📚How it works

Dyson Swap has two major innovations beyond regular swap protocols.

• Pricing equations that enable higher capital efficiency, and more closely resemble a traditional market maker.

• A spread mechanism, which both: acts to defend capital for liquidity providers, and also enables pool-to-pool arbitrage. This mechanism is made possible because token prices are able to be aggregated across all pools in the protocol.

The pricing equation information can be found in the Deep Dive section of the docs for the mathematically inclined. The main takeaway is that liquidity can be shifted based on the volatility of the token prices, to offer better execution (less price impact, better swap prices) for stable coins and meme coins alike. The two innovations are complimentary.

Pool Spread and Arbitrage Mechanism

Any time a swap is made, prices are pushed out of sync. For example, SOL is bought with USD.

With prices out of sync, Dyson Swap captures triangular arbitrage between pools, and gives it to the liquidity providers.

The arbitrage opportunities are exclusively available to liquidity providers due to a special mechanism within the protocol, where token prices are tracked across all pools. Normal swaps can only push token prices away from a token's globally tracked midpoint value.

How is the global midpoint calculated? Let's take the SOL/USDT pool as an example:

First, the protocol looks at all the pools containing SOL, and gets the average price of SOL.

Then, the protocol looks at all the pools containing USDT, and gets the average price of USDT.

Lastly, the midpoint is calculated, and used as one side of the spread (vs the internal arbitrage trades which do not have a spread). In the image below, normal swaps are only possible in the direction of the arrows.