How Solana-Based Saber Builds From the Bottom Up

What Is Saber? Solana DEX & Cross-Chain Bridge

Like other decentralized exchanges (DEXs), Saber offers several liquidity pools that act as automated market makers (AMMs). An AMM is an autonomous mechanism that enables crypto trading without a central authority. 

For example, if investors want to exchange Tether (USDT) for USD Coin (USDC) on a DEX, they don't have to wait for another investor willing to transact with them. Instead, they can execute their transaction against the liquidity pool. DEX protocols reward liquidity providers with transaction fees proportionate to their deposits to ensure pools function properly. Specifically, if an investor deposits USDC to the USDC/USDT pool, they'll receive a portion of the transaction fees generated by that trading pair.

Although Saber operates like these platforms, it's unique in that it emphasizes both regular stablecoin and wrapped stablecoin trading pairs. Saber has chosen to prioritize these digital assets because of their current and future utility in the Decentralized Finance (DeFi) market. As of February 2022, Saber supports trading for over 80 stablecoin and wrapped stablecoin trading pairs. The Saber crypto exchange is also unique among Solana DEXs in that it has a gauge system via the TribecaDAO governance platform, where Saber Governance Token (SBR) holders can lock their tokens away to receive voting escrow Saber (veSBR) tokens. This voting power can be used to alter the APY% of every liquidity pool on Saber, turning stablecoin liquidity yield into a “war” of sorts, hence the name “Saber Wars” on Solana.

Why Use Saber?

Saber works by allowing users to deposit stablecoins and wrapped assets into liquidity pools. Each pool represents a pair, such as USDT and USDC, and generates passive yields from the transaction fees. In addition to these liquidity provider rewards, all Saber users benefit from a fast network and stablecoin pair diversity, whether regular or wrapped.

Stablecoin Utility

The Saber DEX allows users to swap between stablecoins pegged to the same underlying asset. For example, USDC and USDT are both pegged to the U.S. Dollar, which means it's a supported trading pair. However, Saber doesn't currently allow the exchange of stablecoins for general cryptocurrencies like Bitcoin (BTC) or wrapped equivalents like pBTC. As such, users can't swap USDT for an asset like pBTC, which is a wrapped version of BTC (minted by cross-chain bridge merchant pTokens), not a stablecoin. Despite this deliberate limitation, Saber's focus on stablecoins aligns well with the growth of DeFi.

Minimal Impermanent Loss​

Saber's StableSwap algorithm makes the assumption that assets in a pair will converge to the same price. As such, it mitigates the impact of impermanent loss in the way that constant product AMMs do.

Note that there is still a risk of prices diverging from equilibrium: If one asset in the pool "de-pegs" (that is, drops or skyrockets in price permanently), a liquidity provider will experience impermanent loss.

Zero Opportunity Cost​

There is an age-old debate of whether or not automated market makers are more efficient in providing liquidity than order books. There are two properties to measure the efficiency of liquidity: spread and depth. Spread refers to the difference between the bid (selling) price and the ask (buying) price, and depth refers to the total amount of volume that can be moved for a particular percentage of price decrease. 

However, the efficiency of Saber liquidity does not stop here: Saber LP tokens themselves can be used in all sorts of places ranging from lending markets (such as Port) to collateralizing other stablecoins (for example, Bucket). This allows for Saber to be much more composable than order books, since order book positions cannot directly be used as assets within other protocols. This greatly reduces the opportunity cost of deploying capital, providing a passive "risk-free" rate of return to the decentralized financial ecosystem.

Interoperability

Blockchain interoperability refers to the ability of different blockchain networks to exchange and leverage data between one another and to move unique types of digital assets between the networks’ respective blockchains. Across the blockchain industry, there is a push for more interoperable solutions. The idea is that if more platforms are compatible, more people will use them. By supporting the exchange of regular and wrapped stablecoins, Saber offers a unique service because stablecoins are increasingly a feature of a cross-chain crypto environment. Saber facilitates the liquidity for all wrapped assets onto Solana, so individuals can hold assets from all other blockchains. As a result, these assets are prevalent on lending markets and asset exchanges due to Saber.

Transaction Fees

Saber lives on the Solana blockchain, which means transaction fees can be much lower than on other blockchain networks like Ethereum. Specifically, stablecoin pair swaps on Saber were subject to less than a 1% fee as of February 2022. 

Processing Speed

As a Proof of History (PoH) blockchain, Solana generally achieves a much higher throughput than the Proof of Work (PoW) Ethereum network. For example, the Ethereum blockchain can execute around 15 transactions per second, while Solana can achieve 65,000 transactions per second.

Low Slippage

Saber offered over 80 liquidity pools as of February 2022. As the largest DEX on the Solana blockchain, Saber executes swaps with minimal slippage. Slippage can occur when investors place a buy order that the current marketplace can only partially fill. As a result, a lack of liquidity causes the rest of the order to execute at a higher price. Simply put, slippage makes investors pay more than they want to.

The Saber Token (SBR)

Launched in June of 2021, the native SBR token serves two purposes on the Saber DEX platform:

• Utility: SBR holders can receive additional SBR rewards for providing liquidity to pools.

• Governance: SBR holders hold governance rights within the Saber decentralized autonomous organization (DAO) when locked and swapped for veSBR (voting escrow Saber).

Like many DeFi protocols that offer a native token, Saber utilizes SBR to incentivize engagement across its platform.

The Future of Saber: DeFi, Solana, and Cross-Chain Crypto

As Solana's first stablecoin-focused DEX, Saber integrates unique functionality within the DeFi ecosystem. By supporting the exchange of stablecoins and their wrapped equivalents and providing liquidity to hundreds of different AMMs, DEXs, products, and services, the Saber DeFi solution effectively builds Solana from the bottom up. This enhanced interoperability is essential to the industry's future growth. Combined with lower transaction costs, faster processing times, and liquidity pool staking, Saber is well-positioned to leverage the popularity of DeFi and facilitate the growth and expansion of Solana and the cross-chain crypto ecosystem. As the Saber Wars rage on for control of the liquidity markets on Solana, Saber is positioned to emerge as a dominant stablecoin and wrapped assets AMM, attract an ever increasing amount of liquidity and interest to Solana, and above all, grow Solana ecosystem projects, large and small.