Every swap leaves a bid behind.
V3XEL is a token on Uniswap v4. At every swap, 1% is taken in ETH. That ETH is placed as a buy order just below the price of the token.
That order is called a layer.
A swap costs 1.30%, both ways.
1.00% goes to the layers. 0.30% is the ordinary pool fee, paid to liquidity providers. Buying and selling cost the same.
The 1% is always taken in ETH, so the protocol never ends up with tokens to sell.
A round trip costs 2.60%. That is more than an ordinary pool: the 1% is the price of the layers.
A layer is a buy order on one price step.
The pool has a price step every 0.60%. A layer fills one whole step: the first full step below the price.
While the price stays above, the layer waits. When the price comes down into it, its ETH turns into VEXEL, little by little. Once the price has gone all the way through, all of its ETH has become VEXEL.
A layer never moves.
Once placed, a layer stays at its price, whatever the market does. It does not climb to follow a rise. It is never withdrawn.
It has two possible ends. The price comes back to it, it buys, and what it buys is destroyed. Or the price never comes back, and it waits.
The layers pile up into a stack.
Each time the buffer holds enough ETH, a layer is placed just below the price of the moment. The price moves, so the layers end up at different prices.
Where the token traded a lot, there is a lot of ETH. Where it only passed through, there is little.
The stack is always used from the top: the last layer placed is the first one the price meets.
What a layer buys is destroyed.
As soon as the price has gone all the way through a layer, the VEXEL it bought are sent to an address nobody holds the key to. It happens in the very swap that goes through the layer.
Every destroyed token was bought from a seller, with ETH, at the price of the layer. The count of destroyed tokens only goes up.
Why layers do not follow the price.
A wall of bids that follows the price was tried first. It spends its ETH almost at once, so almost nothing is left waiting.
On the same 57 days, layers that stay left twenty times more ETH below the price. They need no upkeep and no memory of the price.
The cost is 4% less destruction, because part of the ETH waits instead of buying.
What 57 days of real prices showed.
V3XEL has no history yet. The model was replayed on 57 days of real prices from another, very volatile token.
95% of the ETH taken had already been spent buying back. The layers destroyed 96% of what an immediate buyback would have destroyed, at the same price within 1%.
The limit of the test: it is the price of another token, and the effect of the layers on the price is not modelled.
The limits.
- These are buy orders. They buy what they hold, at their price. If someone sells more than that, the price goes through them and keeps going down.
- Most of the resting ETH is far away. In the replay, two thirds of it sat more than 50% below the price. A 20% drop would have met 39 ETH out of 250.
- Destroying tokens does not create value. It spreads the same value over fewer tokens. What counts is the ETH spent buying.
- Nothing exists without volume. No swap, no levy, no layer, no destruction.
- The bottom layers may never be used. If the price rises and never comes back, that ETH stays where it is.
- The settings are final. A 1% levy, 0.60% steps, a layer at 0.01 ETH, three layers lifted per swap at most.
A few words
- The levy
- 1% of every swap, always taken in ETH.
- The buffer
- The ETH taken that is waiting to be placed.
- A step
- One price step of the pool: 0.60%.
- A layer
- A buy order for VEXEL, paid in ETH, placed on one step. It never moves.
- The stack
- All the layers, from the closest to the price to the farthest.
- Lifted
- What happens to a layer the price has gone all the way through: it is removed and what it bought is destroyed.
- Destroyed
- Sent to the address 0x…dEaD, which nobody holds the key to.