Instantaneous Liquidity Framework

Overview¶

A fundamental challenge in tokenizing alternative assets is managing the duration mismatch between user expectations and asset settlement. While permissionless token holders typically expect instantaneous liquidity, the underlying real-world or alternative assets often feature limited subscription and redemption windows, alongside inherent settlement delays.

To bridge this gap and provide continuous liquidity for its permissionless token, the AXC protocol utilizes a dedicated Instantaneous Liquidity Framework.

Note that the instantaneous liquidity framework is only applicable to distributed assets (permissionless).

Version 1: Liquidity Reserve, The Netting & Queue Model¶

In our initial release (v1), the liquidity framework operates on a straightforward netting model designed to process standard and instantaneous withdrawals efficiently.

• Liquidity Reserve & Netting Dynamics: Incoming deposits are initially routed to the liquidity pool before being deployed to purchase the underlying assets. The protocol allocates 10% of total deposits into secure, onchain lending products, creating a readily available liquidity pool to facilitate instant redemptions. These incoming funds are actively used to net out and fulfill concurrent withdrawal requests.

• Capacity Limits & Queuing: Instantaneous v1 withdrawals are processed immediately, subject to the available capacity of the liquidity pool. If aggregate withdrawal requests exceed the current reserves, any excess requests are automatically transitioned into a redemption queue.

• Replenishment: Queued withdrawals are processed as soon as the underlying assets can be liquidated to replenish the reserve.

Note: For specific settlement timelines regarding queued Standard Withdrawals versus Instantaneous v1 Withdrawals, please refer to the Deposit and Withdrawal Timelines section on the product page for the product of interest.

Version 2: Dynamic Liquidity Mechanisms¶

To prevent scenarios where the liquidity reserve is fully exhausted leaving token holders unable to immediately exit their positions, AXC is developing advanced liquidity mechanisms for Version 2.

The primary objective of v2 is to guarantee continuous access to instant liquidity, utilizing market determined discount rates when standard reserves are depleted. We are actively exploring three core mechanisms to achieve this:

• Dutch Auction Mechanism:
  Implementing a time-varying discount model where token holders can opt for immediate liquidity at a dynamically adjusting discount rate. The discount scales based on the time required to satisfy pending withdrawals.

• Direct Fund Liquidity:
  Establishing a framework that allows the underlying fund itself to immediately absorb withdrawal requests and provide instant liquidity at a predetermined discount.

• Third-Party Whitlisted Liquidity Providers (LPs):
  Opening the redemption process to external market participants. This mechanism would allow third-party whitelisted LPs to step in and fulfill user withdrawal requests in exchange for an arbitrage or discount opportunity, deepening the overall liquidity of the protocol.