StarkWare unveils Caspian Layer 2 DEX to ‘defragment’ liquidity
Ethereum Layer 2 solutions provider StarkWare plans to launch its own automated market maker dubbed Caspian.
In an April 4 announcement, scaling solutions provider Ethereum unveiled a new decentralized exchange (DEX). Its objective is to address the efficiency of capital in the DeFi ecosystem.
The company said there is a risk of liquidity fragmentation between Layer 1 solutions and multiple Layer 2 solutions. The new AMM was designed to maintain liquidity on Layer 1. This should result in defragmented liquidity. and improved capital efficiency.
StarkWare is the latest blockchain company to launch a DEX in the already crowded marketplace.
A different DEX
The blog post pointed out that L2 Automated Market Maker (AMM) designs involve moving the entire DEX to L2. This includes liquidity, which leads to unwanted fragmentation of L1 liquidity.
Caspian makes it possible to fill the liquidity on L2 while remaining unfragmented on L1. It has an off-chain “operator” that processes L2 transaction batches. It is the only entity that negotiates against an AMM contract supplied by L2 on L1.
“It mimics the logic of the contract and offers trade quotes based on the status of the MA at the start of the lot and subsequent L2 transactions included in the lot.”
The Operator settles all transactions at the end of the batch by executing the difference from the L2 DEX contract.
The L2 StarkEx platform will also add two new features, L1 limit orders and so-called batch flash loans. The flash batch loan is actually a flash loan that is not limited to a single transaction.
It instead stretches for the duration of a batch, offering the Caspian trader the ability to hit tokens on L2, as long as those tokens are burnt at the end of the batch.
For liquidity providers, there is no difference between L1 and L2 as they interface with AMM through L1 smart contracts.
There was no mention of an official launch date or governance token.
Volumes reach new records
DEX transaction volumes have already reached new highs in the first quarter of 2021, so there is certainly room for more in the booming financial landscape.
As previously reported by BeInCrypto, daily DEX volumes doubled during the period. They averaged over $ 2 billion in the first quarter of 2021, compared to less than $ 1 billion in the fourth quarter of 2020. An increase in Binance Smart Chain usage was also a contributing factor.