Step-by-Step: Using Dexlyn’s Concentrated Liquidity DEX

Concentrated Liquidity Market Makers (CLMMs): These DEXs are a foundational evolution of the traditional constant-product DEX models. They allow LPs to set specific price ranges: capital allocation is improved, price impact is reduced, and on-chain trading is optimized.

1. Concentrated Liquidity in Modern DEXs

In all traditional AMMs, liquidity is distributed evenly across the price axis, even at points where no trading happens. CLMMs resolve this issue by allowing LPs to only concentrate liquidity around ranges of price.

On Dexlyn you only consider liquidity to be active when the market price is sitting within the selected range. If prices move outside of that range, the liquidity is inactive and will no longer earn fees until it is moved.

Main benefits are:

1. Higher profit margins on fees per capital

2. Reduced slippage for traders

3. LPs can choose from multiple strategy options including range orders and passive market making

Such models have become popular amongst several next stage DEXs concentrating on Pro-Grade DeFi Infrastructure.

2. Price Ticks and Active Liquidity Mechanics

With CLMM pricing, you have discrete price ticks, which are represented as individual price points where liquidity can be added. Each liquidity position encompasses a lower and upper price tick, which sets the range in which the profit can be made.

Key mechanics:

• Trades are what allows ticks to be crossed

• Price must be crossed to reach the next tick

• Only liquidity positions that are in the current tick can take market position

Dexlyn provides a deterministic tick structure ensuring liquidity and price in movement are symmetric, which is in line with most benchmark CLMM designs.

3. How Swaps Work in a CLMM Environment

In a CLMM, swaps operate differently than traditional AMMs from the segmented liquidity model. Rather than switching between a single pool curve, swaps are made with regards to the active liquidity surrounding them.

On Dexlyn:

When executing a swap, it crosses a certain number of ticks. Each tick has a different depth of liquidity. Price increases gradually as liquidity is used. This setup INCREASES THE QUALITY of execution by less slippage, price is discovered more clearly, price impact is more accurate. Other comparable CLMM DEXs use the same execution logic, thus this model has become more and more familiar to advanced traders.

> Price Impact and Slippage Explained.

Price impact is the first and most crucial metric defining swap quality in CLMMs.

Price impact is how much a trade will move a pool’s price.

This is determined by:

1. Active liquidity depth at the current ticks.
2. Size of the trade relative to the liquidity in the range.

The second metric is slippage. This is the difference between the price expected versus the price executed which is usually caused by:

1. Quick movements in price.
2. Insufficient active liquidity.
3. Large trades crossing multiple ticks.

Both of these metrics are transparent on Dexlyn which allows traders to use this information to make better trades. This has become an expected feature in today’s DEX interfaces.

> Swap Fees, Fee Tiers, and Protocol Fees

In CLMMs, you are given the ability to select a flexible fee tier. This allows you to optimize your pools for different asset volatility profiles.

Regarding Dexlyn:

• In pools, it is possible to implement differentiated fee levels
• Pairs with a lot of price volatility will more often than not use higher transaction fees
• On the other hand, less volatile pairs can experience more beneficial lower fees with less of a price spread

Swap fees are distributed to liquidity providers (LPs) in accordance with the proportion of the active liquidity they provide during the swap. Also, a part of the fees can be allocated routingly to a protocol treasury, which is used to sustain the protocol for the long haul while keeping LP incentives intact. This is how fees are handled in accordance with liquidity provider centric fee tier strategies.

When a liquidity provider opens a new liquidity position on Dexlyn’s Concentrated DEX, it is represented by a Position NFT, specifying:

• The tokens in the pair
• The fee tier
• The upper and lower price tick
• The liquidity amount (this is also called the size of the position)
• The fees the position has earned (also called the passive income of the position)

Having the position represented by an NFT means that the liquidity is:

• Transferable in ownership
• Composited (this is also called combinable) with other DeFi protocols
• Notable other LP strategies

This is becoming a standard for Concentrated DEXs that focus on composability.

In addition to swap fees, Dexlyn allows for other fee-based liquidity mining in which LPs (liquidity providers) also earn incentives for providing liquidity to the pools which are actively incentivized.

Some of the rules that govern this are the following:

• The active liquidity that a provider has in a pool determines how much of the incentive they will receive
• LPs will lose the ability to earn incentives on their position during a period of inactivity
• The liquidity the LP provides gets incentivized by the gap in demand for the trading activity in the pool

This has been a feature of DEXs which offer liquidity incentives for quite a while.

> Range Orders and Order Types

CLMMs stand for constant product automated market makers and close the gap between AMMs and order-book trading via range orders. Dexlyn accepts range orders and lets you:

• Buy-range orders: Automatically buy coins/ tokens when the market is in a certain lower range.

• Sell-range orders: Automate sales by gradually selling coins when the market price increases. This order lets you sell coins/tokens in price increments.

With all the above features you get to:

1. have a hands-off trading experience
2. Set specific trading strategies to buy and/or sell to ensure you keep to a plan.
3. Reduce the need to stay on a centralized exchange to get and/or stop coins.

Advanced platforms CLMM offer the use of range orders.

1. Position Management Best Practices

Position management is how you interact with the Concentrate liquidity DEX. Dexlyn gives you the tools to:

1. Set
2. Add
3. Remove
4. Track the fees for
5. Rebalance your position

Use the following best practices for optimal results:

1. Narrow bands for stable pairs of the coins.
2. Wide bands for the more volatile coins.
3. There should be proactive repetitiveness built in to ensure/maintain liquidity.

These principles are standard for the experienced use of CLMMs.

1. Step-by-Step: How to Swap on Dexlyn

There is a neat flow to the platform. It is in the form of a flow sheet with the following steps required for successful trading on the DEX:

1. Choose the token pairs.
2. Set the amount of the trade.
3. Evaluating the costs and checking for slippage.
4. Finalizing the request.

Dexlyn's platform is as transparent as the rest of the CLMM. It's Complexed enough to keep it on par with other DEX's on the forefront of trading and keeping a balance between functionality and user friendly.

1. The Addition of Managing Liquidity (CPMM vs. CLMM)

Dexlyn encompasses both: CPMM pools, where liquidity is passive and full range and Concentrate Liquidity DEX pools, where liquidity is precision-based.

When adding CLMM liquidity:

• Select a tier of the fee.

• Define the range of the price.

• Deposit the required ratio of tokens.

• Mint the NFT to claim your position.

LPs can collect fees later on, and add or fully/partially remove liquidity without closing their position.

> The Creation of New Liquidity Pools.

Dexlyn allows anyone to create pools, both CPMM and CLMM.

Pool Creation is:

• Selecting the pair of tokens.

• Selecting the tier of fees.

• Setting the price to initialize.

• Deploy the contract for the pool.

This allows for quicker market discovery and quicker actions, all while keeping the pool mechanics on the standard.

> Collecting Fees and Removing Liquidity

Removing liquidity is completely flexible:

• You can choose to withdraw partially or completely.

• You can collect fees whenever.

• Your position is still the same, unless you close it.

This design is a modular one and allows LPs to control their allocation of Capital, which is a standard practice on CLMMs.

1. Why Concentrated Liquidity DEXs are the Future of DEX Infra.

Dexlyn’s concentrated liquidity DEX coincides with the overall adaptation of DEXs to be more capital efficient, precise with trading, and modular when it comes to liquidity. With the use of price ticks, active liquidity, NFT-based positions, flexible fee tiers, and order mechanics, CLMMs can offer a trading experience close to a professional market, while on-chain.

With the growing adoption of CLMM strategies in DeFi, it's important to understand the mechanics of CL liquidity in DEXs, regardless of whether you engage with Dexlyn or similar CLMMs, as concentration liquidity will be needed to navigate the advances in the new DEXs.

Dexlyn is a decentralized token exchange platform built on the Supra Network, offering users the ability to trade tokens, create liquidity pools, and bridge assets across multiple blockchains.