❓FAQ

Frequently Asked Questions

Q1: Is the protocol's efficiency limited by the available borrowing power of the Ouija pool, impacting liquidity and competitiveness for certain swaps? What about the liquidation risk and reliance on the security of lending protocols?

A1: Yes, Ouija's efficiency can be limited by the available borrowing power. However, the protocol is designed to be capital-efficient and competitive for swaps between well-established, unpegged assets. Higher TVL in Ouija’s liquidity pool would allow the protocol to set lower slippage parameters to gain competitive edge over the market. Conversely, the liquidation risk, especially at lower TVL’s can be mitigated by conservative slippage parameters and timely governance actions. As for security, Ouija relies on reputable, audited lending protocols to minimize risk.

Q2: How much trust do LPs need to put in Ouija's smart contracts and health ratio monitoring?

A2: LPs need to put a certain amount of trust into Ouija's smart contracts and the health ratio monitoring mechanism, no more than any other DeFi platform. Continuous improvement and responsiveness from the Ouija team and any contributors, as well as contract audits can ensure the protocol remains secure and trustworthy. Additionally, governance will seek to establish long-term risk parameters to make sure that in the short-term, LPs remain solvent.

Q3: What are the concerns with relying on money markets?

A3: Relying on money markets introduces potential risks, such as exposure to bad debt, oracle failures, liquidations, and heavy gas costs. However, Ouija mitigates these risks by leveraging audited, time-tested, and responsibly governed lending protocols.

Q4: Can you clarify the arbitrage example involving Alice? (whitepaper example)

A4: In the example, Alice receives $95 instead of $100 due to slippage. An arbitrageur can then execute a reverse swap, acquiring $100 worth of assets for just $95. This action balances the pool and rewards the arbitrageur for their contribution to the protocol's health.

Q5: Are withdrawals based on utilization, requiring capital to be left in the pools at all times?

A5: Withdrawals consider the utilization and health of the pool. The protocol is designed to maintain a certain level of capital to ensure its efficiency and safety, avoiding scenarios where the pool's health is significantly compromised. At perfect equilibrium, all capital should be withdraw-able.

Q6: Does relying on slippage to maintain pool health mean traders may sometimes get worse execution through Ouija?

A6: Yes, in certain situations, traders might experience worse execution due to slippage. However, the slippage mechanism is essential to maintain the pool's health and avoid excessive risks. In most cases, these adverse rates should be quickly arbitraged due to the availability and convenience of flash loans.

Q7: How does Ouija compare to other platforms like Curve or Uniswap v3?

A7: Ouija offers a unique value proposition for swaps between well-established, unpegged assets. While it may not be the preferred choice for all swaps or scenarios, its capital efficiency and innovative approach provide a competitive alternative to platforms like Curve and Uniswap v3.

Q8: How can Ouija perform swaps and collect fees from all tokens available in the lending protocol, even if it only holds one token?

A8: Ouija leverages on-demand liquidity from the lending protocols it integrates with. By depositing collateral and borrowing the required tokens, it can execute swaps and collect fees from all tokens supported by the lending protocol, regardless of whether it holds those tokens in its pool.

Q9: What advantages does Ouija offer for liquidity providers compared to Uniswap?

A9: In Ouija, unlike Uniswap, liquidity providers don't need to speculate on the best pairs for providing liquidity. Instead, they can deposit any single token accepted by the lending protocol. This means that any swap going through Ouija results in a fee share for the liquidity provider, regardless of the specific token pairs involved. This flexibility and increased scope of earning potential make Ouija an attractive option for liquidity provision, even when considering the risk of impermanent loss associated with a pool of volatile assets.

Q10: How does Ouija address the issue of impermanent loss, as at times the liquidity pool can be left holding a 'basket' of non-stable assets?

A10: Ouija is designed for liquidity provision of well-established, unpegged assets and offers high capital efficiency. This allows LPs to earn fees from a wider range of assets, while maintaining a relatively lower amount of capital in the pool. While it's true that there may be a higher risk of impermanent loss in Ouija due to the nature of the assets involved, Ouija's slippage mechanism helps to maintain pool health and mitigate some of the risks associated with impermanent loss