Powered by Formula Market Maker (FMM) technology to lock in gains from volatility harvesting
We’re excited to introduce Blade, the No Impermanent Loss (IL) AMM purpose-built to improve DeFi liquidity provision.Designed with a next-generation architecture, Blade eliminates impermanent loss, maximizes LP yields, and empowerstraders and networks.
The Root Cause of Impermanent Loss: CPMM
Traditional DEXs rely on Constant Product Market Makers (CPMMs). The constant product formula (x * y = k) ensures that an AMM pool always maintains a product balance of token reserves. When prices move, arbitrageurs trade with the pool to bring the AMM’s price in line with the external market price. This means the AMM continuously sells the outperforming token (for example, ETH) into the underperforming token (for example, USDC) at an outdated price.
This constant rebalancing at an outdated price locks in a loss every time the price moves from the initial ratio. These losses accumulate trade-by-trade and are irreversible unless the price returns to its exact starting point. This is the root cause of impermanent loss (IL) and a significant drag on LP returns.
Enter Blade: Proven Efficacy
Blade’s Formula Market Maker (FMM) fundamentally differs from CPMMs. Instead of relying on a liquidity pool design with the x*y=k formula, Blade is a managed liquidity vault that uses real-time, data-driven pricing aligned with external markets to update prices dynamically and between blocks. This design leaves no room for arbitrageurs to exploit price discrepancies between on-chain and off-chain markets. Impermanent loss doesn’t exist in our FMM design.Blade’s FMM continuously rebalances on every block using real-time prices, ensuring that trades always reflect fair market values and preventing arbitrageurs from exploiting stale prices. In a mean-reverting environment — where prices tend to bounce back toward their average — Blade even captures gains by systematically buying low and selling high as prices swing. Since many blue-chip crypto assets like Bitcoin have matured into mean-reverting behavior, this design consistently captures volatility profits. This approach captures market volatility, allowing LPs to harvest yields repeatedly and build sustainable, compounding returns, especially in volatile markets. This accrues even without fees, which means Blade can offer normal traders a better deal than CPMMs.
To demonstrate Blade’s effectiveness, we applied a Dynamic Rebalancing Portfolio (DRP) model to compare returns against traditional CPMMs using daily ETH-USD price data from 1/1/2024 to 11/15/2024 (both modelled with zero fees). The analysis showed that DRP achieved an annualized return of 33.67%, outperforming the CPMM’s 26.66%, thanks to its between-block rebalancing that uses real-time market prices to prevent arbitrage drains. Daily comparisons revealed that DRP’s returns consistently exceeded CPMM’s by 0.01 to 0.10 percentage points per day, highlighting how DRP’s dynamic strategy systematically captures market volatility, especially in crypto’s increasingly mean-reverting environment. These results confirm DRP’s effectiveness in delivering superior, compounding yields, making it a compelling choice for LPs seeking sustainable returns in DeFi.
How Blade Works
Users can swap and provide liquidity like in traditional AMM, while Blade’s FMM ensures trades and pool values reflect fair market prices, capturing daily volatility and systematically locking in yield.
Here’s a breakdown of how Blade’s rebalancing strategy works using a simple, hypothetical scenario:
Initial Investment A user starts with a total portfolio of $2,000, split evenly between ETH and USDC:
$1,000 in ETH
$1,000 in USDC
Market Movement On the next block, the price of ETH doubles. This increases the value of the ETH portion to $2,000, while the USDC portion remains at $1,000, making the total portfolio worth $3,000.
The portfolio is now unbalanced: 66% ETH, 33% USDC.
Blade’s FMM detects the imbalance and automatically rebalances the portfolio by selling a portion of the higher-valued ETH and converting it into USDC, restoring a balanced 50/50 allocation:
$1,500 ETH
$1,500 USDC
Price Reversion
Later, the price of ETH falls back to its original value. Without Blade’s rebalancing, the portfolio would have dropped back to $2,000 — the same as the initial investment.
However, because Blade rebalanced the portfolio earlier and locked in gains, the final value is higher—$2,250—representing a 12.5% gain over the initial investment. Note that the CPMM would not have earned any profit in this case because trading at stale prices would have eaten up all the gains.
Result
By rebalancing at the right time, Blade helps LPs systematically capture yield from market volatility instead of suffering impermanent loss from constant, trade-driven rebalancing.
Refer to the accompanying diagram for a step-by-step visual explanation of Blade’s rebalancing process in action.
Blade: Redefine What’s Possible in Liquidity Provision
Blade’s FMM architecture unlocks benefits that traditional CPMM-based AMMs simply can’t provide, including continuous real-time pricing that prevents arbitrage drains, block-by-block rebalancing that captures volatility gains, and protection against impermanent loss — all of which redefine what’s possible in DeFi liquidity provision.
No Impermanent Loss: Aligning pool prices with external markets in real time eliminates the structural risk inherent in CPMM-based AMMs.
Precision Pricing: Off-chain data feeds and on-chain proofs ensure traders get fair market prices and LPs avoid arbitrage drains.
Dynamic Rebalancing: Smart, data-driven rebalancing only happens when needed, capturing volatility profits without constant churn.
Trader-Friendly: Lower slippage and fair execution reduce hidden costs and create a more attractive trading experience.
Network Growth: Increased TVL, transaction volume, and ecosystem activity drive network growth and competitiveness.
Katana - Ready to Power the Liquidity Flywheel
Blade delivers fair prices for traders, consistent yields for LPs, and deep liquidity that grows TVL without the risk of impermanent loss. Its dynamic, data-driven FMM architecture captures market movements intelligently, turning volatility into opportunity rather than risk. This gives LPs reliable, compounding yields and ensures seamless, efficient trading across blue-chip assets. Built with Katana in mind, Blade is fully compatible with the ecosystem’s goals of maximizing capital efficiency and driving sustainable liquidity across networks, ensuring that both traders and LPs are Katana-ready from day one.
