Background and History
Lifinity was created to address the challenges of traditional automated market makers (AMMs) on decentralized exchanges, particularly the issues of impermanent loss and capital inefficiency. As the first proactive market maker (PMM) on Solana, Lifinity distinguishes itself by using oracles to set prices and by concentrating liquidity in a more capital-efficient manner.
Key Features and Technologies
Proactive Market Making (PMM)
Lifinity’s PMM model sets it apart from traditional AMMs by actively adjusting prices using data from oracles like Pyth. This reduces the reliance on arbitrageurs and minimizes the risk of impermanent loss for liquidity providers. The oracle updates prices every slot (approximately 0.5 seconds), ensuring that the market remains difficult to front-run and that prices are accurate.
Concentrated and Lazy Liquidity Provision
Lifinity increases capital efficiency by concentrating liquidity within specific price ranges, rather than spreading it across the entire range from 0 to infinity. This is done by applying leverage to the value of the constant product (k) in the liquidity pool formula, allowing for greater liquidity depth where it’s most needed.
Rebalancing Mechanism
Lifinity employs a rebalancing mechanism that adjusts liquidity on every trade or change in oracle price. This rebalancing helps maintain a balanced pool and maximizes profits for liquidity providers by incentivizing trades that move the pool back toward equilibrium.
Innovative Tokenomics
The LFNTY token serves as Lifinity’s governance token, with holders able to lock their tokens as veLFNTY to gain voting power and access to protocol revenue. The veToken model allows for optional decaying, linear unlocking, and tokenization, providing flexibility and incentivizing long-term participation. Lifinity also offers xLFNTY, a tokenized version of 4-year locked veLFNTY, which can be converted back into veLFNTY to receive revenue.
Revenue Distribution
Lifinity’s revenue is generated from protocol fees, trading fees from protocol-owned liquidity (POL), and market-making profits. The revenue is allocated as follows: 50% to veLFNTY holders, 40% for buybacks or increasing liquidity, and 10% for ongoing development.
Flares NFT Collection
Lifinity also features a collection of 10,000 animated NFTs called Flares. The proceeds from Flare sales were deposited into Lifinity’s liquidity pools, and Flare holders benefit from trading fee buybacks and other rewards.
Usage and Applications
Lifinity offers a decentralized trading platform with a focus on providing liquidity providers with a more stable and profitable environment. The platform’s innovative use of oracles and concentrated liquidity enhances capital efficiency and reduces the risks associated with traditional AMMs.
Future Developments
Lifinity is continuously evolving, with the release of v2 marking a significant upgrade to its market-making algorithm. The v2 update focuses on targeting the initially deposited amount of the base asset rather than maintaining a 50/50 ratio, allowing for better management of price risks and further improvements in liquidity provision.
Notable Events
- April 23, 2022: Lifinity conducted a veIDO, raising 9.67 million USDC with a starting market price of 0.839028 USDC per LFNTY.
- 2023: Lifinity introduced v2, a major upgrade to its market-making algorithm that targets the initial deposit amount of the base asset and includes new mechanisms for rebalancing and managing liquidity.
