Pact: The home of liquidity on Algorand
Decentralized Finance (DeFi) has experienced unprecedented growth over the past 12–18 months, with Decentralized Exchanges (DEXs) proving their product-market-fit as the most essential primitives in the ecosystem. However, many DEXs face a variety of issues, in particular the heavy financial burden that comes with simply using the underlying blockchains (imposed by networks like Ethereum), making swaps financially unviable for the average trader. In order for trading platforms to be adopted by the mass market, trades need to be able to occur quickly and at a low cost. Pact provides this very solution, leveraging the next-generation Algorand blockchain to facilitate near-instant low-cost swapping of blockchain assets. This provides a vastly improved user experience and opportunities for tremendous user growth in both liquidity provision and trading volume.
How does it work?
Pact is an Automated Market Maker (AMM) project, where initially, Pact will launch with a constant product, symmetric 50/50 pool design, which should be extremely familiar and intuitive to pick up. This will be supported by a great UX, with our core goal being to make Pact Algorand’s most user-friendly DEX. It is key for Pact to ensure its product is both powerful enough for the seasoned trader but simple enough for the uninitiated. With Algorand’s cheap transactions, total charges on trades will be not much more than the flat 0.3% liquidity-provider fee — a significant improvement on the current status quo for traders who can be charged thousands in gas fees on other platforms, in addition to the DEX LP fees. For future iterations, Pact will have the benefit of taking the best learnings from the existing AMMs on other ecosystems and supercharging them with Algorand’s technology, in addition to pushing the boundaries of innovation and what is possible on-chain.
The Algorand advantage
A DEX built on Algorand has the potential to support the full range of Centralized Exchange (CEX) transaction types and activities.
Other Layer 1 chains are proving to be cost-prohibitive due to poor scalability paired with increased adoption. Huge amounts of capital are sitting on the sidelines until a truly suitable Future-Fi solution is available. Some of the most popular DEXs also have an artificial ceiling on transaction volumes due to network limitations.
With Algorand at Pact’s core, issues such as exploding transaction costs, front-running and network congestion are a thing of the past. The next-generation blockchain solution offers four-second block finality, no forking, and low transaction fees (currently $0.2c USD), thanks to the pure proof of stake consensus mechanism it employs.
As well as the technical advantage that Algorand provides, its DeFi ecosystem is poised for explosive growth with hundreds of projects currently in development for launch in the next 12 months. This will serve to further increase the appetite for an Algorand based DEX.
History has shown that multiple liquid exchanges can co-exist and actually make the broader environment healthier and more sustainable. Though the initial iteration of AMMs on Algorand will look similar, future iterations will naturally evolve distinct transaction styles.
Next Steps for Pact
Following the release of this article Pact is set to begin our community-building phase cultivating an audience across Twitter, and Telegram. On those platforms, we’ll provide regular development updates in the lead-up to launch on testnet in December 2021. After launching on testnet and receiving feedback from the community of Pact users, the protocol will be fine-tuned and launched on mainnet in 2022.