# Protocol Overview Get to know Ax11 Protocol At **Ax11**, our goal is not to create the most customizable or capital-efficient AMM, but to bring back the simplicity and reliability of Uniswap V2 for passive liquidity providers (LPs). We want to empower LPs to "set and forget" their positions, earning continuous income with minimal impermanent loss risk, while addressing key issues left by Uniswap V2. One major issue we address is capital inefficiency. While Ax11 improves on Uniswap V2's efficiency, we avoid excessive capital efficiency, which often leads to higher impermanent loss. Instead, we strike a balance, offering better efficiency while ensuring liquidity across all price ranges. Ax11 prioritizes the LP experience by minimizing active management. This allows LPs to deploy assets confidently, aligning with our mission to make decentralized finance accessible and sustainable. Ax11 has become a reality with dynamic concentration levels, a liquidity prediction market, and an optimized fee allocation system, providing LPs with enhanced returns and better risk management. {% hint style="info" %} Let's start with [Protocol Concept](broken://pages/eD7TvCUTMa51Ra3fgCd9) {% endhint %} # Automated Market Makers (AMM) Algorithms that set asset prices and enable trading without relying on traditional order books or intermediaries. Automated Market Makers (AMMs) are decentralized exchange protocols that enable trading of digital assets without a traditional order book. AMMs use a mathematical formula to price assets, typically utilizing liquidity pools comprised of token pairs. Users can trade against these pools, with prices adjusting according to the pool's balance. This mechanism facilitates continuous liquidity and allows users to earn fees by providing liquidity. AMMs have become a fundamental component of decentralized finance (DeFi), offering seamless and permissionless trading experience. # DynamicFlow AMM (DFA) Algorithm, generalized by Ax11, that set asset prices and enable trading between assets. DynamicFlow AMM is an algorithm, generalized by Ax11, designed to determine asset prices and facilitate trading between asset pairs. It extends and normalizes the classic **x \* y = k** constant product formula used by Uniswap, providing a more flexible and generalized model for automated market making. ## **DFAMM VS CPAMM VS CLAMM** The table below explains how Ax11 AMM differs from other AMMs in the market.
Capabilities DFAMM CPAMM CLAMM
Capital Efficiency ✅ ❌ ✅
Auto-Compound Rewards ✅ ✅ ❌
Directionality ✅ ❌ ❌
Automated Liquidity Concentration (ALC) ✅ ❌ ❌
Dynamic Fee Selection (DFS) ✅ ❌ ❌
Fungible LP Tokens ✅ ✅ ❌
Trader Incentivization ✅ ❌ ❌
{% hint style="info" %} CPAMM -> Constant Product Automated Market Maker (Uniswap V2) CLAMM -> Concentrated Liquidity Automated Market Maker (Uniswap V3) DFAMM -> Dynamic Flow Automated Market Maker (Ax11) {% endhint %} # Liquidity Prediction Market (LPM) Liquidity provision in another perspective The **Liquidity Prediction Market (LPM)** was invented based on idea that liquidty provision is akin to "Short Position" on derivetive market as liquidity will received more assets that they provided when assets in the same pair appreiate, in which price of short position and long position are handled by the x\*y=k formula. That's wouldn't be a satisfactory case for all LPs as some of them don't want to always less amount of assets as it will be traded out of the pool. *** #### **Core Features of LPM** 1. **Perpetual Participation** * No expiration dates: Users can participate indefinitely without needing to reset or re-enter positions. * Consistent rewards: Earn fees and rewards continuously as long as liquidity is provided. 2. **Dual Incentives: Prediction + Liquidity** * **Market Prediction**: Users can stake on the Bullish or Bearish side to predict market trends and earn rewards for accurate forecasts. * **Liquidity Provision**: Liquidity providers (LPs) earn trading fees and rewards regardless of their prediction activity. 3. **Reduced Impermanent Loss (IL)** * Correct predictions minimize impermanent loss, as rewards are reallocated from incorrect stakers to correct ones. * This mechanism ensures that LPs are incentivized to align their positions with market outcomes. 4. **Capital Efficiency and Restaking** * LPM improves capital efficiency by allowing users to restake their LP tokens and earn additional rewards. * Users can strategically allocate liquidity based on market expectations while understanding the risks and rewards of price fluctuations. *** #### **How LPM Works:**
1. **Provide Liquidity** * Add liquidity to a trading pair (e.g., ETH/USDC) to receive LP tokens, which represent your share in the pool. * Example: Providing single-sided liquidity for ETH/USDC grants you LP X tokens representing ETH. 2. **Stake LP Tokens in LPM** * Choose a market side to stake your LP tokens: * **Bullish**: Predict the price of the asset will increase. * **Bearish**: Predict the price of the asset will decrease. 3. **Market Dynamics and Rewards** * **Bullish Case (Price Increases)**: * Bullish stakers earn additional LP tokens as rewards, partially sourced from Bearish stakers. * Correct predictions reduce impermanent loss for Bullish stakers. * Bearish stakers lose a portion of their LP tokens but still earn trading fees. * **Bearish Case (Price Decreases)**: * Bearish stakers earn additional LP tokens as rewards, partially sourced from Bullish stakers. * Correct predictions reduce impermanent loss for Bearish stakers. * Bullish stakers lose a portion of their LP tokens but still earn trading fees. {% hint style="success" %} When users create a liquidity position, their deposited assets (X and/or Y) are converted into liquidity pool tokens, called **LpX** and **LpY**. These tokens represent their share in the pool. If the user then decides to use their LpX tokens to enter a Liquidity Prediction Market (LPM) with a specific strategy—for example, 60% for a long position on X and 40% for a short position. The system will automatically split these tokens into two new types: **LpX-long and LpX-short**. This split is done proportionally based on their chosen strategy (60/40) and the current market price of X. {% endhint %} 4. **Earn Rewards** * **Accurate Predictions**: Correctly predicting price movements results in higher rewards and reduced impermanent loss. * **Fee Redistribution**: All participants earn a share of trading fees generated by the liquidity pool, regardless of their prediction outcome. * **Dynamic Rebalancing**: LP tokens are reallocated between Bullish and Bearish stakers based on market outcomes, ensuring fair reward distribution. # LPM Fee Distribution In LPM, fees will be the same as the current fee of that pool.

LPM Fees Distribution

#### Fee on Entry or Exit: * **80% Reward Pool** * 80% of the transaction fee is redistributed among liquidity providers based on the side of the market (e.g., "Bear" or "Bull") they are exiting or trading out of. * **40% to Non-Betting LPs** * Rewards liquidity providers who have not actively staked their LP tokens. This ensures even passive participants gain value from the protocol. * **40% to Staking LPs** * Rewards users who actively stake their liquidity tokens. This is designed to encourage active participation and alignment with market predictions. * **Staking Promotion:** Users are encouraged to stake LP tokens with a balanced allocation of **50% Bear** and **50% Bull**, ensuring market neutrality and fostering healthier liquidity dynamics. * **20% Protocol Revenue** * 20% of the transaction fee is allocated to the protocol treasury for long-term development, governance, and operational sustainability. # Liquidity Tokens When users provide liquidity, they receive liquidity provider (LP) tokens representing their share of the pool. At Ax11, liquidity is divided into two sides: users receive **LPX tokens** for their token X contribution and **LPY tokens** for their token Y contribution. Both tokens are fungible and adhere to the ERC-20 standard, ensuring seamless integrations and future developments. By utilizing **LPM** features on the Ax11 protocol, LP tokens can be further diversified into: * **LPX-long** (Liquidity X long token) * **LPX-short** (Liquidity X short token) * **LPY-long** (Liquidity Y long token) * **LPY-short** (Liquidity Y short token) {% hint style="info" %} Swap cannot be used to switch between different token positions. For example, an X long position cannot be swapped into a Y long or Y short position. Swaps are only allowed within the same token position. {% endhint %} {% hint style="info" %} LPM is an **optional feature**, extending beyond standard liquidity provision. It is designed for users who seek **additional earning opportunities** while participating in the Ax11 ecosystem. {% endhint %} # Automated Liquidity Concentration **Automated Liquidity Concentration (ALC)** is an algorithm designed to adjust the concentration level of each liquidity pool, enhancing capital efficiency while ensuring that neither side of the reserve is not depleted. Unlike traditional price range-based methods, where liquidity providers set a specific price range for their liquidity's position, ALC doesn't rely on a fixed range. In traditional methods, if the price moves outside the selected range, liquidity providers won’t earn trading fees and may end up holding depreciating assets, hoping the price will return to their chosen range. In ALC (Automated Liquidity Concentration), liquidity bins behave like **stretchable containers** that adapt based on market conditions. As trading activity stabilizes or price volatility decreases, the algorithm stretches the bins to cover **wider price ranges**—for example, evolving from **32x32** to**64×64,** **128×128**, **256×256**, and up to **512×512**. This mechanism allows the system to maintain efficiency by concentrating liquidity where it's most needed while reducing unnecessary granularity in less active zones. The result is a **scalable and adaptive liquidity structure** that optimizes capital usage across various market conditions. **BIn Concepts** In ALC (Automated Liquidity Concentration), liquidity is organized into **bins**, which act as small segments along the price curve. Each bin is responsible for **holding a specific amount of share**, allowing the system to manage and reallocate liquidity precisely across active trading ranges. In the ALC (Automated Liquidity Concentration) model, liquidity is divided into discrete units called **bins**, where each bin holds a specific **share** of the total liquidity pool. These bins are arranged along the price curve and dynamically adjusted using a **sliding window mechanism** that focuses liquidity around active trading zones. As the market price shifts, the window slides accordingly, and new bins are generated using the formula $$ New BinShare= (ShareofNextbin+ShareofLastbin )/2), $$ ensuring a smooth and balanced distribution of capital. This approach allows liquidity to concentrate where it’s most needed, improving **capital efficiency** while reducing manual effort from liquidity providers. ### Trading Zone Mechanics Liquidity concentration changes based on how long the price stays in defined zones: | Zone | Behavior | | --------- | ------------------------------------------------------------------------------------------------- | | 🔵 Blue | Starting point for concentration evaluation. | | 🟡 Yellow | If price holds here for **> 255 seconds**, liquidity is not concentrated in that 24 days period. | | 🔴 Red | **T**riggers the ALC's logic after **> 255 seconds, and** the range will be expanded immediately. | {% hint style="info" %} **Hint: Zone-Based Behavior in ALC** * If the price stays in the **blue zone** for **24 consecutive days**, the ALC system will begin to **concentrate liquidity** to increase capital efficiency. * If the price enters the **yellow zone** and remains there for **more than 255 seconds**, then moves back to the blue zone, the **24-day concentration timer is paused**, and no concentration will occur. * If the price stays in the **red zone** for **more than 255 seconds**, the system will **immediately expand the liquidity range**, and the **24-day timer in the blue zone is reset to zero**. {% endhint %} # Dynamic Fee Selection **Dynamic Fee Selection (DFS)** is a mechanism to help liquidity providers (LPs) make better decisions about the fees they charge in Dynamic Flow Automated Market Maker (DFAMM) pools. In AMMs that support concentrated liquidity, LPs have to choose from different fee tiers for each pool. Even if the pools contain the same tokens, the trading volumes, price actions, revenues, and risks can vary depending on the fee tier selected. DFS simplifies this decision-making process by working closely with the Automated Liquidity Controller (ALC) to determine the optimal fee for each pool.
Price Range (Bin)Fees %
< 64 Bins0.005%
< 127 Bins0.01%
< 255 Bins0.05%
< 511 Bins0.1%
greater than or equal 512 Bins0.25%
{% hint style="success" %} **Here is how DFS responds with ALC** 1. Increase fee: Immediately ALC Extension exceeds the maximum price. 2. Decrease fee: When concentration increases from ALC compression every 24 days. {% endhint %} # Ax11 Tokenomics COMING SOON # Ax11 Emission & Fees Distribution Ax11 follows a structured emission model designed to incentivize traders, liquidity providers, and governance participants. The emission strategy ensures balanced rewards and sustainable protocol growth while maintaining the value of Ax11 tokens.

Ax11 Token Emission

### Emission Breakdown Ax11 token emissions are distributed as follows: #### **1. Trader Emissions** (2/3 of Total Emissions) * Traders receive **2/3 of the total Ax11 emissions**. * This incentivizes active participation in trading, ensuring deep liquidity and market efficiency. #### **2. Liquidity Provider (LP) Emissions** (1/3 of Total Emissions) * LPs receive **1/3 of the total emissions**, split evenly between X and Y pools. * Allocation: **50% X Pool and 50% Y Pool**. * LPs cannot select emission distribution between X and Y; it is auto-split to maintain market balance. *** ### Trading Fee Distribution

Ax11 Fees Allocation

Ax11 Protocol revenue is distributed among key participants as follows: * **Initiator:** **1% of trading fees** (lifetime). * **LPs:** **50% of trading fees**, divided equally: * **50% long, 50% short** within each X and Y pool. * **Voters:** **30% of trading fees**. * **Team:** **19% of trading fees**. * **Exit & Switch Fee:** **0.1% Total Burn Fee (TBF)** on exit and side switches: * **50% to LP exit side.** * **40% buyback & burn Ax11.** * **10% to the protocol.** *** ### Dutch Auction Market (Team Revenue) * **7-day auction** system from **1% to 99.99%** discount (from Team’s 19% trading fee allocation). * Ax11, ETH Sonic, and stablecoins are used. * **Revenue split:** * **50% buyback and burn Ax11**. * **50% allocated to team revenue**. # Ax11 Vote Subscription Here’s the revised **Voting** section in GitBook format with clear separation between Pool Vote and Ax11 Governance: *** {% hint style="success" %} Voters are able to withdraw fund anytime as Ax11 vote subscription doesn't required voters to lock their assets. {% endhint %} ## **Voting in Ax11** Voting in the Ax11 protocol is based on **linear decrease mechanics**, incentivized by **leverage and burning mechanisms**. Higher leverage accelerates token burning, increasing voting power and encouraging long-term commitment. ### **Vote Mechanics** **Voting Power Based on Leverage & Burning** * **1x Leverage** → 10-year burn time * **10x Leverage** → 1-year burn time * **100x Leverage** → 1/10-year burn time Higher leverage leads to **greater voting power**, reinforcing long-term commitment and token scarcity through burning. ### **Purpose of Voting** Voting in Ax11 is divided into two distinct categories: #### **Pool Vote** (Emission & APR) Pool voting determines **Ax11 emission share**, directly influencing **APR and liquidity incentives**. Participants in Pool Voting impact how Ax11 emissions are allocated across different pools. #### **Ax11 Governance** (Protocol Direction) Governance voting enables Ax11 holders to influence **protocol development and strategic decisions**, including: * Adjusting trading fee parameters * Modifying liquidity incentives * Enhancing protocol infrastructure {% hint style="info" %} No direct incentives exist for participating in governance voting. {% endhint %} ### **Voting Incentives** * **30% of trading fees** are distributed to voters. * **Higher burned Ax11 through leverage → Higher voting power.** * **Pool Vote participants benefit from optimized APR and liquidity incentives.** Ax11’s governance and voting system ensures **capital efficiency, strategic direction, and long-term sustainability** through an innovative **leverage-based burning mechanism**. # Unique Features # Ax11 Oracle The **Ax11 Oracle** improves traditional price oracles by adding key variables for greater accuracy and manipulation resistance. While **Uniswap v3** uses **TWAP** to smooth price fluctuations, **Ax11 Oracle** applies a **geometric mean** across five critical price points: 1. **Opening price of the previous block** 2. **Closing price of the previous block** 3. **Opening price of the current block** 4. **Closing price of the current block** 5. **Opening price of the next block** This approach ensures **greater price stability, reduced manipulation risks, and improved liquidity management**, making Ax11 a **more reliable** oracle solution. {% hint style="info" %} Ax11 Oracle is used for data extraction purposes not using in AMM and LPM. {% endhint %} # Market Launchpad DPAMM simplifies token launch process to another level. Normally token issuers need to engage launchpad providers to raise funds in order to launch their tokens, or opt for pre-sales and IDOs. This is because pricing a token on an AMM typically requires a specific reserve ratio. For instance, in a CPAMM, pricing is determined by x/y or y/x. If you create a pair like AAA/USDC and want to add 5,000 AAA tokens at a price of 1 AAA = 1 USDC, you would need an additional 5,000 USDC to provide liquidity. This requirement often leads issuers to forgo decentralized methods in favor of centralized exchanges that do not rely on reserve-based pricing. Consider tokens as products: if you create products and wish to sell them at a certain price that increases as supply diminishes, you should be able to sell them directly in the market. In CPAMMs, the scenario is akin to being told, "If you want to sell your product at this price, you must have collateral of equivalent value; otherwise, you cannot sell it.” With DPAMM, users can create a market to sell 5,000 AAA tokens at 1 AAA = 1 USDC with as little as 0.0001 USDC. They can set any desired price point, with the minimum requirement being the last 4 decimal places of both tokens. Given that most ERC-20 tokens have 18 decimal places, this is entirely feasible. To incentivize pool creators, **Ax11 allocates 1%** of the pool's fees to the initiators as a lifetime share. # Directional Market Making This is how LP are given unique choices for liquidity provision. **Flexible Liquidity** Ax11 empowers users to provide liquidity in any proportion, allowing for bullish, bearish, or **"neutral stances"** on a specific token, similar to Uniswap V2. Users can also provide single-sided liquidity, thanks to Ax11's separation of price curve from the liquidity curve. Each token pair, comprising token x and y, maintains independent liquidity constants for x and y, facilitating single-sided liquidity provision and enabling potential shorting positions. For example, when users want to provide liquidity for an ETH/USDC pair, they have the flexibility to allocate their assets based on their market outlook: 1. **Bullish on ETH:**\ Users can allocate a higher percentage of liquidity to ETH, such as 80% ETH and 20% USDC, to reflect their expectation that ETH will outperform. 2. **Bullish on USDC (Bearish on ETH):**\ Users can allocate a higher percentage to USDC, such as 80% USDC and 20% ETH, prioritizing stability or hedging against ETH's potential decline. 3. **Neutral (50/50 Allocation):**\ Users can allocate 50% to ETH and 50% to USDC, following a balanced approach similar to the traditional Uniswap V2 formula. This flexibility allows users to tailor their liquidity provisioning strategy to align with their market views and risk preferences. **Single side liquidity** Since AX11 separates the price curve from the liquidity curve, users can opt to provide single-sided liquidity. This approach functions similarly to taking a short position in trading: 1. **If the Asset Price Decreases:**\ When the price of the asset decreases, users will receive a larger amount of the token they provided, aligning with the benefits of a short position. 2. **If the Asset Price Increases:**\ Conversely, if the price of the asset increases, the amount of the provided token decreases, resulting in a loss similar to the downside of a short position. This mechanism allows users to strategically allocate their liquidity based on market expectations while understanding the inherent risks and rewards of price fluctuations. {% hint style="info" %} Allowing single-sided liquidity provisioning enables LP tokens to be split and utilized for a wider range of use cases, such as collateral for loans, options, bonds, and other innovative market opportunities. This flexibility empowers users to participate in DeFi markets more effectively while optimizing their asset utilization. {% endhint %} # Support unstable supply token Ax11 is a solution designed to support innovative token models, including those with unstable or decreasing supplies. What is it for? It enables real-time tracking of a token’s true circulating supply, addressing the current limitation where protocols rely on outdated swap-based data. This breakthrough allows for advanced tokenomics, such as deflationary or dynamically adjusting token supplies, which are not possible with existing refi protocols. What are the benefits? Ax11’s solution ensures accurate and efficient token management, reducing errors and inefficiencies. It also unlocks new DeFi applications, resulting in more responsive and flexible financial tools. What are the potentials? By enabling real-time supply tracking, Ax11 empowers developers to build protocols, and introduce innovation in decentralized finance. This positions Ax11 as a leader in next-generation tokenomics, paving the way for a more diverse and dynamic DeFi ecosystem. Ax11’s solution sets a new standard, unlocking the full potential of advanced token models and future DeFi applications. # Price data structure This section outlines the **Price Data Structure** used in the protocol, focusing on its efficiency, scalability, and alignment with Ethereum’s blockchain properties. The design optimizes precision and governance flexibility to adapt to Ethereum upgrades or system requirements. # Key Properties of the Price Data Structure #### 1. **Data Type** * **UINT 256**: * Price values are stored as a **256-bit unsigned integer**, ensuring sufficient precision for complex computations. * This representation supports extremely large values while maintaining compatibility with Ethereum’s architecture. * **Not Scaled Integers**: * Prices are expressed as raw integers, avoiding scaling complexities common in floating-point arithmetic. #### 2. **ERC-20 Scaling Standard** * **Scale Integer (10¹⁸)**: * Prices follow the same scale as ERC-20 tokens (e.g., 1 ETH = 10¹⁸ units). This ensures consistency across decentralized applications and simplifies integration with other DeFi protocols. #### 3. **Binary Representation** * **Q128.128 Format**: * Prices are stored using a **binary fixed-point representation**: * The **first 128 bits** represent the **integer portion** of the price. * The **last 128 bits** represent the **fractional (decimal) portion** of the price. * This format ensures precision for both whole and fractional values, avoiding rounding errors in calculations. #### 4. **Optimized Storage** * **Single-Sided Price Storage**: * The protocol only keeps one price (e.g., **X**) instead of storing both sides of a pair (e.g., **X and Y**). * Using a single price reduces storage requirements and computational overhead while enabling the calculation of the second value when needed. # Integration with Ethereum Blocks #### 1. **Time Units** * Prices are tracked based on **Ethereum block time**, providing a precise and blockchain-native timekeeping mechanism. #### 2. **Block Time as a Unit of Measurement** * **Ethereum Block Time**: * The average block time is **12 seconds per block**. * **Derived Time Intervals**: * For operations over fixed time periods (e.g., 1 hour), the protocol calculates the number of blocks in that interval: * **1 Hour = 3,600 seconds / 12 seconds per block = 300 blocks**. #### 3. **Governance and Block Time Adjustments** * **Governance Proposal System**: * If Ethereum upgrades alter the block time, the protocol accommodates this change through governance: * A proposal can adjust calculations for derived time intervals (e.g., reduce or increase the block count for a 1-hour period). * **Flexible ALC**: * ALC supports dynamic adjustments to ensure that all time-sensitive operations maintain consistency with the blockchain. # Adaptive ALC & Governance-Driven Adjustments #### 1. **Adaptive Precision Mechanism** * **ALC Formula**: * Precision is governed by a power-based structure: * **Square (Pmax)**: Determines maximum precision. * **Square root (Pmin)**: Ensures minimum precision. * **Time Adjustments**: * ALC precision adapts dynamically based on block time or governance proposals. #### 2. **Governance-Driven Adjustments** * **Voting Mechanism**: * Changes to time intervals or ALC parameters require a governance vote, allowing the community to decide: * **Faster ALC**: Reduces block intervals for quicker adjustments. * **Slower ALC**: Increases block intervals for higher stability. * # Summary of Price Data Structure Benefits * **Scalable Precision**: * Using **Q128.128** ensures high accuracy for both large and small price values without floating-point limitations. * **Storage Efficiency**: * Storing only one price (e.g., **X**) reduces storage and computational overhead while maintaining full functionality. * **Blockchain-Native Time Integration**: * Aligns with Ethereum’s block time, ensuring consistency and reducing reliance on external time sources. * **Governance Flexibility**: * Protocol parameters adapt to Ethereum upgrades through governance proposals, ensuring longevity and robustness. * **DeFi Compatibility**: * Adopting the ERC-20 scale integer standard (10¹⁸) ensures seamless integration with other DeFi protocols.