What are liquidity queues and why does DeFi need them?

The last thing we all need is another line…right?

The DeFi world has its advantages, as well as unique pain points, one of which is the issue of slippage. Hence, there is a demand for technological innovations to address the disadvantages so that users are able to adjust their investment strategies accordingly. In this article, the necessity for a new function, liquidity queues, will be illustrated to show how users can save a ton on slippage by using the on-chain solution that is OpenSwap.

OpenSwap is an “integrated DeFi hub designed for the decentralized landscape”. The main objective of the team is to become the most comprehensive one-stop DeFi hub with the best on-chain pricing and multi-chain arbitrage and trading. Developed on the Binance Smart Chain protocol (BSC), OpenSwap will allow users to execute swaps from leading DEXs such as PancakeSwap and BakerySwap. One of the financial tools that will be available on OpenSwap is Spot Market Liquidity Queues, or Liquidity Queues, for short. This acts as a complement to AMM swaps and enables spot market trades on the OpenSwap platform based on its Secure Adaptor Protocol which carries out trade-time security checks on underlying oracles.

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What are liquidity queues?

A novel solution to a recurring problem in DeFi liquidity, it is important to describe what liquidity queues are. Compared to traditional liquidity mining with a stake-and-wait procedure, liquidity queues offer LP on a first in, first out basis — like a queue. The queue usually has a certain number of slots, which are initially empty.

An illustration of how this works is as follows:

When the first user adds liquidity into the queue, the corresponding LQ is inserted into the first slot. Now, if a second user joins and adds liquidity, the first user will be pushed forward in the queue. As more users come in and fill up the liquidity queue, the number of available slots will essentially go down to zero. This cycle will run faster considering the possibility that an individual could be allowed to occupy more than one slot at the same time if they want additional parts of the liquidity pool. To complete the cycle, when one more user joins the already full queue, the first user in that queue will be pushed out of the queue, with their liquidity and rewards returned to their wallet. As such, receiving rewards is an automatic process since there is no need for the user to return to claim their tokens and rewards.

Let’s explore the difference that liquidity queues make in terms of how they operate on chains of different levels of popularity. Imagine a queue with highly popular liquidity pools. The length during which a user’s liquidity is locked up to produce incentives is substantially reduced by OpenSwap liquidity queues, allowing them to shift the liquidity elsewhere for further benefits while still obtaining the original amount of rewards they would’ve gotten in the first place. In theory, a user can provide liquidity and have their liquidity batch pushed off the queue in a single block, while their return on investment remains about the same. With a faster moving queue, users will receive a greater annual percentage yield. This could raise the queue’s popularity and speed it up even further. In an exceptionally unpopular chain, on the other hand, the queue could theoretically come to a halt with no user ready to join the queue. A secondary reward system could be established in this instance. To incentivise users, an unpopular queue, for example, is given an hourly incentive scheme. Users can stake to earn an hourly reward; after a sufficient number of users enter to obtain the hourly prize, the queue will naturally begin to move. To learn more about liquidity queues, read up on OpenSwap AMA recap.

Given the flexibility provided by liquidity queues, they add a dynamic range of options to liquidity pools at a time in DeFi where liquidity seems to be drying up. According to the OpenSwap team, they expect that this would bring much needed growth opportunities not only for users seeking rewards, but also for cryptocurrencies seeking liquidity. Under the development of OpenSwap are other functions such as a secure bridging of cross-chain assets while leveraging pools of decentralized bridge nodes with MPC technologies, which in turn cuts down on gas fees on more expensive blockchains like Ethereum by an order consolidator mechanism which groups trades into batches.