For the crypto finance world, it’s not all roses, as it has been battling its share of problems. From lengthy KYC processes to increased vulnerability to attacks to liquidity issues and many other limitations, the industry is awaiting its knight in shining armor. Meeting the challenges the crypto world is tackling, Sigmadex defines itself as a “decentralized, cross-chain, and multi asset marketplace governed by its community.”
In other words, it’s a liquidity doorway for users to purchase or sell tokens non disruptively with cross-chain facilities. To further rephrase – it’s a localized, adaptable, multi-asset brokerage.
Sigmadex operates using Smart Contracts, DeFi Incentives, and Community Governance elements. But how exactly is it deployed? And what is the nature of the challenges it is solving?
The decentralized crypto exchanges of today are still in their infancy, facing a fragmented market and all the challenges that come with it. There’s inadequate liquidity, there’s high latency, and therefore, high volatility.
It’s factors like these that have held back DEX adoption. Any solutions to solve these challenges often run into problems of interoperability and siloed blockchains that prevent a long term solution and on-chain value transfers.
This is Where Sigmadex Comes In
Sigmadex is working on delivering a user-friendly, multi-asset brokerage that solves liquidity challenges, latency challenges, and remains truly decentralized in the true vision of cryptocurrencies.
It intends to do this by incentivizing users for liquidity using game theory (more on that below). In short though, using a combination of DeFi solutions, community governance and voting, and XCMP to enable asset exchanges – Sigamdex arrives at a viable solution for most DEX challenges of today.
How Sigmadex Works
Sigmadex is employing game theory, DeFi, and blockchain tech, for building an open-source equalized decentralized economy, to in turn develop an exemplary automated liquidity protocol.
On the platform, every smart contract controlling liquidity governs a reserve pool consisting of native Sigmadex tokens and additional cryptocurrencies.
Game theory – unique to Sigmadex – enables users to confine liquidity for a fixed time duration.
How does it achieve this? Petitions to discard liquidity before the contract matures would result in a penalty lessening the tokens’ total allowance according to the leftover days and liquidity offering’s size.
There are also token inflation prizes in place for long-term providers help enable absolute liquidity and stability for the community. Sigmadex users also furnish data around the locked-in liquidity for the ecosystem.
Time Locking Liquidity, Ecosystem flow
In the beginning, for putting in preliminary liquidity, users will be required to insert two types of tokens, as follows:
- Insert native tokens first.
- Then, deposit secondary asset tokens (BTC, ETH, etc.)
- Outline initial variables ( price, timelock duration, etc.)
- Claim liquidity bits.
For Joining pre-existing liquidity pool additions:
- Establish your desired time lock duration.
- Now, deposit native tokens.
- Deposit secondary asset tokens (BTC, ETH, etc.)
- Claim liquidity bits
Adding liquidity comprises placing the same value of native tokens and secondary pair tokens in the token’s contract pool.
The more the liquidity, the lesser the price volatility.
The smart liquidity contracts are programmed with computerized market makers employing a steady product formula.
When the “constant product” formula is applicable the pool contracts accept one token for another.
x * y = z is the formula to confirm that trades obey the correct pool value (z) of the smart contract’s reserve balances (x,y) in an active transaction. Besides, the z value alters only in the case of liquidity being added or removed from the pool.
Sigmadex has its priority to minimize the core smart contract’s complexity. Breaches can be fatal, owing to the large liquidity amounts. Hence the structure is anything but lightweight and simple.
A synthetic asset or synth is simply a tokenized derivative that mimics the value of another asset. Synthetic assets tokenize the relationship, instead of using contracts to create the chain between an underlying asset, the derivative product.
Hence, synthetic assets expose you to any asset in the world — all from within the crypto ecosystem.
Synths replace the value of the underlying asset. They also track the value of the underlying assets and make it possible to access these assets without necessarily having them.There are currently 2 kinds of synths-normal synths (positively correlated with underlying assets) and inverse synths (negatively correlated with underlying assets).
Synthetic investments will trace the price of designated underlying properties using a price pegging system built into all synthetic asset smart contracts. To track the expenses the Sigma Risk Index algorithm and the native token will be used.
The native token will amount as collateral at a varying ratio relying on existing market conditions. This reduces the counterparty risk to zero.
The benefits of synthetic trading assets are:
- Smooth onboarding process
- Rapid bridge to different asset classes
- Censorship immune
- Reduction of the process during market switching
- No KYC or unreasonable signup process
Since liquidity will be a dynamic value, Sigmadex proposes an altered version as compared to the conventional LMSR (Logarithmic Market Scoring Rule) model. Used in prediction markets, the LMSR is an automated market maker. With LMSR, prices move to reflect the beliefs of the market.
Although very efficient and simple, it seems more adequate to predict markets, and it leaves too much discretion in the determination of the liquidity parameter b, which would be difficult to calibrate in a potential crypto application, where liquidity is likely to dramatically change over time.
Conventionally, an exchange has an order book with limit orders that investors can go through to find quantities and prices of their use.
Opposed to the above model, the CFMM (Constant Function Market Maker) model employs an order book with all liquidity pooled into one. Prices are algorithmically assessed using a constant product mechanism.
A constant function market maker (CFMM) is a smart contract-liquidity pool holding (at least) two crypto assets in reserve. They allow you to deposit tokens of one type and in exchange, withdraw tokens of the other type.
To determine the exchange rate, smart contract-based liquidity pools use variations of the constant product model.
Here the relative price is a function of the smart contract’s token reserve ratio.
In this AMM (Automated Market Maker) system style, the liquidity available on both sides of the potential trade is multiplied together. The pool value remains consistent with being used to infer the price of transactions in the smart contract.
Automated market makers (AMMs) basically trade digital assets in a permissionless way by using liquidity pools, automatically, rather than a traditional market of buyers and sellers.
Sigmadex users have the right to vote on crucial administration procedures that help regulate the protocol’s operation, thereby securing that it fulfills the demands and criteria of its community.
The Sigmadex native token, other than being utilized for staking liquidity, also serves as a governance token. Users will partake in community governance through the election of recommended pact voters for native token holders.
In terms of the governance level, the token will be able to allow:
- Voting on substantial protocol modifications
- Voting on characteristic implementations
- Voting on inconsistent adjustments
The Sigmadex native token, expected to serve various needs, is indispensable for closing the platform’s economic loop. It can be regarded as an incentive token for on-chain administration, coordination, and feature enactment. The token with an initial supply of 1,000,000,000 will be available on the Ethereum Network.
The token will be able to:
- Add adequate liquidity to token pools
- Collateralize properties
- Aid Inflation distribution
Sigmadex’s exclusive Sigma Risk Index assures that the market risk and volatility assessment formulas are in sync with collateralization requirements.
Sigma Risk Index output evaluates every data point according to significance.
Community voting is generally resorted to when calculating a set collateralization value.
However, since, the community is commonly unaware of the complexities involved in determining the best value, collateralization will be determined algorithmically as a dynamic value. Various algorithms will be employed for this, that assess the activity of numerous cryptocurrencies, especially Bitcoin, as changes in this cryptocurrency often result in identical moves in others.
Furthermore, by calculating collateralization requirements dynamically, users save themselves the chip of a fixed value for collateralization.
The formula for daily volatility is computed by finding out the square root of the variance of Bitcoin’s daily price. The annualized volatility formula is calculated by multiplying the daily volatility by a square root of 365.
The Sigmadex protocol utilizes different 3 EMA (exponential moving average) data points from average cycles to wrap the entire crypto landscape. The EMA emphasizes more recent data points.
The protocol uses a max point to demonstrate the higher-end level of risk tolerance which will hold an enormous weight on our risk index calculation.
However, the Sigma Risk Index is not 100% error-proof, and risks still loom; it would be best to keep this in mind before taking the plunge.
Token Sale Information
Sigmadex has recently completed a private sale round which was backed by leading names in the industry : Genesis Block Ventures, Dext Ventures, and Itsblockchain Consulting.
They have plans to announce a public token sale very soon.
Follow their social media channels for more updates.
Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.
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