Unless you’ve been living under a rock or are completely new to crypto, you’d likely agree that if anyone in the space has earned the right to talk big, it’s Andre Cronje — often regarded as the de facto father of DeFi, thanks to his innumerable contributions.  

Andre’s latest experiment, Sonic, is a hyper-fast EVM layer-1 (L1) blockchain boasting 10,000 transactions per second (TPS) and sub-second finality. As Sonic gears up to go live, there is a lot of excitement — for several reasons.  

One of these reasons is the fact that, with one of DeFi’s renowned giga brains (Andre) as the CTO of a super-efficient L1 EVM, there might be a DeFi resurgence on the network, which might just be what the industry needs to get kicking again.

What even reaffirms this notion is the fact that Andre is indeed talking big about the future of Sonic and what it’s bringing to the table.

Sonic's innovative Fee Monetization (FeeM) technology is part of what is being brought to the table.

FeeM is a novel concept in which Sonic Network rewards apps based on the demand they generate for the network.

This approach lets applications either boost their protocol-owned liquidity (PoL) or reward their users directly. With incentives like these, Sonic is poised to attract developers eager to build across a wide range of verticals.

Additionally, Sonic will go live alongside an innovator fund that will see the distribution of up to 200,000,000 S tokens from the Sonic Foundation treasury targeted at boosting the development and adoption of apps built natively on the network.

The bottom line is clear. Emerging L1s are rethinking their go-to-market (GTM) strategy, opting to align tech and incentives, which will ultimately create a liquid ecosystem that achieves user retention and adoption. We’ve seen it with Hyperliquid, and now we’re about to see it with Sonic.

And if you think like I do, then you know that there’s an opportunity to create the channel for all of the incoming liquidity that’s about to flood Sonic to flow through — an innovative liquidity layer.

On Solana, we have witnessed the rise of quite efficient AMMs and liquidity layers (Meteora, Jup, Raydium) that have supported DeFi and the memecoin euphoria on the network.

On Sonic, there is an opportunity for something fresh and new to steal the spotlight and usurp a significant share of the liquidity market. And we might have just found a worthy contender in SwapX, a next-generation decentralized exchange [DEX] designed to provide an efficient liquidity layer on Sonic.

What is SwapX?

Foremostly, SwapX is a decentralized concentrated liquidity automated market maker (CLAMM) designed to serve as the primary liquidity layer for native concentrated liquidity on Sonic.

If you’re confused about some of the aforementioned terms, feel free to check out the blocmates glossary.

Secondly, it’s 2024, and building an AMM from scratch is akin to being the Nara Smith of DeFi. This is because certain protocols already provide the foundational suite, allowing others to build on top of them.

SwapX understands this, combining five key features to create a unique engine that powers the SwapX AMM.

• Algebra Integral (Algebra Finance)
• Concentrated liquidity
• Automatic liquidity management (ALM)
• Ve(3,3) tokenomics
• Plugins

Algebra Finance

Specifically, Algebra Finance — a widely used, popular DEX engine — provides the primary technology on which SwapX is built.

For context, Algebra is the seventh most forked protocol and has tentacles spread across over 30 DEXes. The protocol has also cumulatively facilitated over $70 billion in volume across these DEXes.

SwapX utilizes Algebra’s proprietary tech, Algebra Integral v4, which enables AMMs to seamlessly integrate plugins, allowing products to be a lot more modular. These plugins are similar to “hooks” pioneered by Uniswap.

Thankfully, we are no newcomers to Algebra Integral. We actually covered them earlier in the year. You can look it up here.

But for the sake of this article, let’s break down what Integral does and how its integration by SwapX is nothing short of awesome.

Algebra Integral improves on Algebra v3 — splitting the Algebra architecture into two parts:

• The core codebase — The AMM design itself
• Plugins — Smart contracts that extend the functionality of liquidity pools for external DEXes

Think of it this way — Algebra Integral is the version of the Algebra engine that allows developers to modify their AMM, giving them extra flexibility to add whatever they desire.

Developers can either choose to use the built-in plugins (there’s a plug-in marketplace) or create new ones. Algebra Integral creates a modular approach to building AMMs, giving extra functionality to pool designs.

SwapX’s integration of the Algebra Integral engine means it can flexibly create a custom user experience. For example, developers can choose to create a plugin that allows cross-chain deposits into a pool, reduce impermanent loss, or offer fee rebates on certain transaction levels.

Beyond customizability, Algebra Integral also fosters increased gas efficiency, as it is designed to save an average of 7-22% in gas fees. Algebra Integral is also hardcoded to be secure, allowing users to interact with AMMs with minimal risk.

Concentrated liquidity

Before concentrated liquidity, AMMs were built using the constant function market maker model, wherein the liquidity provided by liquidity providers [LPers] was constant and spread evenly across the pool.

The flaw in this model was that most of the liquidity was unused, thereby causing increased or high slippage, leading to the introduction of CLAMMS.

CLAMMs improve liquidity and capital efficiency in liquidity pools by enabling LPs to allocate their funds to specific price ranges. This targeted approach ensures that liquidity is concentrated where it is most needed, enhancing overall efficiency.

SwapX utilizes the CLAMM to improve performance with respect to liquidity utilization and lower slippage.

However, with this approach comes a complexity. Specifying where liquidity should be deployed means that the LP must actively monitor their capital to ensure that it stays within range.

Should the price shift from the change, the LP position becomes inactive, and the provider will earn no fees. This leads us to the next feature, the automated liquidity manager.

Automated liquidity management

SwapX solves this complexity by allowing LPers to choose between manually monitoring their positions or opting for an exclusive agreement with SwapX to entrust the management of their liquidity to an automated management system.

The automated liquidity manager SwapX is partnered with is the ICHI Foundation, which has developed vault managers to manage concentrated liquidity positions.

ICHI’s proprietary product, Yield IQ, performs a series of automated functions that enhance the liquidity performance in SwapX pools.

Yield IQ facilitates single-side deposits, allowing users to boycott equally splitting tokens to provide liquidity to pools.

This means that a liquidity provider can deposit token A directly, after which Yield IQ will allocate the token deposited to concentrated liquidity pools available on SwapX, rather than the manual process of splitting tokens A and B into equal-value proportions before making deposits.

Additionally, Yield IQ offers auto-rebalancing and any auto-risk management to liquidity providers. Yield IQ uses over 25 market indicators to automate risk management for pools, protecting users from arbitrage risks and creating the right environment for liquidity providers to thrive.

These integrations, and others, such as account abstraction and other UX improvements, are part of an intentional plan to maximize user experience efficiency.

Plugins

If you have been in this space long enough, you’ll attest to the fact that AMMs or DEXs usually update their pools in the most crude and inefficient manner. This would usually involve pausing trading or LPing activity, followed by migration of the liquidity into a vault, before an upgrade is finally done.

This completely crude process opens up the pools to attacks during liquidity migration and can be capital-intensive as well.

SwapX, through the integration of Algebra Integral v4, boycotts this crude system as Integral v4 enables plugin support, which in turn allows SwapX to be a new-age modular AMM.

Through plugins, pools can be customized to the needs of the AMM and users.

Plugins are smart contracts that interact with pool smart contracts through hooks. They (plugins) enable additional functionality to the pools and can range from on-chain farming to volatility oracles, dynamic fees, limit orders, and perpetuals to liquidity management, one-click solutions, and automated functionalities.

Through the Integral v4 plugin feature, SwapX enhances pool security and the overall performance of the SwapX AMM.  

SwapX pools

SwapX offers more than just concentrated liquidity pools. Its AMM supports various liquidity pools featuring various asset types.

The platform will include stablecoin AMMs (sAMMs), enabling users to deploy stable pairs or other correlated asset pairs such as ETH/WETH.

Additionally, SwapX will support traditional constant product AMM pools alongside CLAMM pools that offer two configuration options: manual setup or automated management through ICHI.

ICHI’s solution streamlines liquidity provision by automating rebalancing and risk management, optimizing efficiency for liquidity providers.

Like its integration with Algebra and ICHI, SwapX will utilize Odos’ patented pathfinding algorithm as a routing technology to ensure that swaps are efficient. It will also utilize the ORBS liquidity hub to eliminate MEV losses by matching orders without being reliant on block production.

SwapX tokenomics ve(3,3) model

SWPx is an ERC-20 token that serves as the native utility token of the SwapX protocol.

As you would’ve guessed from the moment we mentioned Andre Cronje, SwapX adopts the renowned ve(3,3) incentive model to create an economic system tailored to reward liquidity provisioning and other user actions.

While anyone can purchase SWPx in the open market, those who choose to lock it will receive veSWPx, an ERC-721 token representing their voting rights and granting them (veSWPx holders) access to recurrent rewards.

The amount of SWPx and duration (up to two years) a user chooses to lock up is directly proportional to the amount of voting power a user will have.

VeSWPx holders will be able to direct weekly emissions using their votes. Users can also choose to transfer their voting rights by transferring their veSWPx or choose to sell their veSWPx on an NFT marketplace, PaintSwap.

SwapX aims to become the leading liquidity bootstrapping AMM for protocols built on Sonic. To achieve this, protocols can deploy liquidity on SwapX and incentivize LPing and trading by offering rewards to their pools.

These incentives will encourage weekly voting for the pools, driving emissions, and ultimately increasing the APR for LPers. This creates a synergistic ecosystem where external protocols benefit from enhanced liquidity while veSWPx holders gain additional value through swap fees.

SWPx emissions will occur weekly, with an initial emission of 2 million SWPx and a 1% decay rate. Emissions will be shared across four sections:

• LP emissions
• Rebase
• Referral system
• Treasury allocation

LPers will enjoy the lion's share of emissions, earning up to 87% of all tokens emitted, and later, a reduced amount of 62%.

SwapX token generation event

SwapX will have a supply of 40 million tokens as the initial supply, allocated across several touchpoints.

Foremostly, 5% of the total supply will be used as starting liquidity.

A total of 41.6% of the total supply will be used for airdrops. These airdrops are segmented into three parts: 16% will go to partner protocols that offer their services or liquidity for trading on SwapX.

Also, 20% of the 41.6% allocated to airdrops will go to users in two parts — user airdrop 1 and user airdrop 2.

Users here refer to early pre-launch phase supporters of SwapX as well as community members of partner protocols.

In the first phase of the user airdrop, 60% of the airdrop will be distributed in veSWPx and made available at launch. The other 40% will be distributed in SWPx, with a cliff of two epochs vested daily and linearly for 90 days.

While the team will communicate the criteria for the second phase of the user airdrop, there will be a third airdrop called the xNFT airdrop. This airdrop is allocated 5.55% of the total supply.  

The benefactors of the xNFT airdrop are the original minters of the xNFT as well as those who participated in the referral system linked to the SwapX-XNFT founders' fundraising. You can find more information about the xNFT airdrop here.

The remaining 19% is reserved for the team, 3.2% for the launchpad, 30% for the protocol’s treasury, and 1.25% for future CEX listings.

BADB memecoin launch

If you’ve reached this point, we apologize for how serious the previous sections might have seemed. You’re now in a much more fun zone.

The chads at SwapX are not only building a liquidity layer on Sonic but also recognizing the vital role of fun and entertainment in keeping things moving smoothly.

‍

The SwapX team has developed a side project called Bad Bunny.

Bad Bunny is a tap-to-earn game playable on Telegram and has so far garnered more than 47k players through the game’s lifetime.

The introduction of Bad Bunny is truly a masterstroke. This is because Bad Bunny will have its own token, and players will be airdropped with these tokens.

Once live, Bad Bunny will also be deployed on Sonic, and the Bad Bunny token liquidity pool will exist on SwapX, bringing activity to SwapX AMM from day one.

Your favorite memecoin might not be on the Las Vegas sphere (yet), but Bad Bunny’s made it to Times Square, New York. That shows how serious the team is with all of this.

Additionally, the game has also just been recently updated to be  Sonic-focused, and wears a new look on the website, too.

Final thoughts

SwapX is positioning itself as a key player within the emerging Sonic ecosystem, bringing a fresh and innovative approach to liquidity provision on the hyper-fast blockchain.

SwapX is fully focused on the plugin side of developing on-chain applications with a dedicated group of researchers and developers. Leveraging Algebra Integral and ve(3,3) tokenomics, SwapX promises to provide an efficient and customizable liquidity layer.

This, in turn, positions LPers to maximize their returns while minimizing their risks. Its integration with tools like ICHI’s Yield IQ and Odos’ routing tech ensures that the platform offers both capital efficiency and a seamless UX.

With Sonic’s FeeM tech driving a resurgence of DeFi development, SwapX’s concentrated liquidity pools and automated liquidity management will become the stepping stones that support this growth.

Beyond its technical features, SwapX’s playful side project — Bad Bunny — shows that the team understands the importance of community engagement and fun within the crypto space.

Additionally, we are also beginning to see adoption, with big weights like Frax collaborating with SwapX as the exclusive platform to trade Frax assets (Frax, frxETH, FSX) on Sonic L1.

In terms of security, SwapX is taking the right route, having audited all the contracts (plugins included) with BailSec – a top-tier smart contract audit company.

And, finally, even though this is still in absolute secrecy, we’ve it on good authority that SwapX is developing a new in-house feature built on top of SwapX pools.

This feature is designed to introduce "degen'' gamification elements for meme tokens, injecting tons of liquidity into the pools, and reducing the circulating supply of meme tokens that participate in the gamification process through burn mechanisms, offering users life-changing rewards. 

You’re welcome 😉

The chords are striking — the balance of innovation, incentives, and entertainment positions SwapX as promising liquidity for Sonic. If the team delivers everything they’ve promised, SwapX is poised to become the cornerstone of the Sonic ecosystem.

You can keep up with the latest on SwapX via the website, Telegram, or on X.