How to Exchange Tokens Profitably: Liquidity Aggregators on Tezos

How to Exchange Tokens Profitably: Liquidity Aggregators on Tezos

To work with DeFi, you need tokens. And where to buy them profitably?

This post covers liquidity aggregators: what they are, what they are on Tezos, how well they build routes, and whether one can make them even better.

How Liquidity Aggregators Work

A liquidity aggregator (router) is an application for choosing the best route among liquidity pools during a token exchange.

Let’s say a ctez is worth $2. Bob wants to exchange 1000 kUSD for 500 ctez. He goes to Vortex, specifies the exchange conditions, and sees that he will only get 400 ctez and will lose $200.

Bob can go check exchange rates on other exchanges, but he’s better off using a router. It will find such a sequence of kUSD exchanges in pools of different exchanges that Bob will get as much ctez for his kUSD as possible.

Liquidity Aggregators on Tezos

The first one is picky.fi, a project of a Tezos DeFi Hackathon 2022 participant. It is still in beta and supports swaps in QuipuSwap, Plenty, Vortex, and other pools. Until the end of 2022, it does not charge transaction fees.

When exchanging 1000 tez, we get 907.84 ctez, which is 0.9141 ctez per tez. The route is rearranged depending on the volume of the transaction and Picky.fi shows additional possible routes.

The developer plans to add support of stable swaps pools of Plenty DeFi, youves, and other DeFi projects.

The second one is Сrunchy. It supports the pools of QuipuSwap, Plenty DeFi, Vortex, youves and SpicySwap. When exchanging, it takes a commission of 0.1% of the transaction.

For the exchange, Crunchy found the best offer on Plenty DeFi: for 1000 tez we will get 911.88 ctez or 909.9 ctez taking the commission into account.

Crunchy builds routes from multiple pools, so if you are looking to exchange less popular tokens, it will also help you reach a better price.

The third is the built-in Temple Wallet exchange. It works with pools of popular DeFi projects but takes a commission of 0.5% of the transaction.

When exchanging 1000 tez we will get 908.24 ctez. After the commission, it was 903.7 ctez.

Mini conclusion:

The profit of exchanging tokens through an aggregator depends on the pools supported and the commission of the service.

  • Crunchy is the most profitable because it uses all available pools to route liquidity and takes a minimum commission of 0.1%.
  • Temple Wallet, pretty much like Crunchy, routes a transaction through a Plenty pool, but the 0.5% commission greatly reduces the profit.
  • picky.fi supports the lowest number of pools, but does not take a routing fee. When picky.fi starts supporting flat curve pools on Plenty DeFi, youves and QuipuSwap, it could become the most profitable Tezos liquidity aggregator.

How to Exchange Tokens With Even Bigger Profits

Liquidity aggregators charge additional fees. With a simple route through one pool, it will be more profitable to switch from aggregator to DEX and exchange tokens directly.

For example, if we exchange 1000 tez for ctez on Plenty DeFi we will get 912.79 ctez or 911.88 accounting for the commission.

How to Improve Liquidity Aggregators on Tezos

Advanced aggregators on other blockchain protocols split the initial amount into multiple quantum parts and build forked routes. Each quantum is executed against the most liquid pool to minimize the impact on the final transaction price.

Such a mechanism would make it possible to trade big and get more favorable execution prices, even taking into account the aggregator’s commission. Hopefully, Tezos will soon have such a mechanism.

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