1. In-game AMM
The official document mentions that the vending machines in the game use the AMM model for transactions.
That is, X*Y=k
X: In-game item, such as a sword
Y: In-game currency, $LUAUSD
K: constant, for example, 100
What does X*Y=k mean?
That is, the number of great swords * the amount of currency in the pool = constant
For example, the official initially provided the market depth of 10 big swords and 10 $LUAUSD for the vending machine (AMM).
Then 10*10=100, K is 100.
How much does it cost for a user to buy a big sword at this time? 1 $LUAUSD? No.
When a user buys a sword and puts in 1U, 9 swords*11U=99, which is not equal to 100.
So we need to use 100/9=11.11U
11.11-10 (originally there were 10U in the pool) = 1.11
Therefore, users actually have to spend 1.11U to buy a sword that looks like 1U.
The product of the two assets is a constant, which is #AMM
2. DEFI outside the game
1. Token Concept
$LUA: Lumi Finance native token, bought on the official DEFI platform.
$LUAUSD: Lumi Finance's ecological stablecoin, a universal token for making props and trading in the game. Stake $LUA to obtain it, or buy it with stablecoins from Curve.
$LUAOP: Option, you can buy $LUA at the FloorPrice. Stake $LUA or $LUAUSD to obtain.
$LUAG: Governance token, pledged to be converted into $veLUAG, can get a share of Lumi ecosystem fees. Provide $LUAUSD liquidity, trade $LUA, open boxes, airdrop activities, etc.
2. LUA’s DEFI process
Entry: U ===> $LUA
Staking: $LUA ===> Annualized return $LUAOP + minting $LUAUSD
Reinvestment: $LUAOP + USDT (bottom price) ===> $LUA
$LUAUSD ===> $LUA (Reinvestment Staking)
$LUAUSD ===> LP (directly pledge to provide liquidity)
Take profit: $LUAOP + USDT (bottom price) ===> $LUA ===> U
Two points to note:
$LUA buy 3%, sell 10%, very high slippage
The $LUAOP produced must be claimed within 48 hours, otherwise it will disappear.
3. Dual-Pool Dual-Price Mechanism
LUA has two prices, market price and floor price, market pool and floor pool.
Mainly, it introduces an MFR coefficient, which can be understood as the ratio of the market pool to the floor pool.
When a user buys $LUA, liquidity (which can be understood as the U in the user's hand) will first fill the market pool until the MFR reaches a certain target value, and part of the liquidity of the market pool will flow to the floor pool. At this time, the floor price will rise, and the target value will move up a little. So you will find that many people buy LUA but its price has not risen much, because liquidity is pulling the prices of the two pools, and the increase is slow.
When no one buys LUA and the MFR target value is not triggered within 24 hours, it will become a little less. Each time it decreases, the liquidity (U) of the market pool will be transferred to the floor pool, and the price of the floor pool will rise.
The above process is like the boss slightly reducing the task amount when he sees that the salesperson has not achieved the target sales volume. When he sees that the salesperson is very capable, he raises the target sales volume.
Regardless of whether anyone buys LUA or not, the floor pool will keep adding liquidity and the floor price will keep rising until the market price equals the floor price, and the interaction between the two pools stops.
Those who are interested in research can look at the official documents, but the official did not provide key data, they just gave examples.
https://lumi-finance.gitbook.io/docs/
4. Over-collateralization
Why does the official keep emphasizing that the $LUA economic system is safe?
Because it is over-collateralized
First, we set up a scenario with a market price of 5U and a floor price of 2U
It takes 5U to buy one LUA. After staking it, you can only borrow 2U of stablecoins.
Therefore, there is 3U of liquidity in the pool, supporting 2U of $LUAUSD issuance, which is very safe.
At this point, even if a buyer uses 1 $LUAOP + 2USDT to buy 1 LUA and then sells it for arbitrage
Liquidity in the pool: 3+2-5=0, but the slippage is 10%, so there is still 0.5U left (maybe more), still safe
When is it unsafe?
In the first case, a user’s tokens were not purchased and were sold directly within the system. In this case, there is nothing that can be done, not even God can help.
In the second case, when the market price is the same as the floor price, there is no over-staking, and the liquidity of the market pool is gone. Therefore, if you sell the coin, the liquidity in the floor pool will be directly consumed, and when it is consumed, it will be Game Over. Of course, this process will not be completed quickly, and if the gas generated during the transaction flows back into the pool, it will continue to support the operation of the system.
Regardless of the theory, when the price of the currency falls and when users lose confidence, even the most powerful DEFI design will fall.
Thank you for reading this far. If the article is helpful to you, please give it a triple like. I’d be very grateful.
Official link: https://lumiterra.net/
Official DEFI: https://app.lumi.finance
