Phase one of our DEX roadmap is simple: create new markets and teach TEL holders how to use them.
By Parker Spann
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DEXes are one of the key building blocks Telcoin is using to bring TEL remittances, and every other future complementary financial product, to the masses. Uniswap is the most successful DEX in the world. This article first outlines key reasons why we chose to integrate DEXes into the Telcoin application, touches on how we will release each phase of our DEX roadmap, and goes into detail on how Uniswap works and how to use it.
Telcoin & DEXes
In Diving into DeFi Volume 2, we explored the decentralized exchange (DEX) market, and announced our intention to utilizes DEXes as a key infrastructure layer of the Telcoin application. We made this design choice in order to:
Create open, accessible, and highly liquid markets for TEL
Satisfy consumer demand for TEL-denominated remittances and future product offerings
Enable existing TEL holders to participate in providing liquidity to TEL remittance users, while earning fees
Ensure execution, clearing, and settlement takes place automatically, on chain, without middlemen
There is simply no better way to offer a global crypto remittance product for the masses than by combining what Telcoin has already built with the added functionality of DEXes. And currently, the most successful DEX is Uniswap.
Education x Digicel Moncash in Haiti
As a company that is constantly working to develop new mobile money partnerships, we often hear interesting stories about novel ways companies were able to bootstrap users and bring their product to the mass market.
One such company, Digical MonCash in Haiti, had quite an inspirational story for us. As you can imagine, bringing new financial products to developing countries like Haiti is no easy task. As the poorest country in Latin America, and one of the poorest in the world, one might think creating a money transfer market in Haiti would be next to impossible!
Digicel probably thought that too when, after launching their first mobile money product “Tcho Tcho Mobile” in Haiti in 2010, it flopped. In 2015, Digicel re-launched the system with a fresh name — “MonCash.” Armed with a new user acquisition game plan, the product was a massive commercial success.
This time, Digicel decided to host over 3,000 education clinics throughout Haiti to teach customers how mobile money works. Between March 2015 and March 2019, MonCash increased their customer base from 59,000 to 1.2 million daily users today.
Our product releases will follow a similar roadmap: build something that truly helps people, but make sure you help them understand how to use it first.
DEX Phase One
Phase One of our DEX roadmap is simple: create liquid markets across the ethereum ecosystem and teach TEL holders how to participate in both the supply side and demand side.
We will be consistently and periodically sharing new markets and the next phases in our product roadmap as they are released, until we have a fully live TEL economy.
The rest of this article is meant to help our users understand what Uniswap, the most popular and successful DEX in the world, is; how it works; and how TEL holders can participate in (and get paid for) creating, trading, and servicing new TEL markets.
Exchange Interface: https://app.uniswap.org/#/swap
Pool Interface: https://app.uniswap.org/#/pool
TEL-USDC Pool: https://uniswap.info/pair/0x9d29EBcA6bbB56148C64448746Ced96e7912bb76
TEL-ETH Pool: https://uniswap.info/pair/0x291c69fdaebd3CBE953843DA243F8605A766a268
Description: Uniswap is a protocol for automated token exchange on ethereum that lets anyone quickly swap ERC-20 tokens, while earning fees by providing liquidity.
How Uniswap works
Uniswap smart contracts hold liquidity reserves of various tokens, and trades are executed directly against these reserves. Reserves are pooled between a network of liquidity providers who supply the system with tokens in exchange for a proportional share of transaction fees.
Liquidity pools are smart contracts that hold balances of two unique tokens and enforce rules around depositing and withdrawing them. Liquidity providers (LPs) deposit an equivalent value of each token in a given pool and traders swap their assets against the pool.
Liquidity providers can add and remove their pooled liquidity at any time. Anyone can trade or become a liquidity provider on Uniswap without KYC or additional steps.
Traders pay a 0.3 percent fee per trade.
Liquidity providers earn those trading fees, which are distributed proportionally based on their pool ownership.
Trading - Chad owns ETH and wants to exchange it for TEL. Chad swaps his ETH for TEL in the TEL-ETH Uniswap pool, incurring a 0.3 percent trading fee, and immediately receives the TEL in his wallet.
Adding Liquidity - Karen owns TEL and ETH and wants to market make on Uniswap to earn trading fees. Karen supplies equivalent values of TEL and ETH to the TEL-ETH uniswap pool. Karen then receives an LP token, which is a non speculative token that denotes her proportionate share of the TEL-ETH trading pool.
Removing Liquidity- Karen wants to remove her TEL-ETH liquidity from the liquidity pool in order to collect her assets and accrued trading fees. Karen removes her liquidity from the TEL-ETH trading pool by burning her LP token. Her TEL and ETH are returned directly to her wallet along with her accrued trading fees.
Cost Benefit Analysis
Before diving into this section, we recommend reading our most recent blog post on decentralized exchanges, Diving into DeFi Volume 2, in order to fully understand why DEXes like Uniswap are valuable and important. This guide is meant to illustrate the advantages and disadvantages of using Uniswap today. Numerous other benefits will be presented in phases as Telcoin builds and delivers a fully-fledged platform.
Trader Pros & Cons
Traders are guaranteed liquidity at every price level when enough liquidity is pooled, and can simply swap and receive assets instantly in one click while maintaining full custody.
When liquidity pools are low compared to trading volume, significant slippage can be incurred. Gas costs can be overly expensive when ethereum is congested.
Liquidity Provider Returns & Risks
Uniswap incentivizes users to add liquidity to pools by rewarding providers with fees on trades. Market making, in general, is a complex activity which has the risk of losing money (compared to holding) in the case of big directional moves of the underlying asset prices. Uniswap liquidity pool returns vary based on the volatility between the two pooled assets and the overall trading volume in the pool.
Please refer to https://uniswap.org/docs/v2/advanced-topics/understanding-returns/ for more information.
Impermanent loss or the percentage by which a pool is worth less than what one would have if they had instead just held the tokens outside the pool, is the main risk associated with providing liquidity on Uniswap.
Please refer to (and feel free to copy) Telcoin’s worksheet entitled Uniswap Liquidity Pool Returns to calculate the impermanent loss incurred by providing liquidity without accounting for trading volume.
To further understand the risks associated with providing liquidity you can read https://medium.com/@pintail/uniswap-a-good-deal-for-liquidity-providers-104c0b6816f2 to get an in-depth look at how to conceptualize a liquidity position.
Prices are set automatically using the constant product market maker mechanism x*y=k, which keeps overall reserves in relative equilibrium. The price is determined by the ratio of the two assets in the pool. If the ratio doesn’t reflect market price, arbitrageurs will step in and swing the pool back towards market price.
For further research into Uniswap pricing:
What explains the rise of AMMs
Uniswap Pricing Walkthrough