DeFi has created liquidity over the past few years, but the problems are also obvious—capital utilization is too low, and impermanent loss is hard to recover from. The root cause remains the rigid constant product model, which fails to fully grasp the real-time market changes.

Walrus Protocol addresses this pain point. They have developed a concept called dynamic liquidity algorithm, with a straightforward core idea: instead of a fixed pricing curve, it automatically adjusts based on market conditions. The system constantly monitors the volatility, buy-sell pressure, and market depth of trading pairs, then intelligently modifies the liquidity curve. When the market is stable, it concentrates efforts to enhance trading depth; during high volatility, it automatically widens the price range to protect LPs. According to actual data, this approach has increased capital efficiency by over 60%, and reduced average slippage by 55%.

Another impressive feature is the layered liquidity architecture. It divides liquidity pools into three tiers: the core layer strictly maintains main token pairs for the most stable returns; the enhanced layer covers a broader range of assets, balancing risk and reward; the innovative layer reserves space for new tokens and experimental trading pairs. Each layer has customized risk tools and yield models, allowing LPs to precisely choose their configurations based on risk preferences. This not only optimizes resource allocation but also meets the market’s diverse needs.