AMA with Alejandro Pinto: Liquidswap, the first AMM on Aptos

Pontem is building foundational decentralized applications for Aptos, an incredibly powerful, secure, and scalable new Layer 1 blockchain. These tools leverage Aptos’s Move programming language to be world-class DeFi products. Our first launch is Liquidswap, an Aptos-native Automated Market Maker (AMM) that allows customers to exchange tokens with low slippage and fees. Here, Pontem Chief Growth Scientist Alejandro Pinto answers our community’s questions about Liquidswap.

1. Is Liquidswap a safe place to put my tokens?

a. I would like to think so, but like with anything else, it’s important to do your own research. We are doing public audits and our code will be open but there are still risks that exist. We want to be transparent with those risks, so we’ll make sure we communicate disclaimers well through avenues like this AMA.

Move as an execution layer is safer than Solidity for smart contracts. You avoid reentrancy errors and the code can be disassembled and examined by anyone in order to better understand the logic behind the contracts. However, it is still relatively new and untested, so there is the risk of a vulnerability nobody has thought about yet. With the Lindy effect though, the longer the protocol runs, thesafer you can feel about your tokens being there.

We are also thinking about experimenting with a “canary network” app, similar to a Kusama forLiquidswap where we can test features quickly to be able to innovate fast on the main version. For example, more exotic assets like Aptos native coins can be listed first on the Liquidswap canary app (we may call this chaos.liquidswap or something like that).

2. What are the long-term sustainable value drivers for the Pontem token?

a. I don’t want to drop too much alpha here as we are still working on token design, but expect best in class utility for governance and economics. The models we like are Uniswap, Curve, Convex, Compound, and OHM.  With those tokens, you’ll get some cool combination of governance voting for fee directions, voting escrow with time weighted voting, and game theory mechanics for locking up tokens to maximize value.

Some of this will be pretty experimental, so we are conscious of security concerns around the game theory of economic models that are untested. This is why features for our token will be tested first in our canary app mentioned before.

3. Staking is a super popular feature for all crypto investors. Will there be an option to stake our $PONTEM tokens in the future?

a. Yes. Definitely expect staking to be key in the utility and governance features of the token. As mentioned before, we don’t want to drop too much alpha, but you can go study how Convex, Uniswap, Compound and OHM do staking to better understand what could be possible with our tokens.

4. Does Pontem have DeFi products available that allow us to generate passive income for every cross-chain trade or any other transaction we make? Or are they in your medium-term plans to develop them?

a. Liquidity mining is an important mechanism of every Constant Function Market Maker like the one we are building. As a Liquidity Provider (LP), you will be able to deposit both sides of a liquidity pool (maybe one in the future with some feature similar to Tokemak that directs liquidity where needed) and you will then earn passive income from trading fees when users swap assets using your liquidity.

5. How do liquidity providers add or remove liquidity from the AMM? Can anyone be a liquidity provider? Will the fees that they get be more than the loss they potentially would take?

a. We are building a fully permissionless decentralized app. Similar to Aave, we may create KYC/AML pools to allow more traditional finance institutions to participate in line with the risk mitigation controls of their compliance departments. On the permissionless pools, anybody can provide liquidity.

This does come with the risk of impermanent loss, so we are structuring dynamic fees and tooling for rebalancing positions. This allows you to minimize the downside risk of impermanent loss, or balance impermanent and realized loss based on your view of where the market is going. We are going to differentiate the developer UI in order to have as many people benefit from these IL protection tools and more confidently mine their liquidity for passive income from the trading fees.

6. Do you plan to collaborate with young artists to create NFTs for the project?

a. Yes, we want to work with up-and-coming artists. Please join our ambassador program and submit this as a task and perhaps we can integrate your work into our ongoing NFT program.

7. Do you allow suggestions and feedback from the community in relation to the project?

a. Of course! Please reach out to any of our community managers for suggestions and feedback.

8. How do you take community opinions into account  for decision-making?

a. Community governance is important. We are experimenting with having the reward points our ambassadors earn function as governance tokens for the direction of the ambassador program itself. It will be fully community owned and operated eventually as a DAO of Pontemites.

9. When will your tokens be listed on major exchanges and on which exchanges do you plan to list them first in the future?

a. We don’t know! If we decide to create a token, hopefully major exchanges will list it.

10. Do you have plans for a Hackathon to periodically check the security of your system, as well as invite developers?

a. Yes, we plan to host our own hackathons and also sponsor others in the Aptos ecosystem.

11. 1.What is the difference between Pontem Liquidswap and other trading functions? 2. How do I provide liquidity for Pontem Liquidswap and when can I remove it? 3. What is the source of income for Pontem Liquid Swap? Is it principal secured income? 4. How do I calculate the pool rewards?

a. Liquidswap is just like any other Constant Function Market Maker, except it supports various bonding curves for different types of uncorrelated and correlated asset swaps. You can add and remove liquidity and earn passive income from trading fees of assets being swapped. There will also likely be custom pool rewards so that other protocols can provision and incentivize liquidity for their tokens.

LP calculations for your portion of the pool are calculated as a function of the different bonding curves. You essentially own a ratio of the liquidity you put in and when you redeem your LP position you receive your share of the pool at the new ratio based on the relative liquidity in each pool of the pair. If you are familiar with how Uniswap and Curve work, then you should be ok. :)

12. How does Liquidswap avoid price variation? Are exchange rates automatically updated or do you create a fixed price for each asset when a user wishes to swap? In short, how do you correct pricing errors?

a. Pricing on Constant Function market makers is a function of the depth of liquidity in the pools. At first, we will only have the full spread of liquidity which is less capital efficient than concentrated liquidity across price ranges so we are also working on that feature.

The way it works is that someone first creates a liquidity pool with a ratio of Asset A to Asset B. The pools of these 2 assets are put on a bonding curve X*Y = K where the price at any time is calculated as simply price_token_A = reserve_token_B / reserve token_A.

K is constant and the only change is the ratio between reserves of token A & B.

Here is a great source to learn more.‍

13.Do you plan to bridge popular networks such as Solana, Fantom, or Avalanche, with your project?

a. Yes. We recently announced a partnership with Multichain to make this happen. We also have others in the works so you can have access to your native L1 assets to trade on Liquidswap, in order to buy Aptos-native tokens like APTOS or a possible Pontem token.

14. Aptos Network is kind of new compared to other Layer 1 blockchains. What obstacles did find when building Liquidswap? How do you overcome that obstacle?

a. The biggest challenge was the lack of tooling for things like libraries, but we are building them. Soon there will be enough dev infrastructure to onboard thousands of developers, similar to Ethereum.

15. Do you already have a fixed roadmap?

a. For this you can reference our recently released post on our roadmap and also our future vision for the space.

Bonus question: Who is this Alejo Pinto of yours?
Captain of this ship. He’s leading Pontem to adoption by billions of users with his experience growing traditional tech companies in blockchain and crypto.