Multi-Tier Starfish Topology (MTST)
To summarize, the Starfish Topology provides two major advantages over other swaps:
- Significant improvement in TVL-utilization by reducing liquidity dispersion
- Allows onboarding new tokens with zero collateral other than protocol tokens (e.g. No new USDC is needed to pair with a new token to provide liquidity)
However, this topology can be even further enhanced by moving to a Multi-Tier Starfish Topology (MTST) as follows:
Mutli-Tier Starfish Topology
In MTST, All external tokens supported by the swap are put into 4 buckets and paired with a separate starfish tokens:
Tier 1 (Paired with RADIO): Stable Coins (e.g. USDC, DAI, USDT, UST etc) and Native Blockchain Currencies (e.g. ETH, MATIC, AVAX, BNB etc). Tier 1 tokens are paired with RADIO. This is expected to be the least volatile Starfish.
Tier 2 (Paired with SHACK): Blue Chips (e.g. LINK, MAI, USV, AAVE etc). Tier 2 tokens are paired with SHACK. This tier is expected to be more volatile than Tier 1 but less volatile than the remaining 2 tiers.
Tier 3 (Paired with BUILD): Mid-stage Protocols (e.g. MANA, GRT, ENJ etc). Tier 3 tokens are paired with BUILD. This tier can be quite volatile over time.
Tier 4 (Paired with LAUNCH): Startups (e.g. ECOMM.io and more). Tier 4 tokens can have even wilder fluctuations than the previous 3 tiers, and are paired with LAUNCH.
Tier 4(a) (Paired with special tokens): Large Startup Pairs (e.g. ECOMM.io, but with $50k or more in initial liquidity) are paired with a special token created just for that project, to give them their own sandbox in which they are protected from volatility in the rest of the protocol. For example, PEPE BUCKS on Cronos is paired with a special token, MEMES, which is then paired with BUILD.
MTST Leapfrogs single starfish topology in at least 3 important ways:
Benefit #1: MTST increases flexibility to freely add new tokens while keeping the system robust
Sudden and drastic changes in the price of a limb token in the starfish topology can impact the price of the center token. In a single starfish design where all tokens are paired to RADIO, this issue limits the ability to freely add new tokens because the system is somewhat sensitive to its weakest performing limb tokens. For instance, if one of the limb tokens completely fails (to zero), all other limbs of the starfish will lose some of their liquidity due to bots arbitraging the price of RADIO across limbs.
In complex systems theory, this is often referred to as robustness of a system. In Taguchi method of quality engineering, for example, the robustness of a system is defined as "the state where the technology, product, or process performance is minimally sensitive to factors causing variability". (https://en.wikipedia.org/wiki/Taguchi_methods).
So to increase the robustness of RadioShack's exchange (as Taguchi puts it), we essentially compartmentalized volatility in the system.
- Stables and Native Coins go into the RADIO starfish. The RADIO starfish itself is subject to volatility from the rest of the system only via one limb -- the RADIO-SHACK limb.
- The SHACK starfish consist of blue chip tokens only. It's subject to additional fluctuations from more volatile tokens only via one limb -- the SHACK-BUILD limb.
- The BUILD starfish consists of mid-stage, somewhat proven tokens only. It's subject to volatility from the most volatile tokens via one limb only -- the BUILD-LAUNCH limb.
- The tokens in the LAUNCH starfish can be wildly volatile, but their overall impact on BUILD, SHACK, and RADIO starfishes are expected to be softened with 1, 2, and 3 degrees of separation respectively.
Benefit #2: MTST allows for optimal swap fee allocation
A swap between two limb tokens (example: USDC to ETH) in the RADIO starfish goes through 2 hops and therefore has the lowest swap fee (each hop is set at 0.1%). This is logical because these tokens are highly liquid tokens with lots of swap options available outside of RadioShack. A swap from USDC to a blue chip token (in the SHACK starfish) includes one additional hop and therefore costs slightly more. This is also logical. A swap from USDC to a limb token in the BUILD starfish incurs an incremental increase in the swap fee which is also consistent with such swap being less commoditized. Finally, swapping to a limb token on the LAUNCH starfish is the least commoditized and therefore, as logic dictates, incurs one incremental step more fee than the previous starfish.
Benefit #3: MTST minimizes loss from cross-chain arbitrage
The next section is dedicated to cross-chain strategy in the Multi-Tier Starfish Topology. Briefly, the RADIO token is linked to Stables and major blockchain currencies. So the fluctuations are expected to be less across chain. This makes it the perfect token for a cross-chain router (where RADIO is exchanged 1 for 1 across chain). SHACK, BUILD, and LAUNCH tokens however are linked to various tokens across chains and can vary in price drastically from chain to chain.