Bringing Concentrated Liquidity to TON

Dive into how exactly TONCO is transforming liquidity management on TON with the cutting-edge concentrated liquidity solutions in our technical overview below

AMM Limitations on TON

Decentralized exchanges (DEXs) on TON have adopted some of the same principles that revolutionized DeFi on Ethereum, particularly the Automated Market Maker (AMM) v2 model. While this model, first popularized by Uniswap, was groundbreaking in its time, allowing users to trade tokens without needing an order book or centralized authority, it now shows its age.

The XYK model (X * Y = K), which balances liquidity pools by ensuring the value of one token remains equal to the other regardless of price, worked well for early DeFi. It was a simple, effective system that helped bootstrap liquidity in the early days of decentralized finance. But today, this model struggles to keep up with evolving needs in liquidity provision and trading efficiency.

Current AMM models fall short of unlocking the full potential of TON Blockchain. These models suffer from inefficient capital usage, higher slippage, and lower yields for liquidity providers, all of which hinder the growth of DeFi on TON. To truly harness the power of TON, the outdated AMM v2 model needs to evolve.

The New Liquidity Pooling Approach

This is where V3 technology comes into play with the introduction of Concentrated Liquidity, and TONCO is at the forefront of bringing this innovation to TON blockchain. But TONCO isn’t just copying existing solutions from other networks—it's enhancing and adapting them specifically for the unique needs of DeFi on TON.

Unlike the traditional XYK model, TONCO allows liquidity providers (LPs) to allocate liquidity within specific price ranges—a concept known as concentrated liquidity position. This approach enables LPs to open multiple positions within a single pool, each customized to their desired price ranges and risk preferences. The result is deeper, more efficient liquidity.

LPs can choose from a list of preset price ranges or manually define their own by selecting minimum and maximum price points.

When the market price falls within an LP’s selected range, their liquidity is used for trades, earning them a share of the trading fees relative to their contribution within that range. As prices fluctuate, different LPs’ liquidity is utilized, optimizing capital usage and ensuring liquidity is concentrated where it’s needed most.

Learn more about Concentrated Liquidity: https://blog.tonco.io/en/posts/understanding-clamm-new-liquidity-model-ton