Opportunities & Risks


Polaris DEX, a decentralized exchange (DEX), was forked from Balancer v2. The development of Polaris DEX was divided into two phases, with Phase 1 being the Tomb Finance fork on the Aurora blockchain. In Phase 2, Polaris DEX became a one-stop decentralized trading and investment platform on Aurora, powered by Balancer v2. In this article, we will introduce the different strategies that can be used on the Polaris DEX protocol, as well as the associated risks.

Types of Strategies for Investing into a Protocol and Risks

Swap / Trading Strategy

Traders can exchange or trade cryptocurrencies using the trading section of the Polaris DEX protocol, choosing from different strategies, such as fundamental or technical analysis, to make profitable trades.

Currently, Polaris DEX only offers classic swap as the option for trading cryptocurrencies on its platform. This feature allows for the instant execution of trades, with liquidity provided from liquidity pools. This feature is beneficial for traders who want to instantly exchange their cryptocurrencies in a decentralized environment without the need for KYC.

However, as part of the Road Map for 2023, Polaris DEX plans to incorporate Trad-fi functionality in Q2, such as limit order, stop loss, trailing stop, and take profit order, as well as perpetual futures in Q3, which opens the door for more traders and the possibility to utilize Polaris DEX for trading in multiple ways.

There are also some risks associated with trading on Polaris DEX. Currently, the main risk of swapping is the high price impact when swapping a relatively small value of some assets. Traders should always be careful and monitor the price impact before making a swap.

Earning / Liquidity Providing Strategy

The strategy for an LP will depend on risk tolerance, investment goals, and level of involvement. Liquidity providers should carefully consider the risks and rewards of each strategy and choose the one that best suits their needs.

The safest strategies for providing liquidity are those where there is as little impermanent loss as possible; i.e., the assets should be as correlated in price as possible, but at the same time, they must generate sufficient income from swap fees on the platform.

After receiving LP tokens, users can boost earnings by staking the LP and earning extra rewards in xPOLAR.

Liquidity providing strategies can generally be divided into two categories: passive and active.

Passive liquidity providers invest to accumulate profits from trading fees, choose the most correlated pairs possible, and do not generally actively monitor their positions or impermanent losses.

Active liquidity providers, on the other hand, monitor the current market situation, actively manage their positions, and may choose even more speculative pools while trying to avoid high impermanent losses.

The Crypto Correlations Matrix is a really helpful tool, which can help us to determine how much two assets are correlated. Then again, you are unlikely to find low market cap assets here.

Liquidity providers should also be aware of the risks associated with liquidity providing strategies, including smart contract issues, risks of market volatility, and impermanent loss.

The risks of staking your LP are the same as for liquidity pools, especially smart contract issues.

Sunrise staking / Bonds Strategies

On Polaris DEX, users have the option to employ strategies from Phase 1, when Polaris was created as a fork of Tomb Finance. These strategies involve staking SPOLAR in Sunrise, which issues new assets into circulation if Polaris' algorithmic pegged assets move above their peg.

However, if the assets fall below the peg, users can also exchange them for bonds, speculating that they will eventually be redeemed with a bonus once the assets rise above the peg.

These strategies come with their own risks. If an asset falls below the peg, Sunrise will not print any new assets. Polaris' algorithmic assets have remained below their peg for a prolonged period, so users need to exercise caution. Furthermore, redemption bonds for algorithmic assets only become possible after the peg is reached, which can take a considerable amount of time. This strategy is also vulnerable to failures in smart contract protocols.

History of Similar Protocols

As many of us know, seigniorage protocols of this type have a poor success rate in the long run, with algorithmic assets losing their peg over time. This has been the fate of Tomb Finance (Fantom), Hermes Finance (Avalanche), and Unite Finance (Harmony).

However, Polaris DEX has been an exception to this trend, having made a significant shift from the original seigniorage phase to create a DEX based on Balancer v2 features. Its main competitor on the Aurora blockchain is Trisolaris, a fork of Uniswap, which has the highest Total Value Locked (TVL) on the Aurora blockchain. Polaris is also in direct competition for TVL with Arctic, another DEX on Aurora that is a fork of iziSwap.

Despite their success, these DEXs are still limited by the unfamiliarity of the Aurora blockchain. Therefore, I believe that the most successful DEX will be whichever comes up with the best new concepts, and expands to other blockchains the quickest, which is one of the aims of Polaris DEX in Q2 of 2023.


In this article, we have discussed different strategies and their associated risks. We have also provided a comparison of Polaris DEX to similar protocols. If you are interested in employing any of these strategies yourself, we recommend that you take the time to fully understand them before investing, and start with a small amount of capital.

For a more comprehensive understanding of the detailed functionality of Polaris DEX, we invite you to read our upcoming analysis article, Polaris DEX - Protocol, which will provide an in-depth analysis.


René Užovič