Breaking Through the Dilemma of AMM! Taiwanese Startup Hakka Creates BlackHoleSwap with Infinite Liquidity

Automated Market Maker (AMM) protocols like Uniswap and Curve have delivered impressive results this year in terms of trading volume and user numbers. However, these projects still face certain challenges. Taiwanese startups Pelith and Hakka Finance founder Chen Pin have proposed a new solution by creating BlackHoleSwap, a decentralized stablecoin exchange with infinite liquidity.

The Rise and Challenges of AMM Protocols

This year can be considered a dedicated track for decentralized finance (DeFi), with the emergence of many new DeFi tokens due to the liquidity mining mechanism, leading to a significant increase in the adoption and attention of decentralized exchanges (DEX). According to previous reports, the total trading volume of DEX surpassed $4 billion in July, with Uniswap and Curve, two automated market maker (AMM) protocols, contributing the most trading volume. Uniswap accounted for 41% of the total trading volume, followed closely by Curve at 24%.

However, despite the significant increase in users and trading volume, AMM platforms in the current market still have some flaws, with the biggest issues being inadequate liquidity and slippage. While Uniswap is the most widely used AMM platform in the market, its performance in terms of liquidity is not ideal, and there is high price sensitivity between assets (i.e., severe slippage issues). On the other hand, Curve, designed for stablecoins, has a specially designed asset exchange model that provides better liquidity than Uniswap and significantly reduces slippage issues. However, if a stablecoin experiences extreme market conditions due to unexpected events, liquidity can still rapidly shrink, resulting in significant slippage.

The Solution for Unlimited Liquidity - BlackHoleSwap

To further optimize the shortcomings of current AMM protocols, the Taiwan startup Pelith and Hakka Finance founder Chen Pin plan to launch a new project - BlackHoleSwap, providing a new solution for stablecoin trading in the current DeFi space. According to the latest release from their company Hakka Financewhitepaper, BlackHoleSwap is defined as an "infinite liquidity decentralized stablecoin exchange" aimed at overcoming the liquidity shortages, severe slippage, and fund pool reserve limitations encountered by Uniswap and Curve.

Specifically, the solution of BlackHoleSwap aims to break the asset reserve restrictions by utilizing decentralized lending protocols such as Compound or dYdX. According to their whitepaper:

"Our BlackHoleSwap breaks the limitation of AMM trading only under its own reserve amount. By integrating decentralized lending protocols (Compound, dYdX, etc.), BlackHoleSwap can provide more than its own reserve amount, ultra-low slippage, and near-infinite liquidity."

When liquidity providers (LP) deposit assets with BlackHoleSwap, BlackHoleSwap automatically places the assets in lending protocols like Compound, dYdX, etc. When there is strong market demand for one token in a trading pair, for example, if most people want to swap USDC for DAI, causing a shortage of DAI reserves, BlackHoleSwap will use USDC as collateral to borrow DAI from the lending platform to supplement the original liquidity shortage. The interest earnings stored in the lending protocol will help offset the interest payments required after borrowing.

Through this mechanism, BlackHoleSwap can provide liquidity that other AMM protocols find difficult to match and significantly reduce slippage issues due to excessive trading volume.

However, although BlackHoleSwap overcomes the limitations of current AMM by providing near-infinite liquidity (which is still limited in practice), its design based on third-party lending protocols leads to potential risks such as vulnerabilities in the BlackHoleSwap lending protocol, collateral squeeze, collateral liquidation, and oracle price feeding.

According to members of the BlackHoleSwap community, the project will launch a liquidity mining mechanism to issue governance tokens, attracting liquidity to the market. Details such as product roadmap and token specifics are still pending further announcements from the team.