DODO Project’s market-making algorithms could revolutionise crypto exchanges

• The DODO project has existed for over two years now, with over $5 million in funding.
• The DODO project aims to employ proactive market maker algorithms to change how decentralised exchanges work.
• DODO claims to provide better pricing and fewer chances of slippage than regular DEXs.

The crypto industry is moving fast, and you need to look no further than decentralised exchanges (DEXs) to find proof of this. But while most DEXs are run by the concept of automated market makers (AMM), the DODO project aims to take things a step further and change how DEXs work even before they become truly mainstream. It has over $5 million in funding and is backed by Binance, among others.

DODO is a DEX platform that promises traders “highly capital efficient liquidity pools that support single token provision, reduce impermanent loss, and minimise slippage”. That promise comes from what the platform called proactive market maker (PMM), a new kind of algorithm that makes buy and sell decisions on the platform.

How is DODO unique

On paper, DODO is just another DEx. But as mentioned above, the PMM is what differentiates this project from fellow DEXs like Uniswap. But to understand the difference between PMMs and AMMs, we first need to know how liquidity works in crypto trades.

When you’re trading particular crypto on an exchange, centralised or decentralised, the only way the trade can go through is if there’s a buyer on the other end. On a centralised exchange, the company can provide liquidity through certain partnerships and more. However, DEXs are driven by smart contracts instead of companies.

This means that when you’re trading on a DEX, let’s say Ether for USDT, the platform needs an ETH-USDT liquidity pool. DEXs achieve this by allowing anyone to provide liquidity, and smart contracts define when liquidity can come into play. On regular DEXs, these smart contracts are called AMMs.

So, AMMs go about the process of market making by pooling in two crypto-assets, and the trade price is determined by how much liquidity is available on that pool. In turn, this means that the price you expected when you initiated a trade could be lower when the trade goes through — a phenomenon that is known as slippage. In traditional stock trading terms, this will be akin to the price of a stock or asset changing in the time it takes your broker to execute the trade.

PMMs try to mitigate this concern by attempting to proactively adjust the parameters of a trade as it happens. Basically, it is capable of taking into account the available liquidity in real-time and adjusting the relevant parameters of trade to avoid slippage. They do so by creating liquidity pools nearer to the market price than AMMs.

The DODO project claims that its PMMs can even be adjusted to take into account external price oracles to avoid impermanent loss, which is a phenomenon that affects liquidity providers when the price of an asset changes between the time it is deposited to provide liquidity and when it’s withdrawn.

Tokenomics

The vDODO token, which is the native cryptocurrency of the DODO project, has three categories — traders, liquidity pool creators (LPCs), and liquidity providers (LPs). The tokens have three functions — governance, crowd pooling and initial dex offering (IDO) allocations, and trading fee discounts on DODO.

The vDODO token is used to serve as proof of membership in DODO’s loyalty program and can be minted at a fixed rate of 1 vDODO being equal to 100 DODO. The platform also encourages long-term membership by redeeming vDODO tokens to DODO tokens by employing a variable exit fee.

On the governance front, holders of the vDODO token can vote on proposals with a single vDODO token being equal to 100 votes.

At the time of writing, the token was trading at around ₹30.08 on WazirX. The crypto exchange has also partnered with the DODO project for a giveaway that runs between March 1 and Mar 18. In a blog post, WazirX said that the giveaway would be worth ₹56 lakh, and users can receive free tokens from the DODO project for performing various activities.

DODO Lite version

The platform also introduced a ‘lite’ version of the DODO app, which is meant for those who are new to the decentralised finance (DeFi) ecosystem. The DODO LITE app provides users a clutter-free experience and performs trades more easily.

Disclaimer: This is a sponsored post in partnership with WazirX. Cryptos are unregulated virtual assets, not a legal tender and subject to market risks.