yesterday, Andre Cronje, the founder of Sonic, updated his profile on social media and added his identity as the founder of FlyingTulip. After vigorously promoting Shadows (3, 3) micro-innovation, this move has triggered a discussion on Sonic. At this stage of bull-bear transition, the market is eager to seek increments and new narratives. What has AC, who once brought glory to DeFi, prepared? What will this bring to Sonic? Before FlyingTulip is officially launched, BlockBeats will bring you a preliminary analysis of the existing information.
Although the product has not been officially launched, according to the information on the official website, FlyingTulip will be a one-stop DeFi integration platform, including multiple functions such as trading, liquidity pool, lending, etc., and can concentrate spot, leverage, and perpetual in one AMM protocol without having to store them in different protocols, thus solving the problem of liquidity fragmentation. The official claims that compared with other DEX protocols, this product can bring: 42% reduction in impermanent loss, 9 times increase in LP return rate, and 85% increase in capital utilization efficiency.
As for traders, LP pool providers and institutional traders, the official listed several points and compared them with the top CEX and DEX with similar functions on the market. For ordinary traders, it can provide lower transaction fees, better liquidity quotes and higher leverage (claimed to be up to 1000X), for liquidity providers, it is because of the multi-purpose of its liquidity (you can earn transaction fees, lending fees and option fees at the same time), and for institutional traders, the product adopts hybrid compliance (fully integrated with compliance tools, including OFAC screening, tax reporting and wallet reporting), and uses non-custodial wallets to reduce credit costs. .
Two innovative technologies
Adaptive Curve AMM
Usually, AMM pools, similar to Uniswap V2, follow the constant product formula of X*Y=k, which causes liquidity to be evenly distributed at all price points, but most transactions only occur within a smaller price range. The centralized liquidity range provided by V3 requires more professional knowledge, and when prices fluctuate on a large scale, liquidity providers will suffer impermanent losses, which is very unfriendly to newcomers.
FlyingTulips innovative dynamic AMM will automatically adjust the curve shape according to market volatility. In low-volatility markets, the curve is close to the shape of X+Y=K (constant sum curve), while in high-volatility markets, the curve is close to the shape of X*Y=K (constant product curve). The system continuously monitors the real-time volatility rVOL and implied volatility IV of assets through oracles. When volatility is low, liquidity is automatically concentrated near the current price (similar to LP manually concentrating liquidity in Uniswap V3). When volatility is high, liquidity is automatically dispersed to cope with possible large price changes.
This makes FlyingTulip a grandma-style DeFi that allows newcomers to join the LP pool without having to set up complicated interval strategies. They only need to add liquidity, and the interval will be customized and changed according to market fluctuations, thereby obtaining the best rate of return and reducing impermanent loss at the same time.
AMM-based LTV model
Based on adaptive AMM, FlyingTulip also created a new LTV lending model Loan-to-Value.
LTV refers to the ratio of how many other tokens can be borrowed after pledging a token. Generally, in traditional DeFi, the platform will simply determine the risk level of a certain token. For example, if the risk level is determined to be medium, only 70% of the pledged value can be borrowed. This fixed ratio ignores two important factors, market depth and real-time volatility. The former will greatly affect the token price when the loan amount is too large, while the latter will generate huge liquidation risks when the market uncertainty is high.
Flying Tulip has created a mathematical model to dynamically adjust LTV according to real-time conditions, thereby taking into account market depth and real-time volatility. For example, if you pledge 1 ETH (worth $2,000), there will be many situations in Flying Tulip. When the market is calm, you may be able to borrow $1,600 (80% LTV), but when the market fluctuates violently, you can only borrow $1,000 (50% LTV). If your collateral is large relative to the current market depth, you may only be able to borrow $900 (45% LTV).
The advantage of this is that you can borrow more funds when the market is safe, and the loan amount will be automatically reduced when the risk is high to reduce the risk. Users do not need to pay attention to market fluctuations and adjust their positions all the time. This reduces the possibility of chain reactions such as price trampling when large accounts are liquidated.
The next generation of DeFi?
It is true that with the frequent outbreak of CEX black swans, people are more concerned about the safety of funds and gradually dislike the problems brought by the closed market dark forest, such as unplugging the network cable, plugging in, inexplicably being liquidated, being charged super high transaction fees, etc., which gradually eroded the advantages of CeFi, coupled with the continuous upgrading of DeFi infrastructure. More aggregated DEX/ecosystems like Hyperliquid are recognized by the market.
The official website of FlyingTulip directly announced that the next generation of DeFi is coming, with transparent execution on the chain, gas removal, ultra-low funding rate below 0.02%, abstract wallet with zero learning cost, no KYC required, adaptive curve AMM, better lending ratio and LP income. FlyingTulip lowers the user entry threshold to the greatest extent. Based on SonicLabs ultra-high TPS, newcomers can experience almost the same as Cex with low learning cost. The liquidity of Web2 users does not go through the exchange but directly enters the chain through the simple and easy-to-understand DeFi and obtains income.
The innovation of dynamically adjusting prices and fees may also redefine the balance between liquidity and stability. In addition, the purpose of integrating compliance tools such as OFAC screening into the decentralized ecosystem is to ensure that decentralized finance will not damage the core essence of DeFi in the future without having to comply with the regulatory framework.
But there are two core issues that will determine whether FlyingTulip can succeed. One is whether the oracle can run stably, which will represent whether the product can beat other competitors at the product level. Models including AMM and LTV are affected by realized volatility rVOL, implied volatility IV, time-weighted average price TWAP, and risk-weighted average price RWAP, which will directly affect the rate of return and product stability.
The second is whether Andre Cronje can continue to create a get-rich-quick effect on Sonic to drive the ecosystem fission and reach a critical effect to drive the flywheel, so that FlyingTulip, the bridge between Web2 and Web3, can be opened to traffic. In any case, we have to wait until the product is launched before we can make a final conclusion, and BlockBeats will continue to track it.
