RUJI Pools

​​RUJI Pools provides access to a multi-strategy Automated Market Maker (AMM) built to add liquidity to the Orderbook DEX. Market making keeps bid-ask spreads tight and deepens orderbook liquidity. It is essential to optimize trading conditions and provide a great trading UX. Rujira's AMM attracts liquidity providers (LPs) by offering yield in the form of trading profits.

Key Features

• Decentralized Market Making: Permissionless, 100% on-chain market making with no need for external cranking.

• Virtualized orders: The protocol’s architecture enables the AMM to virtualize orders on the Orderbook DEX, meaning the AMM doesn’t move the funds to the DEX to place regular orders. It only needs to guarantee the DEX it can execute at the price it says it will, when a swap comes in on the DEX.

• High Capital Efficiency: As the funds are not required to be moved from the AMM to the DEX to market make, it means the AMM can market make on multiple markets simultaneously. This allows, for example, to have an AMM pool that provides liquidity in the BTC/USDC pair on the DEX with one strategy, and participate in liquidation of BTC collateral on the BTC/USDC money market with a different strategy.

• Multi-strategy: Rujira's AMM is a flexible framework allowing deployment of all sorts of strategies which add liquidity to the orderbook DEX and, optionally, to other markets such as the liquidation of at-risk collateral in the money market. The Rujira Pools comes with several in-house strategies, including:

  • XYK strategy: Uses a pricing and order sizing algorithm replicating the standard XYK logic used by a traditional AMM-DEX like Uniswap, but tailored for an orderbook DEX with some optimization to improve capital efficiency. This strategy suits smaller tokens still in price discovery mode and subject to high volatility.

  • Oracle-based Concentrated strategy: Deploys most of the liquidity around the current oracle price for a given pair, using Rujira's Oracle Orders functionality to provide deep liquidity and harvest volatility. This strategy suits established tokens with deep liquidity on other venues and reliable oracle prices.

  • Liquidation strategy: Takes the XYK pricing curve and places orders to bid on at-risk collateral using the liquidation engine. If the strategy bids at a fixed discount, e.g. 10%, and gets filled, it is guaranteed to receive a better price than the standard XYK. The difference between the standard XYK price and the actual execution price constitutes the liquidation profit. The AMM LPs retain the standard XYK profit and share 50/50 (TBC) the liquidation profit with RUJI stakers.

  • Unstake strategy: Provides liquidity to backstop Rujira's instant unstaking service. Rujira enables a highly efficient LST market (as an alternative to the standard TOKEN/TOKEN_LST concentrated LPs) by taking any supported LST as collateral, borrowing the underlying token on Rujira's Money Market and distributing the funds to the LST's seller. Under the hood, the protocol automatically handles the unstaking of the collateral, and uses the tokens received at the end of the unstaking period to repay the loan. The pricing given to the LST seller is a function of the expected money market interest rate + a margin. If, at the end of the unstaking period, the interest paid is less than expected interest + margin priced at the time of the unstaking, the profit goes to the LPs of the Unstake strategy; if the interest paid is higher than the amount provisioned, the shortfall results in a loss for the LPs. Over the long run, most unstakes are profitable for LPs, but some unstakes end up making a loss.

• Strategies Layering: Rujira's Orderbook DEX allows the AMM to layer several strategies for any given pair in the orderbook, adding liquidity on top of liquidity from users' limit orders and liquidity pulled from other sources such as TC Base Layer pools. This helps deepen liquidity vs. a traditional AMM-DEX and increases volumes on the DEX.

• Third Party strategies: Rujira's AMM will enable third parties (e.g. experienced market makers, quants, and talented community members) to deploy their own strategies and get rewarded with a management fee and/or a performance fee. The design space for strategies is wide open: it could be other market making strategies, more opinionated strategies with a directional bias such as momentum strategies, or anything else. This will effectively create a market for systematic strategies, allowing talented quants to monetize their know-how while adding opportunities for Rujira's users and generating more trading fees for RUJI stakers.

• LP Incentives: Optionally, the AMM allows third party protocols to incentivize liquidity by allocating token rewards to LPs, distributed over a custom period with a custom issuance curve.

• Leveraged Market Making: The AMM connects directly into Rujira's Money Market, allowing liquidity providers to use their LP tokens as collateral to borrow any side of the LP and increase the size of their position. This allows for things like single-sided LP provisioning (e.g. provide BTC and borrow the USDC part to market make in the BTC/USDC pair, or the other way around if you have a bearish view on BTC vs. USDC) and partial hedging of LP positions. The position is profitable if the net trading profit on the LP position is higher than the interest paid on the debt.

Benefits

• Sustainable APR for LPs: An opportunity for Rujira users to generate sustainable returns on their crypto assets in the form of trading profits by providing liquidity. Users deposit in a given pool, and the AMM automatically places and adjusts orders in the Orderbook DEX based on the pool's specific strategy.

• Multi-strategy Support: A flexible framework allowing the deployment of multiple strategies, catering for various risk profiles and bias towards market direction. Strategies can be developed by the Rujira team or third parties.

• Enhanced Liquidity: The AMM brings the benefit of professional-grade market making on-chain to the Orderbook DEX, with enhanced liquidity and narrow spreads for a better trading experience.

• Higher Trading Volume: Layering AMM strategies in the orderbook for a given pair leads to increased volume opportunities. The relationship between regular orders (at a fixed price) and oracle orders (at a fixed discount/premium to oracle price) is particularly beneficial to volumes. It creates a dynamic where oracle-based AMM strategies can trade against XYK strategies and other fixed-price orders, resulting in more volumes and profit opportunities for LPs, and more fees to RUJI stakers.

• Economic Sustainability: Many top traditional AMM-DEX rely on unsustainable token incentives or inflationary rewards to generate attractive yield for LPs and attract liquidity. Uniswap rewards LPs with trading fees, but does not share any revenue with UNI token holders. Rujira’s Orderbook DEX model allows LPs in the AMM to generate sustainable returns from trading profits (e.g. by capturing the bid-ask spread defined by the strategy) without the need for any RUJI rewards. This mitigates the risk of continuous price pressure from LP incentives being farmed, alleviates the risk of liquidity disappearing once incentives run out, and allows trading fees (net of TC Base Layer share) to be 100% distributed to RUJI stakers.

• Internalization of Market Making Revenue: This enables projects to turn what was historically a source of costs (market making by a paid professional) into a source of sustainable profit via protocol-owned liquidity. Rujira will demonstrate this by deploying a portion of its operational funds to market make for RUJI and other top tokens using Rujira's AMM pools.

Fees & Fee Sharing with THORChain Base Layer

• Rujira's AMM is a tool built on top of Rujira's Orderbook DEX. It does not charge any additional fees. It complements the DEX to provide a better trading UX and more volume opportunities.

• Every trade originating from an AMM strategy is subject to the standard Orderbook DEX fee, accruing value to both RUJI stakers and THORChain Base Layer.

• Liquidity Providers on the AMM generate returns in the form of trading profits, not trading fees.

• Strategies deployed by the Rujira team are not subject to any additional fees. However, strategies deployed by third-parties might be subject to performance and/or management fees.