Efficient Liquidity Providing via Margin Liquidity

The liquidity of the exchange is the most important factor when crytocurrency traders choose an exchange. However, the amount of liquidity provided by the liquidity providers in decentralized exchanges is insufficient when compared to centralized exchanges. This is because the liquidity providers in decentralized exchanges suffer from the risk of divergence loss inherent to the automated market making system. To this end, we introduce a new concept called margin liquidity and leverage this concept to propose a highly profitable margin liquidity-providing position. Then, we extend this margin liquidity-providing position to a virtual margin liquidity-providing position to alleviate the risk of divergence loss for the liquidity providers and encourage them to provide more liquidity to the pool. We show that our proposed margin liquidity is 8K times more capital efficient than the concentrated liquidity proposed in Uniswap V3.