Saddle Finance Review

What is Saddle Finance?

Saddle Finance is an open-source automated market maker (AMM) tailored for trading between pegged-value crypto assets like wrapped bitcoins or stablecoins. On top of the swapping function, Saddle finance also offers high-yield pools for liquidity providers and farming opportunities. Originally built on Ethereum, the protocol has later expanded on Fantom, Arbitrum, Evmos and Optimism.

Saddle Finance stems from the Stableswap codebase with the difference in algorithm implementation, which has been deployed in Solidity.

How does Saddle Finance work?

With Saddle, there are two general actions users can first take: swap or deposit. The swapping function enables users to instantly trade crypto assets whose price is pegged to an underlying asset as well as stablecoins while depositing assets into pools allows users to earn rewards as liquidity providers. 

Saddle finance’s swap function is based on liquidity pools avoiding the need to place the limit orders. Saddle’s liquidity pools deploy the hybrid trading algorithms developed by StableSwap, which combines both Constant product formula x * y = k and Constant sum formula x + y = k. 

When the liquidity pool is balanced, the algorithm functions as a constant sum formula, and in the opposite situation, whenever the liquidity pool becomes imbalanced, the algorithm switches to the constant product formula. A more detailed explanation of the hybrid algorithm can be found here. 

Saddle Finance fees are charged on all trades, which usually constitute 0.04%, which however may vary depending on the pool. 

Users who deposited their assets into Saddle’s liquidity pools, will receive LP tokens representing their share of the pool and earn trading fees. Those LP tokens may be also staked to receive additional rewards. Some of the Saddle’s stablecoin pools support flash loans, generating additional rewards for liquidity providers.

How to use Saddle Finance?

Users wishing to interact with the Saddle Finance app have to connect the wallet first. Saddle Finance wallet support includes Metamask, Tally, Wallet Connect, Unstoppable Domains, and Coinbase Wallet. 

If the goal is to swap tokens, a user should select “Swap” on the top of the navigation bar, select the assets to be swapped from one to another, enter the desired amount to be exchanged and click “Advanced” to customize such options like slippage, gas, or transaction deadline. As the final step, the user needs to click the “Swap” button and approve the transaction by paying the gas fee. 

To become a liquidity provider, a user needs to head over to the Pools section, located at the top of the navigation bar. Saddle Finance supports three types of pools: BTC, ETH, and USD, while in broader terms all pools are divided into two categories: Base pools and Metapools. 

Base pools include two or more tokens and implement the StableSwap algorithm. Metapools allow a single coin to be pooled with all the coins in another base pool. For example in one of the Saddle’s metapools, sUSD is pooled alongside the USDC/USDT/DAI stablecoin pools. Metapools allow adding a single asset to them without diluting the liquidity of the underlying base pool.

Once the pool is chosen, the user needs to click on the “Deposit” button, then type in the amount to be deposited on one or more of the assets listed in the Saddle pool. In the “Advanced Options” user customize such options as gas fees and transaction deadlines. As the final step, the user needs to confirm the transaction by clicking “Deposit” and paying the gas fee.  If the user deposits into Metapools, they have the option of depositing individual assets or depositing LP token. Users may also choose to stake their LP tokens in the farms of the partner protocols or stake them in Saddle’s incentivized pools to earn the SDL tokens.  

Developers wishing to build dApps using Saddle Finance’s open-source software may do so following this guide. The flash loan guide can be found here.

The SDL token

SDL is Saddle Finance’s governance token, with a maximum supply of 1 billion SDL. The tokens were released at the Genesis event in November 2021 and are said to be available within the period of two or three years. At this point, the SDL tokens are non-transferable for a period of up to 12 months.

The initial SDL allocation is as follows: 21% of tokens were given to the Saddle community members; 30% - to the governance treasury; 22,5% - to investors; 25,9% - to the Team members and 0,6% to advisors. 

SDL token holders may take part in Saddle Finance governance through voting on proposals via Saddle community Discourse. 

Is Saddle finance safe?

Saddle Finances smart contracts are open source and can be reviewed by the community. The protocol also runs a bug bounty program with a reward of up to $50,000.

Before a specific crypto asset is accepted into the Saddle pools, they are claimed to be subject to in-depth risk analysis. The team warns its users to be aware of the following common risks related to cryptocurrencies which are available in Saddle Finance pools. 

Sunil Srivatsa is the CEO and Founder of Saddle Finance. Sunil majored in Computer Science and Finance at Washington University in St. Louis. Before starting Saddle Finance, he worked as a software engineer at Square and Relcy, as well as in Uber where he was responsible for infrastructure security, self-driving cars, and real-time analytics. The full list of the Saddle Finance team can be found here. 

Saddle Finance was attacked by a hacker resulting in a loss of $10 million worth of ETH. On April 30, 2022 the Blockchain security company BlockSec identified and front-run the malicious activity using off-chain arbitrage bots called flashbots. BlockSec has informed Saddle Finance about the incident via a Twitter post, which resulted in a recovery of $3.8 million. According to SlowMist, the exploiter took advantage of the error in the metapool’s code for calculating the swap, which resulted in a wrong calculation of prices during multiple transactions.

Partners

To date, Saddle Finance managed to raise a total of $11.8 million worth of investments from such firms as Nascent, Framework Ventures, Polychain Capital, Electric Capital, Dragonfly Capital, Coinbase Ventures, Alameda Research, and others. 

Saddle’s open-source code has been used by many DeFi projects like Sushi, Snowball, Iron finance, Hop Protocol, and Nerve Finance. 

Saddle Finance users can also stake their LP tokens in the following projects to benefit from liquidity mining programs: Keep Network, Alchemix, and FRAX. 

Other strategic partners of Saddle Finance are DEX aggregators 1inch, Matcha, Zerion, and Paraswap, giving users exposure to Saddle’s pools directly through these platforms.

What’s next?

In the near future, the Saddle Finance team plans to introduce additional powers and benefits for SDL holders as well as expand the Saddle’s ecosystem to other blockchains. 

Links

https://docs.saddle.finance/

https://www.saddle.community/