Decoding the Liquidity Book Automated Market Maker Protocol OtterHome: How does the unique pricing mechanism Bin Pricing solve liquidity issues?
How does Bin Pricing in OtterHome's Liquidity Book solve liquidity issues in Automated Market Maker Protocols?
Recently, while browsing Twitter, I saw Gate post related tweets about a project called Otterhome, and not just one tweet, so I researched Otterhome in the spirit of investigating the project. Below is an analysis of the basic aspects of this protocol product, including the innovation of the protocol product itself, community activity, Twitter interaction, publicity and operation, and other dimensions (for reference only, not investment advice).
1. Overview of Otterhome Project
Otterhome Official Website:
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According to information in Otterhome’s whitepaper, OtterHome is a native decentralized exchange (DEX) platform on Arbitrum, prioritizing simplicity and efficiency, providing users with a seamless and user-friendly token exchange experience. The platform runs on a protocol called Liquidity Book, which is a proprietary automated market maker (AMM) that can exchange tokens by calling the router and specifying the desired input or output of a token pair, or using local currency such as ETH to achieve token exchange, with the goal of improving transaction throughput and reducing transaction fees.
Liquidity Book is an innovative automated market maker (AMM) protocol that prioritizes high capital efficiency. The protocol includes the following features:
Zero Slippage – Liquidity allows traders to exchange zero-slippage tokens, providing a smooth and seamless trading experience.
Dynamic Fees – Liquidity providers can earn extra fees by soaring pricing during periods of high market volatility, providing additional incentives for liquidity supply.
High Capital Efficiency – The liquidity book supports large-volume trading with low liquidity demand, making it an attractive choice for both traders and liquidity providers.
Flexible Liquidity – Liquidity providers can establish flexible liquidity allocations based on their individual strategies, enabling them to better control their liquidity supply.
In summary, OtterHome’s Swap feature emphasizes simplicity and efficiency, combined with the advanced functionality of the Liquidity Book protocol, making it an attractive choice for users looking for a seamless and user-friendly DEX platform. By leveraging the power of AMM and router contracts, OtterHome can offer token exchanges that are faster, safer, and more flexible than traditional centralized exchanges, while maintaining its core principles of decentralization and transparency.
Relative to other DeFi projects, OtterHome is an innovative project that aims to provide traders and liquidity providers with a simple and efficient swapping experience. One way that OtterHome achieves this goal is through concentrated liquidity, which allows liquidity providers to concentrate their liquidity within a specific price range. Some may be confused and think that this technology sounds a bit like the innovative mechanism introduced by Uniswap V3. However, OtterHome is simply using this mechanism in its own protocol and deploying it on Arbitrum, and cannot be considered truly innovative. In fact, Uniswap and Otterhome have fundamentally different approaches to concentrated liquidity from a technical perspective.
Previously, liquidity in AMM protocols such as Uniswap V2 and Joe-V1 was evenly distributed across the entire price range. However, this can lead to unused liquidity outside of a narrow trading range, resulting in lower capital efficiency.
OtterHome’s Concentrated Liquidity solves this problem by allowing liquidity providers to choose specific price ranges for their liquidity supply, thereby increasing capital efficiency.
OtterHome’s Fundamental Innovation – Bin Pricing on the Liquidity Book
To achieve concentrated liquidity, OtterHome uses a unique pricing mechanism called bin pricing in its liquidity book. Liquidity is distributed in discrete containers with fixed width, allowing liquidity to be exchanged at a fixed price within each container. Each bin represents a price point, and the difference between two consecutive bins is the bin step, which is a configurable parameter set by the pool creator.
For example, let’s consider the USDC/USDT pair. If the current price is $1 and the bin step is set to one basis point (i.e. 0.0001 or 0.01%), the next consecutive bin is $1 * 1.0001 = $1.0001, $1.0001 * 1.0001 = $1.00020001, and so on. The liquidity pool or market in OtterHome’s Liquidity Book is uniquely identified by the tuple (X, Y, s) of merged assets X, Y, and bin step s.
The essential difference between Otterhome and Uniswap V3 is that while Uniswap V3 also concentrates liquidity within a fixed range, it uses continuous X * Y = k curves. In contrast, OtterHome’s Liquidity Book discretizes liquidity into bins of fixed width, where the price within each bin is fixed at X + Y = k. In short, Uniswap V3 uses constant product between quotes, while OtterHome’s Liquidity Book uses a constant sum within an interval.
Not only that, OtterHome DEX also has another innovative feature – dynamic fees. Their transaction fees are highly customizable and can be adjusted based on market conditions or community preferences.
The dynamic fee system has four aspects:
1. Variable Fees Our variable fees allow fees to be adjusted on a per-pool basis, and for specific liquidity pools. Each pool model has default fees, which liquidity pools inherit if not set. This feature applies not only to transaction fees, but also to protocol fees.
2. Directed Fees Our directed fees feature allows each liquidity pool to customize fee levels for different directions, such as buying and selling tokens. This enables a more flexible fee structure and can be set based on community and token issuer requirements.
3. Fee Discounts We offer fee discounts, much like traditional centralized exchanges. In the future, token stakers will be able to enjoy different levels of fee discounts, with higher stakes earning greater discounts.
4. Fee Delegation Our fee delegation feature is one of the ultimate innovations around fees. It allows transaction fees for specific pools to be dynamically delegated to ecosystem partner projects in a democratic way. Depending on the requirements of the corresponding ecosystem project, the decision on transaction fees for specific pools can be completely outsourced to external sources.
II. Otterhome Operation
As I mentioned at the beginning of the article, I also noticed that Otterhome was exposed by Gate Exchange. From the recent official Twitter updates, we can also see that the project team is not only innovative in the field of technology but also very focused on project operations and exposure of the product itself. Compared to other projects that focus solely on technology and ignore community and operation, I prefer these types of projects that can walk on two legs because I have fallen too many times in projects that claim “good technology is the hard truth” and then bury their heads and work hard, only to see the price drop. Otterhome doesn’t feel particularly innovative from a technical standpoint, it just made some changes to the Uni V3 model, but from a marketing and operations perspective, this project is fully meeting expectations.
So far, Otterhome has established partnerships with Gate, HyperBlockingy, Galxe, Mises, Maxprotocol, and LFGswap. Below are some screenshots of some of the partnerships.
Moreover, as a new Defi project on Arbitrum, Otterhome has gained a lot of attention on Arbitrum in the early stages of its preparation and has established good relationships with many projects on Arbitrum for deep cooperation in the future. Some media outlets on Arbitrum have also begun to expose the Otterhome project.
Otterhome’s OAT launched in cooperation with Galxe’s Galaxy activity has already attracted tens of thousands of participants. When I first discovered this activity and explained it on Twitter, there were only about 600 people participating in the Galaxy activity. In just one week, the number of participants has exceeded 10,000. It is not difficult to imagine the popularity and community cohesion of this Otterhome project.
It is reported that one of the reasons for the rapid increase in the number of participants is the expectation of OAT airdrops. Doing tasks to get OAT is one of the important ways for many retail investors to participate in early high-quality projects and obtain airdrops at no cost. If you haven’t done any of the Galaxy’s OAT tasks yet, it is recommended that you do a few of them as a precaution, after all, the value of airdrops is unpredictable. A few U at the time of airdrop might be worth several hundred U as the market progresses and the token’s price rises, and in the world of Crypto, everything is possible, from a 100x rise to a 100x fall (see the explosive rise of airdrop projects such as AIDOGE and Cheems).
Here is the link to the Galaxy task. If you have time, you can try it:
Next, let’s analyze the popularity of this project based on the interaction with tweets and community activity.
We can do a comparison with the number of official account fans and daily tweet interaction data. Currently, the official account has 45K fans, and the average likes, retweets, and views of daily tweets are about 50, 20, and 5K respectively. If we cooperate with some project accounts for joint lottery, the data is about 300, 200, and 30K respectively. This data corresponds to its fans and is similar to the official account of Otterhome. Excluding the machine accounts that win prizes in the lottery, Otterhome’s official account should be able to ensure 80% of real fans. Therefore, according to 0.8x45K, the number of Otterhome’s Twitter fans is about 36K.
Let’s take a look at the number and activity of the Otterhome DC and TG communities. After examining the fundamentals of DC: 2W on Discord, about 2K online, the General channel is active, the Chinese channel is active, the Indonesian channel is more active, the Turkish channel is not active, the Japanese channel is not active, and other small language channels are not very active. The active number of TG community is similar to that of DC, mainly European and American and Chinese groups, and the channels in small language regions are not very active.
It can be seen that the population that the project radiates is mainly European, American and Chinese areas, and has not yet deeply developed into markets such as South Korea and Japan. The community fundamentals are still good, and the number of active people is not small. If the project can continue to expand into the Japanese and Korean markets in the future, I believe that the community will become even larger. A large and active community is crucial for an early project, which is the experience accumulated over the years.
3. Otterhome Token Economic Model (IDO to be launched soon)
Let’s take a look at the details of the token economic model:
Initial Dex (IDO) : 30% of the total token supply will be allocated to Initial Dex (IDO) to provide the community with an opportunity to participate in the early stages of the project.
Team allocation : 5% of the total token supply will be allocated to the team, with a 3-year vesting schedule to ensure long-term alignment with project goals.
Institutional investors : 10% of the total token supply will be allocated to institutional investors who can provide strategic partnerships, funding, and support for the development of the project.
Staking rewards : 10% of the total token supply will be used for staking rewards to incentivize token holders to contribute to the security and stability of the network by staking their tokens.
Development : 15% of the total token supply will be allocated to ecosystem development, including marketing, community building, partnership relations, and other initiatives to promote the adoption and development of the project.
LaunchBlockingd reward : 10% of the total token supply will be specifically used to reward projects launched on our platform. We believe in supporting innovative and promising projects, and by allocating a portion of our tokens as launchpad rewards, we can help these projects thrive in the OtterHome ecosystem.
Treasure : 15% of the total token supply will be allocated to OtterHome Treasure. Treasure is a reserve fund that will be used to strategically support the long-term sustainability and development of the project. These funds will be prudently managed to ensure they are put to effective use for the benefit of the entire community.
Initial marketing : 5% of the total token supply will be allocated to marketing. We understand the importance of promoting OtterHome and attracting more audiences to use our platform. These funds will be used to implement strategic marketing campaigns, create engaging content, and reach out to potential users and partners, ultimately driving awareness and adoption of OtterHome.
Otterhome’s initial token supply is 1 billion, of which 30% will be set aside for an IDO at a price of $0.0005 per token. Based on the IDO price, the total value of the project’s IDO is estimated at $1.5 million, and the initial fully-diluted valuation (FDV) of the project is $5 million. The team’s share will be linearly released over a period of three years. When taking into account other marketing and circulating tokens, the initial project market capitalization is approximately $2.5 million, which is slightly higher than usual for a project of this type. However, if OtterhomeIDO ends and the project is listed on Gate Exchange (official tweets related to Otterhome’s partnership have been released by Gate), the market capitalization will not be considered high, and may even have several times growth potential in the short term. If the project is listed on other exchanges such as Sushiswap, a third-tier exchange, the rise compared to the current market value may not have much upward potential. I have also contacted the Otterhome team on DC to ask about the IDO, and what will happen to the remaining tokens if the IDO results fall short of expectations in the current market situation. The official response I received was that all the remaining tokens from the IDO would be burned, which would be quite favorable for the token’s rise. Of course, I am not sure whether there will be any remaining IDO tokens, as it is very likely that the IDO share will be fully bought.
The proceeds from the IDO will be used to further develop and expand the OtterHome platform, including implementing new features and developing new partnerships within the DeFi ecosystem. Otterhome aims to create a high-quality, user-friendly platform that provides users with efficient and low-cost trading and liquidity.
Investors who participate in the IDO will receive $Home tokens in exchange for their investment, which can be stored in a personal wallet or used to participate in liquidity provision and trading on the OtterHome platform. By participating in the IDO, investors become part of the OtterHome community and are closely related to the success of the platform.
Overall, the IDO provides investors with a unique opportunity to enter the underlying layer of a promising DeFi project and potentially benefit from future growth and success. We look forward to the official sharing more details about the IDO and the OtterHome platform in the near future.
Currently, the IDO date has not yet been announced. You can follow official Twitter and other news for updates, and it is expected to happen in the near future. If Otterhome can follow the roadmap and keep up with marketing,
for friends who are interested in Otterhome, I hope this article can help you understand Otterhome.