ArithFi - Exchange Challenges Uniswap with Breakthrough New SCP Model?

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ArithFi

ArithFi is a decentralized futures exchange that eliminates market makers and liquidity providers. ArithFi, based on the SCP (Smart Contract Counterparty) model, has made a significant discovery for DeFi projects based on the AMM (automated market maker), represented by Uniswap. First, let's discover the AMM model and why SCP is superior.

Vitalik Buterin initiated the AMM model.

Ethereum founder Vitalik Buterin mentioned AMM in a Reddit post in 2016. Vitalik's post discussed the idea of building a decentralized exchange in a way like operating project markets. guess. The concept then gained traction in the community and was quickly embraced by the developer community. Two years later, Vitalik published another article detailing his views on the role of decentralized exchanges. A few months later, Hayden Adams announced the launch of the Uniswap protocol, marking the historic beginning of the first-generation cryptocurrency AMM.

As developer interest in DeFi continues to grow, product availability has improved. Currently, Uniswap has developed to Uniswap V3. In a recent update, Uniswap introduced two important new features: Centralized Liquidity and Multi-Level Fees. Centralized Liquidity allows Liquidity Providers (LPs, also known as liquidity providers) to control the price range of their investments meticulously, increasing capital efficiency and reducing slippage. It also helps prevent the value of the property from suddenly decreasing. Multi-tier fees allow liquidity providers to adjust their profit margins based on the expected volatility of the currencies they deposit.

Disadvantages of AMM

However, the most significant obstacle that needs to be addressed today is the limited number of users in the decentralized financial ecosystem. The number of active users in the decentralized finance sector is still only a small fraction of the total number of cryptocurrency users, let alone the global financial system. Users are a very important factor in creating a new key account model. While addressing issues such as impermanent loss, capital efficiency, and slippage is positive in providing DeFi adoption across-the-board demand, these new changes often make DeFi more complex and confusing for those new to the market.

One of the limitations of AMM is that users cannot place buy orders at low prices or sell at high prices in futures transactions (futures contracts). This can be disadvantageous for individuals who do not have time to monitor price fluctuations constantly. Unlike exchange exchanges, where traders have tools to facilitate trading, AMMs use algorithms to determine prices based on supply and demand. This may result in less control over strategic transactions.

Additionally, traders must be careful when dealing with AMMs, as it is relatively easy to confuse a project's official token with a fake token if they do not thoroughly verify the project's smart contract, they are projecting. intend to participate. The decentralized nature of AMM means that scammers can create fake tokens, so to be safe, it is essential to research the project before trading thoroughly.

Besides, the efficiency and speed of transactions on AMM depend on the speed of the underlying blockchain. In the event of congestion or slow block confirmations, user transactions will be delayed and may incur higher transaction fees. This aspect contrasts with centralized exchanges, which typically offer faster and more predictable transaction speeds.

ArithFi's SCP model: A remarkable improvement over AMM

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For a product to be successful, it may be necessary to "FinTech first, DeFi later". In response, ArithFi exchange has proposed the SCP (Smart Contract Counterparty) model, changing the financial transaction structure. In the SCP model, contracts are no longer intermediaries. Instead, contracts are all sellers, and all users are buyers. With the introduction of Oracle pricing, every revenue stream is measured in a unified token called ATF (ArithFi Token). The formula for the SCP model that ArithFi provides is calculated as follows:

Revenue Stream = Revenue Information * ATF Quantity

This model puts smart contracts at the heart of futures, options, and other derivatives transactions, acting as counterparties for all participants. It champions decentralization and paves the way for limitless liquidity in the derivatives trading landscape, thanks to blockchain's inherent mechanisms, such as token issuance and burning.

Thus, the future revenue stream is converted into a current cost stream based on the discount rate. Both are settled in ATF, effectively exchanging based on the difference in ATF quantity. An easy-to-understand example, in an ETH/USD futures option, at the given strike price and period, according to the basic Gradient Boosting Machines model, the options trading fee has been specified. Anyone can place an options trade by paying the options trading fee (in ATF) for the contract and destroying it. At maturity, the contract will issue ATF for settlement. This mechanism is an essential condition to help ATF avoid inflation.

The SCP model ensures that any derivative can be effectively settled, and new positions can be opened anytime. Any trader wants this unlimited liquidity, keeping in mind that these trades follow linear pricing rules. When the price reaches the desired level, derivative products based on price information are also priced and follow the linear pricing rule. If we derive the basic income functions, financial products can be understood as linear combinations of these basic income functions, and their costs can be calculated based on their value. current price.

Simply put, all derivatives based on price information from oracles can be settled in the same way as paying programmatic gas fees based only on ATF tokens without relying on other gas fees. any external liquidity or assets. Whether trading, lending, or derivatives, it is all done using ATF tokens, a benefit that helps traders save costs and time. You need to go through ATF to simplify your transactions. Isn't it attractive?

Another special thing is that you can lock other assets, such as NFTs, according to the SCP discount model. Where assets are linked to finance, it is possible to adopt an on-chain SCP model and interact with contracts instead of users. You are no longer bound by the unexpected variables of traditional economics, such as liquidity, matching the underlying asset size, and volatile transaction costs.

In summary, ArithFi exchange introduces the SCP model to deal with a series of challenges in DeFi. The emergence of this model could lead to a new wave of DEX transactions becoming simpler and more optimized.