Trader Joe is the leading Decentralized Exchange (DEX) on the Avalanche network (C-Chain). In addition to the Decentralized Exchange, Trader Joe also offers Lending/Borrowing capabilities and a platform that enables new projects to perform IDOs (Initial DEX Offering) more sustainably. With currently $1.2 Billion in Total Value Locked, Trader Joe is the 3rd largest DeFi protocol on Avalanche C-Chain.
Trader Joe’s daily trading volume, as of April 2022, ranges between 100 and 200 million dollars, with its peak in November 2021 reaching almost 1 billion dollars. This article will provide you with further insights on what Trader Joe is and how Trader Joe and its DeFi platform work.
What is Trader Joe?
One of the essential components of every public blockchain network is the Decentralized Exchange (DEX). Whether you are on a blockchain network for gaming, DeFi, SocialFi, or any other reason, you will eventually need a DEX to exchange one token for another. For Ethereum, Uniswap is the go-to DEX, for BNB Chain is Pancakeswap, and for Avalanche is Trader Joe.
Trader Joe is based on the Automated Market Maker (AMM) model developed by Uniswap. More precisely, Trader Joe uses the second version of Uniswap’s AMM model. The DEX was developed and deployed on Avalanche in June 2021, by Cryptofish and 0xMurloc. Since then, the team has been innovating, delivering, and improving their platform which led to Trader Joe becoming the main DEX on the Avalanche network.
In brief, Trader Joe is a Decentralized Exchange (DEX) that is open for anyone to trade, list tokens, provide liquidity, and earn yield on idle capital. It allows users to maintain control over their funds and, with smart contract technology, facilitates trading without any intermediary on Avalanche C-Chain.
How does Trader Joe work?
Trader Joe, similar to other Decentralized exchanges based on the AMM model, relies on two main actors, the Liquidity Providers, and the Traders, as well as the Automated Market Maker model.
The first actor is the Liquidity Provider (LP). Liquidity providers deposit their funds in the protocol’s liquidity pools to create liquidity for the exchange. In exchange, the liquidity providers earn a proportion of the fees collected from the transactions executed on the exchange. More precisely, there’s a 0.3% fee associated with each executed transaction, out of which 0.25% goes to liquidity providers, while 0.05% is held by the team for future developments.
In addition to the collected fees, Trader Joe, in collaboration with other projects on the Avalanche network, provide additional rewards to liquidity providers in the form of JOE tokens or other protocol’s native token. This is done in order to incentivize liquidity provision for certain protocol tokens.
The second main actor is the Trader. Traders are the ones who use the main functionality of the exchange – trading. Without Traders, there won’t be any trading activity, therefore, not enough incentives for liquidity providers to deposit their funds, and no reason for projects to be listed on the exchange. Hence, traders are as important as the liquidity providers for a decentralized exchange.
The last important component of an AMM DEX is of course the Automated Market Maker algorithm or mechanism. In simple terms, AMM is an algorithm or a pricing formula, built within the liquidity pools. Based on the liquidity provided, supply and demand, this algorithm defines the prices at any given time. To ensure the prices are consistent with other exchanges, AMM relies on Arbitragers.
To learn more about how Automated Market Makers (AMM) and liquidity pools work, check out the following article here.
What is Banker Joe?
Banker Joe is simply the codename of Trader Joe’s lending capabilities, which is based on the model developed by Compound. Decentralized lending offers a lot of opportunities for DeFi users, from lending idle capital and earning rewards, to leverage trading or borrowing assets to exploit other yield farming opportunities.
Similar to the AMM DEX capabilities, the Banker Joe as a lending platform, is built with smart contract technology to operate in a decentralized environment, the Avalanche C-Chain. Smart contracts are responsible for facilitating the lending and borrowing processes provided by the platform, eliminating any human intervention. All terms & conditions are coded into the smart contracts and are open to market participants to review.
In addition, market participants don’t have to go through an onboarding process to start using Banker Joe. As long as they have sufficient funds deposited in their non-custodial wallet, they can connect to the platform and start lending or borrowing funds.
How does Banker Joe work?
Banker Joe’s lending protocol works in a very similar fashion to its AMM DEX capabilities. It relies mainly on two actors, the Suppliers or Lenders as well as the Borrowers.
Lenders or Suppliers are the individuals depositing their funds into the liquidity pools of the protocol, creating liquidity for the various lending markets. In exchange, Suppliers earn a portion of the interest paid to the protocol by the individuals borrowing money from the pool – the borrowers.
Borrowers are the individuals borrowing money from the protocol. Any individual can borrow funds from the protocol as long as they provide some sort of collateral in the form of digital assets. The amount of funds you are allowed to borrow depends on the so-called “collateral factor”, and differs from asset to asset. The collateral factor is defined as a percentage of the total value of your available collateral. For riskier assets, the collateral factor is lower compared to lower-risk assets.
For instance, if a borrower provides 1 ETH as collateral and the collateral factor on ETH is 65% then he is allowed to borrow funds equal to 0.65 ETH. There’s no defined timeline on by when the loan should be repaid. The loan accrues interest over time that borrowers eventually have to pay. In case borrowers fail to repay the loan, or the price of the collateral drops below the value of their debt then it will lead to a liquidation event. In such a case, the collateral will be sold to the market to repay the loan.
In addition to the interest paid by the borrowers, suppliers can also earn additional rewards in the form of JOE tokens or other Avalanche native tokens. Similar to the AMM DEX, this is done to incentivize market participation. These additional rewards are sometimes also given to borrowers.
You should also check Banker’s Joe whitepaper for more information associated with its functionality.
What is Rocket Joe?
As per Rocket Joe’s whitepaper, Rocket Joe is a token launch platform where participants bid to provide liquidity for newly issued tokens. The platform enables price discovery and token distribution over a period of time before tokens are issued to the public market while discouraging front-running by bots. In addition, it improves liquidity sustainability by allowing issuing protocols to acquire their own token liquidity.
Not to be confused with launchpads, Rocket Joe does not offer the capabilities of a launchpad, which includes among others, raising funds, token distribution, and vesting schedules. Instead, Rocket Joe is a liquidity bootstrapping platform that enables protocols to generate liquidity at token generation events, and at the same time prevent bot activity. Rocket Joe is a complementary platform to the traditional IDO launchpads.
How does Rocket Joe work?
In order for any individual to participate in any DEX listing leveraging Rocket Joe, they have to stake their JOE tokens. By staking JOE tokens, you can earn rJOE tokens. The more JOE tokens you stake, or the longer you stake your JOE, the more rJOE tokens you can earn. rJOE tokens are then used as credit to participate and get an allocation in the various Rocket Joe listing events.
The overall process of Rocket Joe is then divided into three consecutive phases: “Deposit”, “Withdrawal”, and “Launch”.
During the initial phase, the “Deposit” phase, the participants decide the amount of AVAX they wish to allocate in a particular listing. The maximum amount participants can allocate is linked to the amount of rJOE tokens they accumulated. During this phase, someone can decide to withdraw his AVAX, however, he will have to pay a fee (up to 50%). The fee is getting higher as the time gets closer to the end of this phase. This is done to prevent price manipulation.
The second phase codenamed the “Withdrawal” phase is simply a 24-hour period that participants are given to decide if they wish to proceed with the sale. In case they decide they don’t want to participate for whatever reason, they can do so. Participants which decide to withdraw will have to pay a penalty or a fee fixed at 20% of their deposits.
Finally, at the “Launch” phase, Rocket Joe will pair the amount of AVAX tokens received from the sale with a pre-defined amount of protocol tokens and facilitate the listing on Trader Joe. All participants will then receive LP tokens (liquidity pool) based on their share of the launch event pool. The LP tokens are then locked for up to 7 days. This implies that the participants cannot exchange their LP tokens during this period. The LP tokens though are deposited in Trader Joe’s liquidity pools and earn trading fees as well as any liquidity provision incentives that Trader Joe or the issuing protocol may provide.
After these three phases, then the tokens are unlocked and participants can either decide to leave them in the exchange for additional rewards or withdraw them, exchange them for other tokens or HODL them.
Trader Joe (JOE) token utility and Staking
Someone can stake JOE in one of the three different staking pools to unlock additional functionality on the exchange or earn additional rewards.
For the first staking pool, someone can earn a portion of the fees earned on the platform in the form of a stablecoin. Staking your JOE in this pool converts them into sJOE. The second staking pool is associated with Rocket Joe. Someone can earn rJOE by staking JOE in this pool, which can then use as credits on Rocket Joe.
The final staking protocol unlocks you a boosted farming reward on a pre-selected liquidity pool. By staking in this protocol someone can accumulate veJOE, and based on his share of veJOE receives additional rewards on pre-selected farms. For this to work, someone has to both become a liquidity provider on these special pools and stake JOE to generate veJOE.
In addition to these three use-cases, JOE will also be used as a governance token in the future, where the community will be able to recommend changes to the protocol.
How to buy Trader Joe (JOE)
If you wish to buy $JOE, the best place to do so would be Trader Joe itself. However, JOE also trades in some major Centralized Exchanges like Binance and Gate.io if you wish to purchase from there.
Trader Joe, as of April 2022, being the most prominent decentralized exchange on the Avalanche network, is not by coincidence. The platform has a simplistic and easy-to-use User Interface, making it especially attractive to new DeFi users. At the same time, the team has constantly been innovating, improving their platform, and delivering one feature after the other since the protocol’s launch.
Considering the frequency by which the team is delivering new features on the platform, we should expect more from Trader Joe in the near future.