Depth (depth.fi) is a secure and efficient stable assets management protocol. Depth allows stablecoins to swap in a safe and secure environment with good depth, low slippage, and low transaction fees. Depth has delicately selected multiple yield aggregators for users. Besides the transaction fees, Depth also integrated other DeFi yield protocols, providing users long-term extra rewards in a safe condition.
Depth has been specifically designed and optimized for mobile user experience, allowing users to swap large amounts of stablecoins with low transaction fees and low slippage. The above-mentioned stablecoins include HUSD,BUSD,USDT,USDC, as well as mainstream assets like HT, BNB.
Depth offers multiple yield aggregation to liquidity providers. In addition to liquidity pool transaction fees, Depth integrates benefits from other HECO protocols and DeFi projects which provides users lending yield, mining rewards, and more. Currently, we have cooperated with Channels, LendHub and FilDA protocols, which have leading volume and liquidity in the HECO market.
II. Product Solution
1. An AMM Born for Stablecoin
Overall, Depth is a decentralized exchange (DEX) specifically tailored for stablecoins.
Take Uniswap as an example. Uniswap is the infrastructure of Ethereum decentralized swap protocols, with the advantage of simple product logic. It is also considered by the community as a more decentralized protocol because it does not have special privileges for administrators (admin key). Uniswap can be precisely defined as an Automated Market Maker (AMM).
Swap products have two core functions: providing liquidity and withdrawing liquidity, which correspond to two roles: market maker and taker. The market maker who provides liquidity gets a share of the fees in the liquidity pool, while the taker who withdraws liquidity needs to swap between tokens and pay a portion of the transaction fees.
The swap between stablecoins is not the same as the swap between other types of tokens. The price of USD stablecoins is anchored to 1 USD. Although it can change slightly due to market fluctuations, the individual USD stablecoins are relatively equivalent to each other in the long run. Swap between stablecoins is usually expected to be done on a 1:1 no-loss basis, but ordinary Swap in the market is not able to achieve low slippage and high capital utilization. Under such situations, we improve the mathematical model to accomplish an efficient, low-fee, low-slippage swap between stablecoins.
The previous algorithm model has the following two calculation methods:
Method 1 (blue line): If the price of all stablecoins remains constant at 1 USD, then stablecoin X and stablecoin Y are equivalent and can be swapped losslessly.
If in the initial state, there are 5 stable coins X and 5 stable coins Y, the exchange ratio of the liquidity pool established based on this assumption is X+Y=10, which is the dashed line in the above figure, which can also be called Market maker of "constant price".
For takers who need to swap, 3 Xs can be swapped for 3 Ys, but this pool has a maximum capacity, "X<=10 and Y<=10" is necessary;
Method 2 (orange line): If Uniswap's constant product market maker model is used between stablecoins, when stablecoin X and stablecoin Y each has 5 in the initial state, the curve is XY=25, finally allowing more than 5 tokens to be swapped.
However, as the price fluctuates, the distance from the "constant price" market maker becomes far, that is, the price fluctuation is very obvious
The algorithm used by Depth is between the above two (i.e., Method 3). This algorithm takes into account the fact that stablecoins are often equivalent to each other (i.e., method 1) and also allows for price differences between stablecoins (i.e., method 2).
In other words, it is a market maker algorithm that is closer to a constant price swap than the non-stablecoin swap algorithm. The advantage of it is having lower slippage, which means less transaction cost. By using an algorithm like this, Depth doesn't need to use the services provided by Chainlink or other oracles.
Depth Stablecoinswap's core functionality is a specially tailored exchange algorithm for stablecoins, giving users lower slippage for swapping between stablecoins.
2. Optimization of the Liquidity Pool
After optimizing the exchange algorithm, another core point of stablecoin swaps that needs to be met is to increase the size of the entire fund pool. Only in this way can it provide larger-scale transactions and lower transaction costs.
DEXs in the market also face the same problem, that is, how to incentivize users to invest their own funds, become a member of the market maker, and share the benefits. The transaction fee rate is a basic parameter. If it is too high, takers can choose other platforms with lower transaction rates; if it is too low, market makers who provide liquidity will get very little profit.
2.1 Low Transaction Fee
The transaction fee rate set by Depth is 0.04%. Compared to most centralized exchanges (non-market makers, non-super advanced users) and decentralized exchanges, the transaction fee rate of 4/10,000 is Very friendly.
The income from transaction fees will not be attributed to the Depth platform itself. All currently collected transaction fees (0.04% of each transaction) will be distributed to the liquidity providers of the pool according to the pool’s proportion, so that the liquidity providers’ income is further improved, and the income of the liquidity provider will fluctuate according to the changes of the trading volume in the pool.
2.2 Integration with 3rd party Lending Protocols
Depth utilizes the combinability of Defi to further increase benefits for liquidity providers.
Taking Uniswap as an example, suppose a user who wants to add liquidity into USDC/HUSD puts in 100 USDC and 100 HUSD, accounting for 10% of the total pool. If in the future other people use HUSD/USDC in this pool to swap between HUSD/USDC, then users who provide liquidity can get a 10% share of the transaction fee income in this pool (assuming no new liquidity is added, accounting for Ratio unchanged);
Taking Channels as an example, suppose a user wants to invest HUSD into a lending platform (such as Channels) to obtain additional income, then he can obtain cHUSD, which is a packaged token that has the backing of staking assets but automatically generates income. Tokens can get a share of the annualized income paid by the party who stakes and lends assets in the platform.
Depth combines the above two scenarios to maximize the benefits for users.
Taking HUSD as an example, the specific process is:
Users can deposit HUSD into Depth. We will convert HUSD to cHUSD in the Channels Lending protocol. In this way, the user will get Channels' deposit income, which comes from the lending APY of the Channels Lending protocol. Of course, users can also choose to deposit cHUSD (interest-bearing tokens) directly.
Since the Channels protocol has liquidity rewards for deposit and mining, the HUSD deposited by the user in Depth will be transferred to the Channels protocol, so the user can receive the reward for depositing and mining through the Channels lending protocol. The reward can be obtained by redeeming CAN token HUSD/USDT rewards. Rewards will be automatically extracted from Channels and injected into the corresponding pool, and distributed to liquidity providers in proportion.
Users deposit HUSD or cHUSD in Depth (that is, provide liquidity to Depth), and can obtain transaction fee income from the liquidity pool, which varies depending on the transaction volume.
3. Product Planning
Depth.Fi Genesis Phase
Depth's infrastructure is a swap contract serving stablecoins, and the first stablecoin assets we support are HUSD of HECO HRC20 version, and USDT of HECO HRC20 version.
Currently, based on the Channels, FilDA, and LendHub protocol, we have implemented the swap, deposit, and withdrawal functions of the HUSD/USDT pool, as well as the HUSD/USDT distribution of deposit and mining rewards.
In the subsequent version, Depth will support more mainstream stablecoins, such as USDC, DAI, BUSD, etc. The new pools will be opened according to the subsequent cross-chain situation of HECO assets and will be carried out under the premise of sufficient liquidity and transaction demand on the chain.
Depth do not have any extra charges or hidden fees.
For Services like Assets Swap/OTC, the transaction fees will be clearly shown in the related page.
We don't charge for Depositing or withdrawing assets.
5. DEP Token
For a complete introduction of DEP tokens, please refer to:
There is a possibility to suffer risk when providing liquidity on Depth. Please research and understand the risks involved before proceeding with any operation.
1. Smart Contract Bugor Attack
Depth's smart contracts have been audited by a third-party security audit agency. However, security audits do not completely eliminate risk. Please do not use your savings as a source of liquidity providing on Depth. Otherwise, it might lead to a huge loss, especially when you are the liquidity provider. Even though swapping on Depth has a relatively low risk, it cannot be considered as the advice of investment.
2. Impermanent Loss Caused by Price Fluctuation/Permanent Loss due to Decoupling of a Certain Stablecoin
The Depth model is based on the AMM model, which is common in the DeFi world. In all AMM models, there could be an impermanent loss caused by price fluctuation. It is called impermanent loss because as long as the token's relative price goes back to its initial state (when user provided liquidity), the loss will disappear. If users withdraw the liquidity before the ratio in the pool return to the initial state, the loss will become to be a permanent one.
The various types of stablecoins in the market may have various risks of their own that may cause them to decouple from the price of their underlying. If one of the stablecoins in the pool has a price peg ratio (i.e. Peg ratio) that is significantly lower than 1 and does not back to a 1:1 for a long time, then it is likely that the majority of the stablecoins held by the liquidity provider in the pool will be decoupled. Liquidity providers may suffer permanent loss in terms of the value of the underlying.
3. Risks of Other Related Protocols
When you use multiple smart contracts for staking/market making/swapping in the DeFi world, each smart contract has its own risks.
For example, the Channels/Filda/LendHub liquidity pool connected to Depth may also be at risk. The reason why Depth established the f/c/l lending pool is because the lending protocol can provide a better APY for stablecoins. But in the lending pool of these stablecoins, you may be at the following risks:
•Channels/FilDA/LendHub lending protocol has its own smart contract risks
•Smart contract risks of Depth's Channels/FilDA/LendHub pool
•The stablecoins in these pools have their own contract risks and price stability issues, such as the risk of USDT turning to zero, the failure of the oracles (like Chainlink) of the lending protocol, and the risk of bugs or attacks on the stablecoin contracts
As users of DeFi protocols, please do not underestimate the risks associated with liquidity providing on Depth or other DeFi protocols. Even after a long period of operation and testing, as well as continuous technological advancement, the existence of these risks cannot be denied.
4. Private Key Risk
The admin key has the highest authority managing the contracts. It could modify mining parameters( such as the weight of the mining pool, adding new stablecoin mining pools, etc). In extreme and urgent situations, the admin key may suspend the contract.
The core volunteer team will use the key only at the initial stage when the contract needs to be upgraded and when the mining parameters need to be adjusted. A DAO governance model will be adopted when the contract has moved to a maturity stage. A Timelock mechanism and Multi-Sig mechanism will also be added to the smart contract to avoid the risk of centralization.