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Snowball (Liquid AMM)
Description of Liquid AMM in Crescent
Snowball (Liquid AMM), as made possible by Crescent, involves tokenizing liquidity-providing positions and utilizing them for various purposes. These tokens can be used as collateral for loans, traded in a marketplace against other tokens, or utilized in other innovative ways.
In a typical DEX, liquidity providers are required to lock their tokens on the platform to earn swap fees and incentives. These tokens are managed by the platform for potential swap trades, which exposes them to price movements and impermanent loss. In this context, impermanent loss is a quantifiable value that can be calculated based on the token prices and occurs when there is a change in the relative price of the two tokens. This means that the value of a liquidity providing position can be calculated using only the token prices as input, so there is no problem with tokenizing the position itself. This is because being able to fairly value those tokens is the most important thing to enable tokenization.
One important consideration when tokenizing a liquidity-providing position is how to handle the swap fees and incentives accumulated on that position. Crescent simplifies this process for users by reinvesting those rewards through an auction mechanism. Snowball token(sb-token) holders do not need to manually claim and reinvest their rewards back into the position. This approach ensures that sb-tokens, regardless of their origin or location, can eventually be valued equally, making them fungible and enabling free tokenization.
Liquid AMM (Snowball) vs Private position