Buy and Sell
Savers can buy and sell SWEEP from an AMM on each participating blockchain.
Savers can buy SWEEP with fiat-redeemable stablecoins such as USDC, USDT, and BUSD. Borrowers can use the stablecoins in DeFi, or exchange the fiat-redeemable coins for USD that is wired to an investment account.
Sweep protocol gives savers a stable/stable price curve by posting concentrated liquidity to a Uniswap V3 AMM.
AMM transactions are convenient for small buyers. They are convenient for software, protocols, and wallets that are managing their cash with "smart sweep" actions. We believe that these software-managed systems are likely to be the primary consumers of a DeFi instrument like SWEEP.
The Sweep system may experience days when everyone wants their money back and sells SWEEP. In this case, the SWEEP coin may sell at a discount, forcing losses on people who must sell immediately. We view this as an important shock absorber.
The protocol goal is to minimize any discount. SWEEP buyers should be able to see when they will get their money back through redemption of investments. In the first version of SWEEP, all of the investments should be redeemable within 7-10 days. This will support demand for SWEEP. If an arbitrageur can buy SWEEP for 0.9965*target price, and it repegs to the target price in one week, the arb will make a 20% annualized return.
SWEEP can sell at a premium if a lot of savers want to move money into SWEEP at the same time. This can happen in a liquidity crisis if savers buy SWEEP because they view it as a low risk, safe haven asset. It can also happen if bankers decide to de-leverage and repay their SWEEP. As SWEEP returns to the target price, it will effectively pay a negative interest rate. The high price and negative interest rate may incentivize bankers to mint SWEEP.
Borrowers may need large transactions to sell newly borrowed SWEEP, or buy back and repay SWEEP. Stabilizers give Borrowers functions for trading SWEEP and USDC at the current target price. This allows Borrowers to reduce transaction costs by buying or selling the resulting SWEEP in the market of their choice, at the time of their choice.
AMM transactions become expensive for larger transactions. Some of the costs include:
Cash drag: Sweep protocol has an incentive to maximize the amount of interest-earning assets, and to minimize the amount of USDx that is held inside the system. The USDx in an AMM is not invested in interest earning assets. The protocol has an incentive to minimize the amount of USDx in AMMs.
Slippage: With the resulting small liquidity pool, large transactions need to pay a change in price or "slippage".
MEV: Block builders will amplify the slippage to harvest MEV
LP losses: LPs make transaction fees. However, they are also forced to take the losing side of directional trades. This is not a significant cost for a stable/stable swap like SWEEP/USDC. This swap will normally make a profit for LPs through transaction fees. However, LPs run the risk of losses from a stablecoin depeg, which is a perceived risk for some stablecoins.
TODO: Sweep protocol will run a weekly dutch auction to handle large orders. A dutch auction can match large orders without costs from cash drag, slippage, MEV, or "taker" LP losses.
The (future) dutch auction will run as part of the weekly Balancer process.
Last modified 4mo ago