Grace ‘Ori’ Kwan, Co-Founder of ‘ORCA’, in an Exclusive In-Depth Interview with Team CryptoNewsZ!

Grace Kwan is co-founder of Orca, a decentralized exchange on the Solana blockchain that generates $20-50M in daily volume. As a programmer, designer and writer, she is best known for her expertise in transforming complex technical systems into simple user experiences, which she honed at Stanford, Coursera and IDEO Tokyo. She is also the founder of the Orca Impact Fund, which donates 0.01% of all trading volume on Orca to climate change and sustainability (over $1 million to date!).

Welcome to CryptoNewsZ, Ms. Kwan; it is our pleasure to have you with us today! What do you think is the difference between a CEX and a DEX?

In a centralized exchange (CEX) like Coinbase, FTX or Binance, the platform itself holds and processes assets on behalf of users. When exchanging one coin for another on a CEX, you are not trading directly with other users; the exchange settles the trades on your behalf.

In a decentralized exchange, or DEX, transactions take place directly between users on the blockchain, and this frees users from the need to trust a third party with their assets — and their identities.

What are the limitations of CEXs?

The need to trust a CEX with your real-world identity goes against one of crypto’s founding ideals: an open financial system with no intermediaries who can freeze funds, manipulate the market, or otherwise treat users’ funds as if they do. I don’t want them treated.

In contrast, DEXs often offer a much wider variety of assets. In other words, whatever cryptocurrency you want to trade, you will likely find it on a DEX.

Tell us about Automated Market Makers (AMMs)

In an AMM, users trade assets with pools of liquidity that are priced algorithmically on the blockchain. In my opinion, the process of trading assets on an AMM is incredibly simple and computationally efficient. This is in particular in contrast to the “order book” model used in areas of traditional finance such as proprietary trading, which requires the management of buy and sell orders,

In my view, AMMs are also characterized by the fact that they democratize market making. Any user willing to accept the risks can choose to deposit assets into a liquidity pool and in return receive a share of the trades made with their assets. Just deposit tokens in a smart contract and you are a liquidity provider!

The beauty of AMMs is that they can function without intermediaries or institutions: transactions are almost instantaneous, on-chain. The LP receives rewards for providing the assets for this trade and all transactions are automated through smart contracts and recorded on the blockchain.

How does Orca’s AMM work?

One reason our users love Orca is its refreshingly simple UX. Little details like the Fair Price Indicator, which lets you know if you’re getting a fair price for a given swap, and the Your Tokens panel, which provides an easy way to see your current balances, make the experience more accessible than any other AMM in DeFi.

Under the hood, Orca is powered by two different types of liquidity pools. The first is Whirlpools, our brand new concentrated liquidity AMM. By allowing LPs with compatible risk tolerance and portfolios to “concentrate” their liquidity in specific price ranges, Whirlpools can achieve capital efficiency on par with an order book while maintaining the computational efficiency of an AMM. (More on that in the next question!) The second is our “standard pools” (Orca.so/pools), which use the AMM formula for constant products (x * y = k) that first became popular on Ethereum.

What is divergence loss?

Divergence loss (sometimes referred to as impermanent loss) is the critical challenge LPs must overcome in order to make a profit on their deposits. These losses occur when the Price of the token pair—the relationship the prices of the two tokens – changes from the moment of deposit.

For example, if you deposit into a theoretical ABC/XYZ pool when ABC is $1 and XYZ is $2 and withdraw when ABC is $2 and XYZ is $4, you will not incur losses – in either case, the price of the pair is 2 ABC per XYZ.

But if ABC stays at $1 and XYZ rises to $4, the value of your deposit will be 5.72% lower than if you simply held the tokens initially deposited, measured in USD.

All of this is easily found in common definitions of divergence loss. What most answers leave out is… why it happens?

When you put assets into an AMM pool, you provide the other side of the swaps that people want to enter into – essentially you buy the asset that goes Low. Since these trades take place at a price higher than the current market value, you are left with less value than if you had simply held these two tokens.

These losses are “volatile” as they are reversible if the tokens return to their original price ratio while your assets are still in the pool. However, we prefer the term “divergence loss” because the cause of the loss is price divergence, and if you pull back while the divergence is high, your losses actually become permanent.

Tell me more about concentrated liquidity.

In an AMM with concentrated liquidity, LPs choose a specific price range in which to deposit their funds. This strengthens their position and allows them to provide deeper liquidity for their chosen price range. We’ve named our product “Whirlpools” to reflect this breakthrough: deep liquidity that’s concentrated where trading occurs, rather than floating in a vast ocean.

All of this means more fees on the LP and less slippage on swaps. However, as with any leverage, it also means greater risk – the most notable being a corresponding increase in the divergence loss of their funds. This allows our LPs to compete for higher returns, using their experience and knowledge of the market to select the pools and price ranges they believe will be profitable.

Compared to existing concentrated liquidity AMMs on Ethereum, Whirlpools stand out for their incredibly low barrier to entry (due to Solana’s much lower transaction fees) and guided UX, making it easier for beginners willing to take the risks to complete the art to learn the concentrated provision of liquidity.

Aside from capital efficiency, hot tubs also stand out for their computational efficiency. Compared to the CLOB (Central Limit Order Book) model, our concentrated liquidity pools provide an enormous amount of trading volume for a large number of unique addresses in relation to the space required on the blockchain. From a technical perspective, this is a major benefit to the scalability of the broader Solana ecosystem.

Our readers would love to know more about Orca and its incredible journey since its inception.

Orca is the most user-friendly DEX in DeFi. Playful, principled, and professional, we’re proud to offer what we think is the easiest exchange in the Solana ecosystem: a marriage of intuitive design and world-class engineering.

Having launched Orca just over a year ago, we are proud to have become one of the most used decentralized exchanges in Solana with around 30,000 daily active users! Orca reached $1 billion in total liquidity late last year, and the protocol has facilitated approximately $15.8 billion in total trading volume. We’re also proud to donate 0.01% of all swaps to climate change and sustainability through the Orca Impact Fund – over $1 million to date.

And as we bring more whirlpools to market, we will continue to lay the foundation for a liquidity layer that is both radically capital efficient and computationally efficient. By encouraging other protocols to build on top of Whirlpools through our upcoming Builders program, we will help pave the way for “DeFi 2.0”: protocols that piece together primitives like Orca to build sophisticated financial instruments that unleash the possibilities of DeFi to an ever higher level. wider audience.

But our mission is far from over. Through our brand new governance platform, ORCA token holders can have a direct say on the future of Orca by formally proposing changes to the protocol, followed by an on-chain vote. We’ve just started welcoming our initial suggestions from our Podmates (our nickname for our users), and we look forward to continuing to work hard to make Orca your favorite AMM experience in DeFi.

Communications from Orca are for informational purposes only, should not be construed as investment or trading advice, and should not be construed as a solicitation or recommendation to buy, sell or hold any of the digital assets referred to. All figures are estimated and unaudited unless otherwise noted. Past performance is not necessarily indicative of future results. Transactions on the blockchain are speculative. Carefully weigh and accept all risks, including the risk of losing all funds and the extreme volatility of token prices and liquidity, before taking any action. As a technology company, Orca provides access to the software.

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