Beamswap DEX has transitioned to v3 and became a Moonbeam-based CLMM DEX to boost capital efficiency and bring greater value to the community.
What is a CLMM DEX?
A CLMM DEX, also known as a v3 DEX, is a decentralized exchange that utilizes the concentrated liquidity market maker (CLMM) protocol to execute transactions.
CLMM was introduced as an upgrade to the automated market maker (AMM) and was first released by Uniswap v3. Now, it powers also Beamswap v3.
Why does AMM need an upgrade?
In AMM DEX, liquidity to execute asset swaps is sourced from liquidity pools. However, the uneven allocation of liquidity pool tokens makes them range in price from zero to infinity. This could leave some (or most) tokens never utilized for swaps, except in pools with very low liquidity.
The scenario when only a small part of the LP token pool generates revenue from facilitating swaps while the majority remains idle is known as low capital efficiency. It could indicate poor utilization of liquidity pools and minimal chances for liquidity providers to earn rewards for what they supply.
CLMM was introduced to improve the capital efficiency of an AMM.
How does CLMM work?
A concentrated liquidity market maker concentrates the allocation of LP tokens within a narrow price range. This helps liquidity providers to boost the capital efficiency of a DEX, meaning higher number of facilitated swaps and, ultimately, higher fees earned for their liquidity contribution.
Contrary to AMM, the tokens supplied in CLMM are not spread out across a nearly infinite price range, but exactly at or around their current market value.
Liquidity providers decide where they want to allocate their LP tokens, for example, in a range from $10 to $20. That range is further split into ticks where every value has equal liquidity distribution, for example, a tick for $11 tokens, $12 tokens, $13 tokens, etc.
The LP tokens stay supplied in these ticks until liquidity providers decide to withdraw them. However, when the market value of the supplied tokens moves outside the set range, they earn no fees for supplying them to the liquidity pool.
The benefits of Beamswap v3 (CLMM)
Beamswap has transitioned from AMM to a CLMM-powered DEX, or v3, for short, to elevate your DeFi experience and boost your liquidity provider earnings.
Beamswap v3 (CLMM) delivers:
Greater capital efficiency. With liquidity concentrated within a narrow price range, the capital of Beamswap v3 is allocated more efficiently, with less TVL left unused. For instance, USD 2 Mio in liquidity on a GLMR-USDC pair with a USD 2 Mio trading volume in a 24h period means a 100% efficient liquidity utilization rate.
Lower slippage. Thanks to an optimal liquidity allocation, your Beamswap v3 transactions experience less slippage, and you get better value for your trades.
Higher yields for LPs. As a liquidity provider on Beamswap v3, you can earn higher fees with fewer tokens deposited. For example, with only 10 tokens deposited in a CLMM liquidity pool, you could earn the same yield as with 1,000 tokens inefficiently deployed in an AMM. This leaves you with more tokens to use elsewhere on Beamswap to generate yields.
In general, improved capital efficiency in DeFi helps the trapped TVL from AMMs to be put to use elsewhere. Beamswap v3 (CLMM) unlocks new opportunities for both traders and liquidity providers.
As a DeFi-er, you get better trades with less slippage, and as a liquidity provider, you can earn fees by depositing your unused assets as LP tokens.