Insula Token (ISLA) is the unit of account within Insula software ecosystem:
ISLA utility token is a voucher directly redeemable for Insula’s vaults (tokens) and Insula software-as-a-service subscription (software commodity).
Commoditised digital Goods access:
ISLA is directly redeemable for Insula Crypto Vaults tokens on secondary markets.
Commoditised digital Services access:
ISLA is also a voucher redeemable for Insula software-as-a-service subscription.
Example: ETH → ISLA
10 ETH and 500 ISLA (ERC20) are deposited into a smart contract by liquidity providers. An invariant is automatically set such that
ETH_pool * ISLA_pool = invariant.
ETH_pool = 10
ISLA_pool = 500
invariant = 10 * 500 = 5000
An ISLA buyer sends 1 ETH to the contract. A 0.25% fee is taken out for the liquidity providers, and the remaining 0.9975 ETH is added to
ETH_pool. Next, the invariant is divided by the new amount of ETH in the liquidity pool to determine the new size of
ISLA_pool. The remaining ISLA is sent to the buyer.
Buyer sends: 1 ETH
Fee = 1 ETH / 500 = 0.0025 ETH
ETH_pool = 10 + 1 – 0.0025 = 10.9975
ISLA_pool = 5000/10.9975 = 454.65
Buyer receieves: 500 – 454.65 = 45.35 ISLA
The fee is now added back into the liquidity pool, which acts as a payout to liquidity providers that is collected when liquidity is removed from the market. Since the fee is added after price calculation, the invariant increases slightly with every trade, making the system profitable for liquidity providers. In fact, what the invariant really represents is
ETH_pool * ISLA_pool at the end of the previous trade.
ETH_pool = 10.9975 + 0.0025 = 11
ISLA_pool = 454.65
new invariant = 11 * 454.65 = 5,001.15
In this case the buyer received a rate of 45.35 ISLA/ETH. However the price has shifted. If another buyer makes a trade in the same direction, they will get a slightly worse rate of ISLA/ETH. However, if a buyer makes a trade in the opposite direction they will get a slightly better ETH/ISLA rate.
1 ETH in
44.5 ISLA out
Rate = 45.35 ISLA/ETH
Purchases that are large relative to the total size of the liquidity pools will cause price slippage. In an active market, aribitrage will ensure that the price will not shift too far from that of other exchanges.
Ethereum Liquidity Pools
Polygon Liquidity Pools