Orbit Protocol


Capital Inefficiency

In an AMM like Uniswap V2, the amount of capital being traded is a small fraction of the total amount of assets deposited causing high slippage. Liquidity providers need to select a pair and deposit both tokens equally to earn only from the pool they deposit.

Liquidity Fragmentation

Many assets do not have the liquidity to be traded in certain pairs due to the lack of available liquidity (liquidity is separated between each pool). This causes some asset pairs to have bad swap rates and users who want to trade exotic pairs often have to do multiple swaps to get the tokens they want, which costs more money due to more gas fees.

Impermanent loss

Currently, there are no clear solutions for users to protect their position from impermanent losses (IL). In fact, if the users were to keep track of their own liquidity pool (LP) positions and calculate their own impermanent losses it would also not be as beneficial. A study from Topaze Blue found that actively managing their LP positions did not reduce impermanent losses for users. Furthermore, that same study also found that 80% of liquidity pools in Uniswap V3 lost more due to impermanent losses than it gained from trading fees. Even more so, people still lose money in constant function market maker DEXes during a bull market when the token price goes up and users are providing liquidity. Of which the opposite is to be expected. The gain is simply less than just holding the token.

Complication for the average user

The Uniswap V3 model is complicated and many users have lost money because of it. In fact, 49.5% of liquidity providers have negative returns compared to simply holding the asset. During the use of an average AMM, users are required to choose the price range, and weigh the APY and risk of providing liquidity in each pool in the process of choosing which pool to provide liquidity for. Which is a hard and over-complicated decision for average users. They may get drawn into the pool that gives the most APY, which makes liquidity for each pair separated, which can be of very high risk. Liquidity providing must be more simple and more lucrative for mass adoption. Users should be able to deposit their tokens and not have to worry about it, a lot like depositing money into the bank.
Many new users see the high APY returns without realizing the undercover hidden risks of getting impermanent losses or knowing how to manage their risk properly, resulting in a huge loss of capital. If these problems are solved, there would be more mass adoption from retail users.