Clipper

How Clipper works

Clipper is a DEX that is designed for smaller liquidity pools. This is done to counter the negative effects of liquidity overprovisioning on retail traders. Most automated market makers (AMMs) desire as much liquidity as possible because this means reduced slippage (the amount by which the exchange price worsens as the trade size increases) for traders. However, there are diminishing returns after a certain point, particularly for small trades. Further, the more liquidity in an AMM, the more fees or yield it generally needs to earn in order to attract more liquidity. As a result, large traders benefit largely at the expense of small traders. Clipper achieves this by minimizing trading, slippage and gas fees. The protocol minimizes trading fees by putting a cap on the size of the liquidity pool. Slippage is minimized through a new AMM invariant and consolidating liquidity for any N number of assets (versus the traditional two-asset pools). Clipper contracts have also been engineered to use less gas versus equivalent trades on competitor DEXs like Uniswap. The end result is that smaller trades on Clipper incur much lower trading fees that even outweigh the higher slippage (due to the smaller pool size). Conversely, trades that are large relative to the pool size will incur higher slippage that outweighs the lower fees. Clipper also minimizes the risk of impermanent loss through the use of an off-chain oracle that updates its prices without needing arbitragers to maintain the pool. The DEX is highly sensitive to arbitrage flow given the small pool size. This means every unit traded in the same direction increases slippage exponentially. Thus, Clipper uses the oracle to determine its prices and uses slippage to deter traders from significantly arbitraging prices in order to give the oracle sufficient time to update.

Providing liquidity on Clipper

Clipper has two unique methods to provide liquidity: Clipper Pools and Clipper Coves. Clipper Pools are multiasset liquidity pools consisting of core assets. Clipper LPs must whitelist their wallet address in advance before they can deposit liquidity. Deposits are also limited in size and locked for a mandatory period. Clipper Coves are an ecosystem of user-generated liquidity pools composed of one cove asset and ClipperLP tokens to enable the trading of any asset through Clipper.

How you make money on Clipper

You earn trading fees on Clipper by whitelisting your wallet address and depositing core assets into the Clipper Pools. Trading fees collected as an LP are added to the overall value of your deposit. LPs also collect fees from every transaction made on the protocol, regardless of the asset you initially deposited. You can also deposit cove assets into a cove to receive ClipperLP tokens in return to earn yield.