A Dex designed to boost and re-shape Tezos Defi – InstaDEX FAQs

Kushagar Konark

24 Sep 2022


Instaraise, the first of its kind decentralized fundraising and incubation protocol on Tezos protocol, has been preparing the ground for a full-fledged DeFi offering on its path to introduce Instaraise v2.0.

Some of the prominent products and features included in the upgrade includes the InstaDEX decentralized exchange platform and a cross-chain bridge connecting Tezos ecosystem with other blockchain protocols.

The future roadmap for Instaraise v2.0 has garnered a lot of community interest. InstaDEX has stood out with prominent features like Impermanent Loss protection insurance and single asset staking.

The combination of a decentralized exchange platform along with existing infrastructure and a strong community following will turn Instaraise into a comprehensive incubation and fundraising platform that can cater to projects in various stages of development while offering all the required support until they gain sufficient adoption.

Meanwhile, the cross-chain bridges, once introduced, will open the Tezos ecosystem to a much larger community, attracting more users and liquidity.

Lots of curious eyes following InstaDEX

Yet to be officially launched, InstaDEX has already attracted a lot of attention, especially the impermanent loss protection and single sided liquidity provisioning parts.

As a result, a lot of queries regarding the benefits of InstaDEX over its peers, and how these new features, introduced for the first time on Tezos will help, continue to float around on internet forums, AMA sessions and even Instaraise’s social media and communication channels.

Questions surrounding AMM DEXs and Impermanent Loss

There are many AMM (Automated market makers) DEXs operating in the crypto industry and they are all plagued by one small issue that affects liquidity providers- Impermanent Loss (IL).

So, what is Impermanent Loss?

Impermanent loss is a reduction in the value of crypto assets in a liquidity pool experienced by the liquidity provider at the time of withdrawal as compared to the present-day valuation of the actual contribution made to the pool.

The fluctuating value of assets combined with demand and available liquidity in the pools play a significant role in causing impermanent loss.

Can impermanent loss be ever completely neutralized?

It is one of the most common questions asked by many. Unfortunately, the answer is no. But one can minimize exposure to such losses by timing the withdrawals right as any losses due to impermanent loss turns permanent only after the withdrawal from liquidity pool is initiated.

How can one avoid Impermanent Loss?

Apart from ensuring the right timing for withdrawal, the next best option to avoid losses is through IL Protection. Impermanent Loss Protection acts as an insurance that gets triggered automatically whenever an eligible user is at the risk of incurring a loss while withdrawing from the liquidity pool.

In case of InstaDEX, the platform will have an IL Protection insurance in place to ensure the liquidity providers on the platform are not affected by the pool conditions that could force them to face losses during withdrawals.

With IL Protection, InstaDEX encourages more users to join the ecosystem as liquidity providers, without worrying about losing money unnecessarily.

The InstaDEX IL protection insurance policy is a result of in-depth research as well as a case study of Bancor, the first DEX to offer such a program.

Didn’t Bancor suspend its IL protection cover recently?

Bancor has temporarily suspended IL Protection due to evolving crypto market conditions which are not favorable at the moment. There is a high possibility the coverage will be reinstated in the future.

Even though the Instaraise team has drawn inspiration from the Bancor model, they have carefully designed the gamification element of the InstaDEX IL insurance in such a way that a repeat of a similar market scenario after launch does not impact the protection offered to liquidity providers.

How does InstaDEX differ from Bancor and other DEXs in terms of IL protection?

Gamification on InstaDEX is designed to be self-feeding and self-securing to attract both traders and LP providers.

An increase in trade results in better treasury building and wider, complete insurance coverage. For e.g., whenever the market fluctuation is high, traders tend to execute more traders on the DEX which in turn contributes towards a healthier treasury capable of offering better insurance coverage to LPs.

IL coverage on InstaDEX begins from Day 30 for LPs with a 30% coverage. The coverage continues to increase each day until Day 100 to reach 100% coverage from that day and beyond.

The self-incentivizing and self-insuring structure in InstaDEX diverts a portion of platform revenues generated from transaction fees in $INSTA to a compensation vault.

The $INSTA holdings in the compensation vault act as the treasury to cater to any IL insurance liabilities incurred during the operation.

The 100% IL protection for LPs active for 100 days or more will be available only on InstaDEX, creating a safer environment for the LPs to participate in the ecosystem.

The extent of coverage on other platforms is limited to a certain extent and doesn’t compensate for the full extent of losses incurred by an LP at any time.

All these factors make InstaDEX stand apart from Bancor and other AMM DEXs that are currently out there in the market.

What is Single-Sided Liquidity provisioning offered by InstaDEX?

Most DEXs allow users to provide liquidity in pairs. The LP must deposit an equivalent value of both tokens comprising the exchange/trading pair supported on the platform.

The Single-Sided Liquidity provisioning championed by InstaDEX allows LPs to provide liquidity in any supported token of their choice instead of token pairs specific to each liquidity pool and continue to earn rewards.

Each such contribution will be countered with an equivalent of the corresponding token in the liquidity pool by InstaDEX from the protocol reserves.

For e.g., in an $XYZ-$INSTA liquidity pool, the LP can choose to provide liquidity either in terms of $XYZ or $INSTA without having to worry about securing and depositing an equivalent value in other token, which allows them to go bullish on a single token while generating fees from them.

InstaDEX to become the driving force behind $INSTA and the entire Tezos ecosystem

Like all blockchain ecosystems, Tezos protocol is also a home for multiple AMM DEXs. With so many AMM DEXs, some with cross-chain compatibility available in the crypto industry, the crypto community is interested to know about the benefits InstaDEX as a new entrant will offer over its peers.

There are few obvious questions regarding InstaDEX in the Instaraise and Tezos context that need to be addressed as well.

How does InstaDEX differ from other AMM DEXs? How does Tezos ecosystem benefit from it?

InstaDEX is not just another AMM DEX on the Tezos protocol. In fact, it is part of a much larger ecosystem driving value to Tezos by providing a secure and lucrative avenue for crypto investors to contribute towards the growth of DeFi on Tezos.

With IL protection, single-sided liquidity and cross-chain compatibility, investors can be assured of their interests being protected on a much larger, flexible playground.

Meanwhile, projects that are part of Instaraise incubation and fundraising platform get ready access to a trusted AMM DEX with high liquidity and a diverse investor base that could potentially differentiate between success and failure. All these factors contribute towards increased adoption of Tezos.

What Impact will InstaDEX have on Instaraise’s $INSTA utility tokens?

Meanwhile, $INSTA as the base token for swaps on InstaDEX and an ecosystem token of Instaraise has a strong utility which translates to a strong valuation.

With more people providing liquidity to InstaDEX pools in $INSTA, the demand for Instaraise’s native token will soon outstrip the supply.

The increase in importance of $INSTA on Tezos is only augmented further by increased arbitrage opportunities across multiple DEXs, all painting a promising picture for $INSTA holders and members of Instaraise and Tezos communities alike.

Wait coming to an end soon…

It is just a matter of time before InstaDEX is officially launched. Amid turbulent market conditions, the platform is being constantly battle-tested to ensure there are no surprises in any scenario.

Once the team is assured of the robustness, security and versatility of the platform, and the market stabilizes a bit, InstaDEX will be made available to the public.