February 4, 2023

This post was originally published on 03labs

The O3 Swap aggregation story began on Ethereum because of the Ethereum Virtual Machine (EVM) standard and the fact that Ethereum is, by all accounts, the center of decentralized finance (DeFi), having produced the world’s first decentralized exchanges. The decision of what DEXs to source liquidity from on our new base layer chain came down to their liquidity pool model, the depth of said liquidity and their rates of slippage. After all, O3 Labs’ mission is to get the best prices for our users. Of all the different EVM chains our protocol supports, the decision on Ethereum was probably the easiest due to the foundational success of Uniswap, Curve, and SushiSwap who were the first to adopt the automated market maker (AMM) approach to balancing liquidity pools that run completely on smart contracts.

Uniswap pioneered the AMM model and their protocol is certainly the largest decentralized trading AMM protocol on Ethereum as they had the highest percentage of market share by trade volume among DEXs with a whopping 36.7% according to CoinGecko. O3 Labs aggregates from both Uniswap V2 and Uniswap V3. V3 introduced concentrated liquidity, where a user can concentrate all their liquidity into their specified price range instead of from 0 to infinity. This feature allows for greater liquidity while the token price is trading within their specified price range.

SushiSwap, a clone of Uniswap, is similarly a DEX using the AMM model to swap tokens without the need for an intermediary. SushiSwap differentiated themselves when the founders added new features including liquidity mining and governance through SushiSwap’s SUSHI token. They also rolled out bento boxes which is another unique way to achieve yield by staking liquidity.

Curve, on the other hand, is a DEX that’s very different from Uniswap in that they place emphasis on efficient, low slippage stablecoin swapping. They’ll sometimes have 3 or 4 different tokens in a liquidity pool instead of just 1 pair of 2 tokens, and they’ll reward $CRV tokens which can be staked to earn the Curve governance token, veCRV. That veCRV governance token, in turn, can be used to vote on which pools receive the best APY%, so it’s extremely valuable.

These DEXs’ AMM approach provides a number of advantages to the decentralized finance (DeFi) community due its transparency, reward system, and self-custodial security which all align to give users and liquidity providers a provably fair price for their digital assets that is guaranteed by smart contracts instead of set by a third party that makes money on the spread between what you pay and what the third party can sell those assets for. Instead, it’s the liquidity providers that get a fee for each and every trade that uses the tokens in the liquidity pool. The model attracts DeFi projects, liquidity providers and users alike. That’s the model that works on-chain and that’s the model that works across chains.

To sum it all up, our dive into the DEX aggregation business began on Ethereum by connecting some of the aforementioned titans of the DeFi industry so that users on different chains could access their liquidity pools for trading. Their AMM models allowed for transparency, fair reward incentives, and self custody of users’ assets. Their success in the space is the ultimate inspiration for O3 Swap in addition to the criteria for picking new DEXs on other EVM compatible chains. This is just our first step as we push forward to support more Ethereum DEXs in the near future. We want to hear from users what their favorite DEXs are and why, so be sure to interact with us on Twitter @O3_Labs to help us refine our path forward.

As new chains and DEXs launch in Web 3.0, O3 Labs will continue our mission to unite each and every fragmented liquidity source, so that users like you can swap faster for the best price!

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