The Protocol 18 upgrade vote is rapidly approaching on Nov. 3rd, and the ecosystem has been eagerly anticipating the (if the vote passes) arrival of the automated market maker (AMM) functionality on the Stellar network. In preparation for the upgrade, SDF and the greater Stellar ecosystem collaborated to accelerate development so that the AMM functionality will be immediately available to end users if and when validators vote to accept the Protocol 18 upgrade on November 3rd.
In a recent roundtable discussion, Nick Gilbert at SDF was joined by longstanding ecosystem participants Settle Network, Ultra Stellar, and Stellarport.io to weigh in on the impact of AMMs upon the Stellar ecosystem, how greater liquidity on Stellar will enhance their products and services, and what features they’re building to leverage AMM functionality:
To support the trade and conversion of assets on Stellar, the network also acts as a decentralized exchange (DEX) where accounts can create orders to buy and sell assets. However, to live up to Stellar’s potential of fast, cheap, and seamless payments, the markets should be as liquid as possible, and liquidity requires people willing to be able to provide assets on the market.
This generally limits liquidity provision to professional market makers, who already have assets in inventory, but AMMs democratize access by making liquidity provision accessible, simple, and inclusive. And to make this process even easier, ecosystem participants such as Ultra Stellar are building simple interfaces that allow users to swap rather than book an order directly with the DEX.
Gleb Pitsevich from Ultra Stellar predicts, “I expect more people to start using swap functionality versus trading from the DEX. It’s a new concept combining the DEX and AMMs on a single network – I don’t think this has been done before.”
The demand for liquidity in markets is so high that there are professional entities dedicated to the sole purpose of generating liquidity. However, for financial services or fintech companies that want to focus on other lines of business, manually creating orders on the book is a time-consuming process.
Jack Saracco from Settle says, “The creation of this protocol is a very key factor for us since we are constantly involved in the order books, in the DEX, providing liquidity for orders and spreads. We’re constantly monitoring our trades and the availability of being able to trade in a pool. AMMs could lower the spread drastically, and I see how the community is going to really benefit from having AMMs interact with stablecoins and the Stellar ecosystem itself.”
Stellar is the first layer 1 blockchain to incorporate AMM functionality at the protocol level, making it much easier for developers to take advantage of AMMs through existing/familiar APIs and operations (objects that represent a desired change to the ledger)
Frederic Rezeau from Stellarport.io points out as an example, “We’ve been using path payments to implement market orders since they can prevent partial execution and protect against slippage. Basically, users immediately can benefit from the liquidity available with market orders on Stellarport. It’s also seamless for us as builders which is why I think native liquidity is the important part in this implementation.”
To underscore the importance of the Protocol 18 upgrade, SDF and the wider Stellar ecosystem collaborated closely ahead of the vote to accelerate development so that AMM functionality would be immediately available to end users if and when validators vote to accept Protocol 18. Deeply involved in this process, Settle Network, Ultra Stellar, and Stellarport.io have all been developing features leveraging AMM functionality, including:
However, these use cases just scratch the surface of what is possible with AMM functionality on Stellar. Different AMM designs were also discussed when considering how the AMM functionality could be further improved on the Stellar network.
Speaking of the developer community and broader ecosystem as a whole, Jack concludes, “I really think of Stellar as the fertile soil for many companies to grow, bring in more users, and build the ecosystem together. I love seeing that Stellar [Development Foundation] is reaching out to their devs, to their community creators, to their ecosystem creators, and saying, ‘Hey, we’re building this – how can we build this together?’”