Liquidity Tree pool
Azuro is unique in that it doesn't use event-specific liquidity pools, where Liquidity Providers must provide liquidity for each event and betting market separately and manually. Instead, Azuro has a common liquidity pool, with a novel design, called the Liquidity Tree.
Azuro aims to allow any LPs to provide liquidity to the pool and get exposed to all betting markets happening on the protocol, thus reducing the risk for LPs dramatically and leading to a consistent APY. All the while utilizing all that money efficiently for seeding initial liquidity behind thousands of betting markets.
To achieve that however — there is immense complexity arising from the fact that LPs can add or withdraw liquidity at any point while betting markets receive parts of the overall pooled liquidity at the same time. Solving this by following where each single LPs’ liquidity goes would be a heavy computational burden (including timestamps, tracking, etc.) and therefore not suitable for a blockchain-powered solution.
Тhis is where the Segment Tree data structure comes into place allowing for an extremely significant increase in efficiency, making the protocol lean, while at the same time solving the issues with the addition and withdrawal of liquidity
1. Thousands of liquid betting markets with competitive pricing (odds)
2. Rich feature set including critical bet types like accumulators/parlays (many bets in the same slip) and multiple outcome bets (e.g. Which player (out of the unlimited amount of players) will win tournament X?)
3. Odds-based UX which shows potential gains from the bets clearly
The Liquidity Tree common pool always takes the other side of bets made on the front-end operator`s platforms and is the source of payouts for winnings. Over time the pool is expected to increase in size via the spread (which is expected to translate into profit for the pool), thus rewarding the liquidity providers for liquidity provision.
The protocol will initially have a stablecoin liquidity pool: XDAI on GnosisChain. Later 3rd parties will be able to apply to the DAO and ask for permission to deploy custom liquidity pools so that bets can be placed in other tokens.