How to Invest in Ambient Finance on Notum

Trading was perhaps the first type of earnings from cryptocurrency. Analyzing the behavior of a particular asset, traders bought tokens to make a profit. Even though now the world of decentralized finance offers multiple opportunities for making money on cryptocurrency, trading remains one of the most popular.

Ambient is a trading DEX protocol that not only allows users to trade crypto assets and make swaps but also deposit tokens into liquidity pools. A liquidity pool is a collection of funds deposited into smart contracts to be used for such purposes as trading, financing, and more. DEXs use AMMs, which in turn utilize liquidity pools instead of actual market makers. Thus, liquidity pool provision is another strategy that is in demand among crypto investors due to its high rewards.

Today's article from Notum will explain what Ambient Finance is, how it works, what features and pools it offers, and what investment strategies are worth considering.

Ambient: the Essentials

• TVL: $87,36M
• Risk Level: Medium
• Blockchains: Ethereum, Blast, Scroll, Canto
• Foundation Date: 2021

Ambient is a decentralized exchange protocol that uses two-sided AMMs, combining concentrated and ambient constant-product liquidity. The unique feature of the protocol is that it makes it possible on any arbitrary pair of blockchain assets. In addition, Ambient is a zero-to-one trading protocol offering decent liquidity rewards, low transaction fees, and a comfortable trading experience. Ambient currently supports 4 networks - Ethereum, Blast, Scroll, and Canto.

Interesting fact! Previously, the protocol was called CrocSwap and was a DEX with concentrated liquidity and reduced gas fees. However, the platform evolved and offered users new features, after which it turned to Ambient.

The entire Ambient ecosystem operates within one smart contract. Thus, individual AMM pools are not separate smart contracts, but lightweight data structures. This design decision, along with other features of the protocol, has led to Ambient being the most efficient existing DEX on Ethereum at the moment.

Ambient uses the AMM mechanism to provide liquidity on the platform. This means the protocol does not use limit order books, where liquidity is provided by individual orders. Instead, Ambient is provided with liquidity through an aggregate pool, where capital is the assets deposited by users.

Important! All pools on Ambient are a two-sided market between a pair of fungible assets. Thus, pools have a single exchange, which is determined by the ratio of virtual reserves.

The protocol pools operate on a constant product market maker (CPMM algorithm, which means virtual reserves remain unchanged regardless of the swap’s size or direction.

«When a swapper sends a base token to the pool, the pool returns quote tokens based on constant product relationship. The pool's exchange rate will move to raise the exchange rate of quote tokens relative to base tokens» - Ambient Docs.

Now Ambient offers users a large number of functions, namely swaps, trading, as well as a liquidity pool provision with a wide selection of investment strategies in four blockchains.

Ambient: Concentrated and Knockout Liquidity

• Concentrated liquidity allows users to provide assets within an arbitrary pre-defined price range on a single AMM curve. This is the opposite of ambient liquidity, where liquidity behaves actively at all possible prices. While the advantage of this type of liquidity is capital efficiency, it still hassle cons that are worth paying attention to. If the curve price goes outside the order range, the position can no longer accrue commissions. More details about concentrated liquidity can be found here.
   
• Knockout liquidity is similar in many ways to range-based concentrated liquidity, but here liquidity is permanently removed from the AMM curve when the price of the curve moves out of the range. However, the big advantage of this liquidity type is that it can be adapted to be removed if the curve price falls below the range.
  
  Knockout liquidity is an excellent tool for those investors who want to get more benefits than from conventional swaps. However, it is also important to remember that if the curve price never reaches the knockout price, the order may never be executed. Details regarding knockout liquidity are available here.

Why Invest with Ambient?

Ambient is among the top 20 most popular decentralized exchanges on Ethereum by TVL that offers users a huge number of advantages due to its innovative smart contract architecture:

Pros

Diversified liquidity

Ambient is created to have diversified and stable liquidity, which makes it the only decentralized exchange that supports ambient, concentrated, and knock-out liquidity in a single pool.

A bridge between LP and trading positions

The protocol allows users to make LP positions from trading positions and backward, using range and limit orders.

Adjusted pool fees

Ambient offers users pools with dynamically adjusted fees, which allows liquidity providers to maximize profitability depending on demand and market conditions.

Surplus collateral

With Ambient, users can pre-fund tokens as surplus collateral. Thus, due to deferring token transfers to net settlement, traders achieve higher efficiency.

Gasless transactions

A big advantage for many users is the protocol's "gasless" transactions, where they use a swapped token as payment instead of gas.

Permissioned pools

Along with permissionless options, Ambient offers unique permissioned pools, where the ability to manage and limit the pool can be delegated to smart contract oracles operating both inside and outside the protocol.

Ambient Points System

Users can earn Ambient Points by providing liquidity or making swaps on Ambient. Protocol distributes points every week. The more swaps a user makes, the more points can be earned. Users who have liquidity positions in pools on Blast earn Ambient Points, Blast Points, and Blast Gold.

In addition, the protocol reinvests fees accumulated on concentrated LP positions into the pool back as ambient liquidity. More information about LP positions on Ambient can be found here.

Ambient: Investment Strategies

As stated, Ambient offers users the ability to swap with a huge number of tokens to choose from across four networks. Gas fees for swaps will vary depending on the selected blockchain and range from $0.30 to $1.94. In addition, on the platform users can utilize trading services and study the movement of various trading pairs in real time.

The «Explore» tab allows users to look through all the pools offered by the platform, as well as their TVL. The “Pools” tab itself invites investors to explore the top pool options on the platform, as well as mark their favorite pools. At the moment, the most popular pools on Ambient by TVL are DAI / LUSD with TVL of $3.51M and ETH / WBTC with $3.12M.

Source: Ambient Finance

Investors can provide liquidity to Ambient by depositing tokens into a selected pool. Liquidity providers make a profit on their capital generated by the swap fees paid into the pool. However, to receive this reward, investors need to know that their collateral deposit is not fixed. Once swaps occur in the pool, LP positions are constantly rebalanced between the two tokens in the pair.

«The larger the price ratio of the assets in the pool moves from the starting price, the larger IL cost the LP experiences» - Ambient Docs.

In addition, protocol users can create new LP positions. The app allows them to mint both concentrated and ambient liquidity. Details about LP positions can be found in the official protocol documents.

Ambient: Risks and Disadvantages

Ambient is undoubtedly a unique protocol offering users several features and opportunities, from trading to providing liquidity. However, before using the protocol, it is also important to pay attention to the risks associated with it.

Cons

Platform's complexity

Once users get into the protocol application, it can be quite difficult to understand how to use it, how to invest in the liquidity pools, and what rewards can be earned. Thus, the protocol is suitable for only experienced trainers and liquidity providers.

Smart contract risks

Any protocol that operates on smart contracts faces some potential risks that should be taken into account. Any vulnerabilities and bugs on the Ambient smart contract can lead to a loss of funds.

Impermanent loss

Prices for liquidity pool assets may change, so users who provide their assets may lose some of their funds while withdrawing liquidity from the pool.

Notum’s Verdict

Ambient is a popular DEX protocol that uses AMM to provide liquidity on the platform. Since the entire platform operates within one smart contract, individual AMM pools are lightweight data structures instead of individual smart contracts, which is a ишп innovation in the world of DExs. The protocol supports four networks and has a total value locked of over $87.36M, which allowed it to enter the top 20 most popular DEXs on Ethereum.

The platform offers users many outstanding advantages, namely diversified and stable liquidity, adjusted pool fees, gasless transactions, permissioned pool options, an Ambient Points System, and much more. Despite the platform’s navigation difficulty, risk of smart contracts, and impermanent loss, Ambient is a good option for experienced traders and LPs who want to invest their assets.

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.