Decentralized finance (DeFi) is a crucial aspect of the DEMON Chain ecosystem, and its DeFi capabilities are primarily embodied in KC Swap, an innovative decentralized exchange (DEX) platform.
Contrary to traditional exchanges that operate based on the concept of limit orders, and rely on market makers for price-setting, KC Swap introduces an Automated Market Maker (AMM) mechanism. In this unique framework, market makers only need to provide liquidity, while the rest is handled automatically by the system.
The beauty of KC Swap is that all users have the opportunity to become market makers. By depositing their own funds, users can earn a proportion of the trading fees based on the ratio of their contribution to the liquidity pool.
KC Swap employs a highly incentivized efficient AMM protocol with the ability to capture slippage, a feature that enhances revenue generation for liquidity providers. It utilizes the "constant product market maker model" or the x*y=k equation, which is a form of AMM model.
Moreover, KC Swap innovatively captures slippage, an often-overlooked aspect in traditional AMM designs. Through a virtual trading curve, liquidity providers can capture the profits that would normally be snapped up by arbitrage traders.
In instances of spatial arbitrage, AMM collects 50% of the slippage from the arbitrage trader. This percentage accumulates in the AMM liquidity pool, to be distributed amongst the liquidity providers. The unique slippage capture feature of KC Swap potentially increases the liquidity spread by up to 200% compared to traditional DEX's trading fee revenue. This significant feature makes KC Swap a standout player in the DeFi landscape.