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Swell’s Chief Liquidity Surgeon Abi, was joined by Lewis and Steffen from Gyroscope to deep dive into our new E-CLP and discuss why the elliptic concentrated liquidity model is perfectly suited to the swETH/wstETH pair.
In case you missed it, here are the top questions from the event:
How did Gyroscope come about?
Gyroscope was formed from a process of learning about what has worked well in stable coins so far, and what has not worked well, such as risk diversification and risk channels. We put all of these ideas together and designed a new system that makes sense.
We believe there is still so much that can be done in improving the design of decentralized non-custodial stable coins. This is one of the core pieces of infrastructure that, done well and properly, can bring huge amounts of value to the space. This is the core motivation behind the Gyroscope stable coins, i.e. providing a coin that is as risk-diversified as possible.
How does the E-CLP technology relate to the stablecoin?
The stablecoin has a reserve that contains different pools where the E-CLP is a pool type that is to be used by the reserve, so the E-CLP is a kind of AMM that we have developed in the course of building the stable coin itself.
How does the deployment process work and how did the collaboration process look like between Swell and Gyroscope?
The main feature of the E-CLP is configurability, so it is a pool that has concentrated liquidity within price bounds where each trader has to specify the price bounds for the pool and adjust them over time. The E-CLP also has other parameters that can match the shape of liquidity precision as the price moves.
It is important to understand what the E-CLP is doing in relation to other protocols out there that utilize swapping features. The E in E-CLP stands for elliptic, which means that the pricing mechanism we rely on is based on an ellipse. The E-CLP abandons the constant product formula of AMMs and goes into an elliptical trading curve. This is new, and means we can support different types of liquidity profiles, essentially increasing the flexibility of the E-CLP by allowing LPs to have their liquidity directly targeted at the specific liquidity profile that is being dealt with. With this model, the operational overhead is shifted to the entity or person that deploys the pool, which massively improves the user experience.
We worked very closely with Swell during the deployment process, and collaborated by looking at qualitative properties of the system and historical price data, that allowed us to then choose the shape of liquidity provision based on our findings.
How did Swell come across the E-CLP pools and how do we see E-CLP fitting into the swETH liquidity strategy?
There are two main reasons why Swell decided to partner with Gyroscope:
- We noticed that wstETH tends to get a lot of rebalancing volume because, unlike Swell, Lido has withdrawals enabled. If wstETH in the pool is cheaper or more expensive than it should be, arbitrageurs will buy wstETH out of the pool, or sell it into the pool to be able to arbitrage the price difference.
- To create an efficient pool in which both constituent assets are yield-bearing.
Combined, these factors help create a high-yielding pool that doesn’t necessarily need incentive rewards sent towards it.
It appears that the E-CLP is perfectly situated to accommodate LSTs. Can you unpack that?
When the team started to create designs on how Gyroscope was going to work, we decided that we wanted to create efficient pools for pegged token pairs.
This model can be applied to stablecoin pairs, but equally another kind of token that fits this use case is liquid staking tokens, because you have a natural anchoring price which is usually 1:1. This is because ETH staking is standardised in terms of the yields that are offered, so whatever difference there is between swETH and wstETH is likely to stay very constant for a long period of time. Effectively an LST:LST pool trade almost identically to a stable:stable pool but it is denominated in ETH and has the extra yield attached to it.
This is the case with the swETH/wstETH pool, in which both liquid staking tokens are appreciating, and the relative difference in price from one token to another is kept to a minimum.
What role do you see decentralized stablecoins playing in global finance?
One of the most desirable qualitative properties that a type of coin or token can have is the ability to offer price stability, and through technology it is possible to create a non-custodial asset that is stable in price that anyone can access.
Using the basic tenets of DeFi, if you can have a non-custodial, permissionless and openly auditable form of exchange, such as a stable coin, that can hold its value and can be sent to anyone in the world, this would be an incredible thing.
It is an open challenge on how to do this properly, and we hope that the software we have designed for Gyroscope can provide a nice step forward in how non-custodial, decentralized stable coins can operate.
Thank you to everyone for attending this Twitter Space!
