TeddySwap Litepaper v1.0
We’re excited to release the official litepaper of TeddySwap. This article will explain the full vision of TeddySwap, and how our community will be able to benefit from the platform.
- Protocol Objectives
- Technical Approach
- TEDY Tokenomics
- TEDY Utility
- Final Remarks
The creation of TeddySwap stems from the fundamental belief that Cardano, due to its scientific approach and meticulous implementation process, is the most decentralized and secure blockchain platform, poised for domination within the cryptocurrency industry in terms of market capitalization and real-world use.
The Cardano ecosystem, home to one of the largest organic communities and true adherents of decentralization, is on the cusp of an inevitable explosion of stablecoins in 2023.
We believe TeddySwap, an open-source decentralized exchange focused on stablecoins, led by experienced developers and seasoned project leads, has the potential to capture a significant market share of this fundamental sector of Cardano DeFi.
A decentralized exchange (DEX) is a type of cryptocurrency exchange that allows for peer-to-peer trading of cryptocurrencies without the need for a central authority. DEXs offer a number of advantages over traditional exchanges, including increased security, greater privacy, and reduced reliance on third parties.
One key challenge with traditional DEXs is liquidity: it can be difficult to find buyers or sellers for certain assets, especially if they are not widely traded. This problem is particularly acute for smaller, lesser-known cryptocurrencies, which may not have sufficient volume to sustain a liquid market.
Additionally, another common issue with traditional DEXs is exposure to impermanent loss by liquidity providers — the key component of DeFi. Impermanent loss is especially common with volatile assets with unpredictable price movements which causes liquidity providers to potentially alter their liquidity positions and face major losses due to this risk.
TeddySwap is a DEX built on the Cardano blockchain that aims to solve this problem by providing a platform for trading stablecoins, which are cryptocurrencies that are pegged to the value of a fiat currency or other asset.
A DEX that focuses on stablecoins on Cardano has a high potential to succeed for multiple reasons:
- Most liquidity in the cryptocurrency market is in stablecoins. Currently, four out of the top 10 cryptocurrencies are stablecoins, with a combined market cap of $133 billion. Stablecoins are a pillar of any flourishing cryptocurrency ecosystem.
- Cardano is poised for rapid stablecoin growth with the planned launching of at least five stablecoins in 2023.
- Liquidity providers can provide liquidity to stablecoin pairs and have significantly less exposure to impermanent loss, allowing DeFi investors to earn a consistent and reliable yield.
We believe these factors position TeddySwap to become a crucial pillar of Cardano’s DeFi ecosystem.
Below is a description of the design, features, roadmap, and team of TeddySwap, as well as the potential benefits it offers to the Cardano community.
3. Protocol Objectives
Our protocol objectives are:
- Increase capital efficiency of Cardano stablecoins to bring increased value to the Cardano ecosystem.
- Provide fundamental infrastructure to allow users to effectively utilize and leverage stablecoins on Cardano.
- Offer an attractive and conservative yield option to community members with low slippage and a drastically reduced risk of impermanent loss.
4. Technical Approach
First, we will launch an AMM exchange with a standard invariant calculation. This formula was implemented by Spectrum Labs and will be used until the v2 launch of TeddySwap.
The launch of TeddySwap V1 will implement a secure AMM protocol and provide the ability for users of TeddySwap to provide liquidity and earn yield on the most popular stablecoins in the Cardano ecosystem.
After the successful implementation of TeddySwap V1 in Q1 2023, TeddySwap will implement TeddySwap V2, which will optimize AMM pools to use a stableswap invariant, meaning liquidity providers have a lower susceptibility to impermanent loss and decreased slippage for traders.
TeddySwap will provide the ability to its users to earn reliable yields on assets that have had the most trading volume in the cryptocurrency market, stablecoins, but with significantly lower exposure to the drastic price fluctuations of unpegged cryptocurrency assets — and thus less risk of impermanent loss.
TeddySwap’s focus on stablecoins will provide a platform for traders to swap in and out of stablecoins with lower fees and increased efficiency in pricing.
The following is how the invariant calculation is implemented in existing decentralized exchanges:
Uniswap was the first protocol that applied the constant product formula, also known as:
· x * y = k
Here, x and y are the quantities of the tokens in the pair; this formula computes that whenever a swap happens, k must be the same; so the user swapping must provide the number of tokens accordingly.
While the formula above works great for unrelated assets it might not be the best for tokens that are meant to be 1:1 in price.
For a token pair that is fixed, it would be significantly better to have a formula that guarantees a price of one.
In the Uniswap formula, the price is given by the negative of the derivative in the average point of the swap. This means we are searching for a formula with a derivative of -1.
Any y = -x + C will do the work! But is it true?
· x + y = C
A formula like the above guarantees the price of 1 but suppose C = 200; x = 100 and y = 100. Here, with a few swaps of 50x in exchange for 50y, the pool could potentially be drained. This is why a new formula, the stableswap invariant, is helpful for more stability.
To account for this, we combine both formulas above:
· (x + y) + (x * y) = C + k
To have one single constant we can express k in terms of C, and this can be done by multiplying the average of x and y (C/2) by itself as follows:
· k = (C/2)²
So the formula becomes:
· (x + y) + (x * y) = C + (C²/4)
Plotting this displays the formula is too similar to the constant product; so we help the constant sum part by amplifying its presence with a parameter A:
· A(x + y) + (x * y) = AC + (C²/4)
For V2, TeddySwap uses this above formula. The parameter changes dynamically with the actual price; so that it becomes extremely large when the price is close to 1, causing the constant product to lose significance; but, it becomes very small (close to 0) when far away, so that the constant sum is canceled out and it transforms back to the constant product of Uniswap.
In doing so, the price of the stable swap can maintain the 1:1 peg while also ensuring the pool cannot be drained.
The philosophy and vision of the team is simple: deliver a stellar protocol for stablecoins that provides an exceptional and secure DeFi experience.
Our development team consists of seasoned Haskell and Plutus developers with an impeccable record in providing the utmost security standards.
Our team is led by a former Cardano Foundation developer, and the creator of plu-ts, an open-source Plutus smart contract framework built from scratch designed to generate efficient smart contracts. The advisors of the TeddySwap team include the project lead of anetaBTC, who has built a loyal and organic community in the Cardano and Ergo ecosystems with the development of the anetaBTC protocol. Additionally, the project lead at ErgoPad, the №1 launchpad on Ergo, has successfully led his team of engineers to deliver secure and functional tools for the Ergo ecosystem.
Together, with the technical expertise and experience of leading some of the top projects on Cardano and Ergo, we believe our team at TeddySwap possesses all the skills necessary to launch, execute, and grow a successful and sustainable protocol for the Cardano ecosystem.
The Github activity of our team members can be found here:
6. TEDY Tokenomics
TEDY is the governance and revenue-sharing token for the TeddySwap protocol.
There is a total of five billion (5,000,000,000) TEDY tokens and is hard-capped at this amount.
A detailed explanation of TEDY tokenomics will be released in the near future.
We recently announced a Christmas surprise on Twitter. Each person who left their address within 24 hours will be awarded a small amount of TEDY tokens as a thank you. These will be airdropped shortly following the token generation event, scheduled to take place right before the launch of the protocol.
Additionally, more opportunities to earn TEDY tokens will be announced soon.
7. TEDY Utility
The TEDY token utility is simple and is designed to provide value to supporters of the protocol. This will be done through these two primary methods: buybacks and governance.
The TeddySwap protocol will implement a standard trading fee of 0.1% that will go directly to the buyback treasury. Each quarter, the revenue of the TeddySwap protocol will be used to buy and burn TEDY tokens on the open market. Each time a TEDY token is bought and burned, the total outstanding number of TEDY tokens will decrease.
DAO and Governance
TeddySwap is a decentralized autonomous organization (DAO) where holders of TEDY have a say in the most impactful decisions. The TEDY protocol is designed to allow for adjustments to the emission schedule, platform fees, and other variables that shape the future of the DEX.
These important decisions should fall to the community, as TeddySwap will be owned by the community as a whole and is designed with community input and support as key to help grow the platform.
TeddySwap is well positioned to have a flourishing DAO experience as one of our advisors, Marty, created a successful DAO platform, Paideia, a leading platform in the Ergo ecosystem.
TEDY tokens represent 100% governance and revenue-sharing stake of the TeddySwap protocol.
The plan for TeddySwap is simple: write robust code and deliver a secure and user-friendly platform that is positioned to be put in the hands of the community.
Q4 2022 (Completed)
- Launch website
- Launch litepaper
- Launch prototype on testnet
- Release documentation
- Launch v1 public testnet (late January)
- Announce first strategic partnerships
- Launch INO (Initial NFT Offering)
- Launch v1 mainnet (February/March)
- Launch yield farming
- Launch v2 public testnet
- Develop governance
- Launch v2 mainnet
- Launch full governance
- To be announced
9. Final Remarks
TeddySwap aims to be a secure and reliable DEX for trading stablecoins on Cardano, the most technologically advanced, secure, and decentralized blockchain in existence.
With the current proven stability of the Cardano ecosystem and the expected rapid growth of stablecoins, we believe TeddySwap has the potential to capture a significant market share of this fundamental sector of Cardano DeFi.With the launch of TeddySwap, led by experienced developers and seasoned project leads, we are confident TeddySwap will play a key role in the rapid and sustainable growth of the Cardano ecosystem that we foresee as becoming the leading Layer 1 blockchain both in terms of market capitalization and real world use.
We thank each and every member of our community for your support thus far and look forward to what we can achieve together.
For more information on TeddySwap:
Website | Twitter | Telegram | Discord | Docs | Github
TeddySwap is an open-source decentralized exchange AMM protocol focusing on stablecoins in the Cardano ecosystem. Our protocol is developed by former Cardano Foundation developers and the creators of plu-ts, a smart contract framework built to efficiently deploy Cardano dApps.