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 Bankless [@BanklessHQ](/creator/twitter/BanklessHQ) on x 318.3K followers
Created: 2023-11-03 16:43:34 UTC
Intents are going to take decentralized trading by storm
Here’s how you can use them to save money 👇
With an intent-based architecture in DeFi, Solvers play the role of your personal travel agent, thinking up clever ways to fulfill your various trade requests
The best part?
Unlike a real-life travel agent, this actually saves you money
With intents, all you need to do is say something like, “I want to buy XXX ether at a maximum price of $180,” and a swarm of Solvers jump into action, competing to execute your order at the best possible rates
Solvers source liquidity from onchain & offchain sources, finding the most cost-effective & efficient way to fulfill your request
This is a significant improvement in the user experience for those involved in crypto transactions & is a step toward increasing onchain activity
AMMs have worked well enough thus far, but with the evolution of DeFi sufficiently underway, the shortcomings of AMMs have become all too obvious
Toxic order flow and impermanent loss make it difficult for retail users to come out ahead
vAMMs and CLOBs
Virtual AMMs (vAMMs) and Central Limit Order Books (CLOBs) emerged as alternatives to the vanilla AMM, each with its own selling points
vAMMs allow liquidity providers to act as the counterparty to traders
Traders can leverage trade against the isolated liquidity pools with guaranteed execution and predictable slippage – a nice upgrade over the basic AMM
The big drawback of vAMMs, outside of liquidity constraints and the diminutiveness of tradable assets, is the reliance on oracle price feeds
CLOBs seem like an apparent eventuality for onchain trading
After all, they are the go-to architecture for trading both digital assets & traditional securities on centralized platforms
They also offer true internal price discovery, which can’t be said of the vAMM design
Sounds nice, right?
But when we try to construct a CLOB onchain, we run into some hurdles
Centralized order books, like on Binance, don’t have to worry about gas fees or 12-second block times, which all but squash CLOBS on Ethereum
Even on high-TPS chains such as Solana, the XXX ms block times are a snail's pace when Binance is ordering millions of transactions per second
Projects such as dYdX have taken the approach of creating their own application-specific blockchains in pursuit of the CLOB dream - but it doesn't come for free
In order to achieve a CEX-like CLOB experience, blockchains would have to become increasingly centralized, either relying on enterprise-level computing infrastructure and/or moving order matching offchain
Both of these paths are being investigated, but neither sits quite well with the decentralization-maxis among us
If only there were a way to achieve the coveted CEX-like experience on-chain without having to compromise on the hardware and infrastructure requirements…
Intents & RFQ
Apps that utilize an Intent-based architecture offer their users a powerful way to express their preferences and then rely on Solvers, often referred to as "searchers," "fillers," or Market Makers, to fulfill those preferences
These "intents" can range from the straightforward, such as "I want to swap X ETH for at least 1600 USDC," to the highly complex, like "I want to take a 10x leveraged short position on UNI on the mainnet, using AVAX on Avalanche as collateral"
The possibilities truly are endless
Now, before we dive into the technical nitty-gritty, it's important to distinguish between Intent-based and Request for Quote (RFQ)-based designs
RFQ is a specific category of intent where users request a price quote from the protocol, and Solvers, often Market Makers, compete to provide the best quote
The user can then choose to accept or reject these quotes
In the realm of RFQ, Solvers are typically recognized (whitelisted) entities that are authorized to generate quotes for users
An intent-based design basically allows all liquidity to be accessible onchain, whether liquidity is sourced from:
- A centralized exchange (e.g., Binance or Coinbase)
- A decentralized exchange (e.g., Uniswap or Curve)
- An over-the-counter (OTC) desk
- A filler's inventory
It doesn't matter -- a Solver can utilize it for liquidity
Think of Solvers as digital asset liquidity aggregators, and where substantial liquidity exists, users can expect better price execution
Let's take UniswapX's architecture as an example of how this works in practice
A user wishing to sell their ETH sends a trade through UniswapX, which then opens up an auction to fill their order
This is notably different from a standard Uniswap order because now, Solvers aren't limited to pools within Uniswap but could use a Balancer pool, a Coinbase market, an OTC desk, or just fill from their own inventory of USDC to make the swap
- Before: sell_price = max(Uniswap pools)
- After: sell_price = max(All DEXs, CEXs, OTC, etc.)
You could even imagine scenarios where Solvers would be incentivized to undercut their competition
This scenario would never play out naturally on a DEX before intents
Moving price discovery onchain
Today, price discovery for major digital assets is confined to centralized exchanges, namely Binance
It is a chicken-and-egg dilemma since market makers (who facilitate the price discovery process) are encouraged to use the marketplace with the most liquidity
And where does the liquidity come from?
The market makers themselves, of course
David mentioned in his "5 Big Questions" article that "if decentralized systems are going to 'win,' we need that trophy" of price discovery to take place onchain
Intents offer a new solution
With intent-based DEXs, market makers can leverage any source of liquidity, which opens their aperture of potential money-making strategies – a provable improvement over being limited to centralized exchanges
So, while it is likely true that early iterations of intent-based DEXs will source most liquidity and price discovery from CEXs…
This is only the beginning
Long-tail assets (i.e., tokens outside of the top 50) already house most of their liquidity onchain
Now, with intent-based markets being housed and run on crypto rails, price discovery can start shifting more and more toward decentralized arenas
Moving towards further abstraction
DeFi, no doubt, is a labyrinth of complexity
Expecting your Aunt Cheryl to effortlessly start swapping tokens in this world is like asking someone to build a rocket from scratch
There are formidable hurdles that need to be broken down before we can truly open the doors to the masses
Enter "Intents"
These nifty innovations take the complexity burden off the user's shoulders and place it squarely on the backs of sophisticated market makers
These market wizards are motivated by incentives to provide users with the best prices, essentially acting as the DeFi guides that your Aunt Cheryl (and countless others) desperately need
Alongside this, technologies like Intents and ERC-4337 Account Abstraction wallets are diligently working to lay down the infrastructure for the next billion crypto users
It's incredibly heartening to see a plethora of teams enthusiastically forging the path towards an intent-based future
We've got the likes of @CoWSwap, @Uniswap X, and @1inch Fusion, focusing on spot trading
@ThenaFi_, @IntentX_, and @pear_protocol are diving headfirst into the world of derivatives
Flashbot's SUAVE is busy taming the ever-elusive Maximal Extractable Value (MEV), while @anoma, @symm_io, and @portals_fi are busy bolstering intent-based infrastructure
The enthusiasm for this new DeFi primitive is nothing short of exhilarating
Now, let's face it
The DeFi aficionados among us might find joy in juggling multiple wallets, hopping across bridges, and seamlessly navigating through a maze of DEXs and lending platforms
But they are the exception, not the rule
For the majority, especially those outside the crypto inner circle, the tech that simplifies their user experience isn't just a nice bonus; it's an absolute necessity
If we genuinely aspire to see mainstream adoption of these powerful tools, user-friendly technology is the name of the game
So, what's the deal with Intents?
Can they single-handedly solve the liquidity fragmentation issues plaguing digital assets?
Well, that's a question only time can answer
But one thing's for sure: we're absolutely pumped about their potential
These innovations have the promise to not only simplify the DeFi landscape but also bring it within reach of those who've been standing at the threshold, waiting for an invitation
Article by @563defi
XXXXXXX engagements
**Related Topics**
[money](/topic/money)
[decentralized](/topic/decentralized)
[Post Link](https://x.com/BanklessHQ/status/1720481859467898953)
[GUEST ACCESS MODE: Data is scrambled or limited to provide examples. Make requests using your API key to unlock full data. Check https://lunarcrush.ai/auth for authentication information.]
Bankless @BanklessHQ on x 318.3K followers
Created: 2023-11-03 16:43:34 UTC
Intents are going to take decentralized trading by storm
Here’s how you can use them to save money 👇
With an intent-based architecture in DeFi, Solvers play the role of your personal travel agent, thinking up clever ways to fulfill your various trade requests
The best part?
Unlike a real-life travel agent, this actually saves you money
With intents, all you need to do is say something like, “I want to buy XXX ether at a maximum price of $180,” and a swarm of Solvers jump into action, competing to execute your order at the best possible rates
Solvers source liquidity from onchain & offchain sources, finding the most cost-effective & efficient way to fulfill your request
This is a significant improvement in the user experience for those involved in crypto transactions & is a step toward increasing onchain activity
AMMs have worked well enough thus far, but with the evolution of DeFi sufficiently underway, the shortcomings of AMMs have become all too obvious
Toxic order flow and impermanent loss make it difficult for retail users to come out ahead
vAMMs and CLOBs
Virtual AMMs (vAMMs) and Central Limit Order Books (CLOBs) emerged as alternatives to the vanilla AMM, each with its own selling points
vAMMs allow liquidity providers to act as the counterparty to traders
Traders can leverage trade against the isolated liquidity pools with guaranteed execution and predictable slippage – a nice upgrade over the basic AMM
The big drawback of vAMMs, outside of liquidity constraints and the diminutiveness of tradable assets, is the reliance on oracle price feeds
CLOBs seem like an apparent eventuality for onchain trading
After all, they are the go-to architecture for trading both digital assets & traditional securities on centralized platforms
They also offer true internal price discovery, which can’t be said of the vAMM design
Sounds nice, right?
But when we try to construct a CLOB onchain, we run into some hurdles
Centralized order books, like on Binance, don’t have to worry about gas fees or 12-second block times, which all but squash CLOBS on Ethereum
Even on high-TPS chains such as Solana, the XXX ms block times are a snail's pace when Binance is ordering millions of transactions per second
Projects such as dYdX have taken the approach of creating their own application-specific blockchains in pursuit of the CLOB dream - but it doesn't come for free
In order to achieve a CEX-like CLOB experience, blockchains would have to become increasingly centralized, either relying on enterprise-level computing infrastructure and/or moving order matching offchain
Both of these paths are being investigated, but neither sits quite well with the decentralization-maxis among us
If only there were a way to achieve the coveted CEX-like experience on-chain without having to compromise on the hardware and infrastructure requirements…
Intents & RFQ
Apps that utilize an Intent-based architecture offer their users a powerful way to express their preferences and then rely on Solvers, often referred to as "searchers," "fillers," or Market Makers, to fulfill those preferences
These "intents" can range from the straightforward, such as "I want to swap X ETH for at least 1600 USDC," to the highly complex, like "I want to take a 10x leveraged short position on UNI on the mainnet, using AVAX on Avalanche as collateral"
The possibilities truly are endless
Now, before we dive into the technical nitty-gritty, it's important to distinguish between Intent-based and Request for Quote (RFQ)-based designs
RFQ is a specific category of intent where users request a price quote from the protocol, and Solvers, often Market Makers, compete to provide the best quote
The user can then choose to accept or reject these quotes
In the realm of RFQ, Solvers are typically recognized (whitelisted) entities that are authorized to generate quotes for users
An intent-based design basically allows all liquidity to be accessible onchain, whether liquidity is sourced from:
- A centralized exchange (e.g., Binance or Coinbase)
- A decentralized exchange (e.g., Uniswap or Curve)
- An over-the-counter (OTC) desk
- A filler's inventory
It doesn't matter -- a Solver can utilize it for liquidity
Think of Solvers as digital asset liquidity aggregators, and where substantial liquidity exists, users can expect better price execution
Let's take UniswapX's architecture as an example of how this works in practice
A user wishing to sell their ETH sends a trade through UniswapX, which then opens up an auction to fill their order
This is notably different from a standard Uniswap order because now, Solvers aren't limited to pools within Uniswap but could use a Balancer pool, a Coinbase market, an OTC desk, or just fill from their own inventory of USDC to make the swap
- Before: sell_price = max(Uniswap pools)
- After: sell_price = max(All DEXs, CEXs, OTC, etc.)
You could even imagine scenarios where Solvers would be incentivized to undercut their competition
This scenario would never play out naturally on a DEX before intents
Moving price discovery onchain
Today, price discovery for major digital assets is confined to centralized exchanges, namely Binance
It is a chicken-and-egg dilemma since market makers (who facilitate the price discovery process) are encouraged to use the marketplace with the most liquidity
And where does the liquidity come from?
The market makers themselves, of course
David mentioned in his "5 Big Questions" article that "if decentralized systems are going to 'win,' we need that trophy" of price discovery to take place onchain
Intents offer a new solution
With intent-based DEXs, market makers can leverage any source of liquidity, which opens their aperture of potential money-making strategies – a provable improvement over being limited to centralized exchanges
So, while it is likely true that early iterations of intent-based DEXs will source most liquidity and price discovery from CEXs…
This is only the beginning
Long-tail assets (i.e., tokens outside of the top 50) already house most of their liquidity onchain
Now, with intent-based markets being housed and run on crypto rails, price discovery can start shifting more and more toward decentralized arenas
Moving towards further abstraction
DeFi, no doubt, is a labyrinth of complexity
Expecting your Aunt Cheryl to effortlessly start swapping tokens in this world is like asking someone to build a rocket from scratch
There are formidable hurdles that need to be broken down before we can truly open the doors to the masses
Enter "Intents"
These nifty innovations take the complexity burden off the user's shoulders and place it squarely on the backs of sophisticated market makers
These market wizards are motivated by incentives to provide users with the best prices, essentially acting as the DeFi guides that your Aunt Cheryl (and countless others) desperately need
Alongside this, technologies like Intents and ERC-4337 Account Abstraction wallets are diligently working to lay down the infrastructure for the next billion crypto users
It's incredibly heartening to see a plethora of teams enthusiastically forging the path towards an intent-based future
We've got the likes of @CoWSwap, @Uniswap X, and @1inch Fusion, focusing on spot trading
@ThenaFi_, @IntentX_, and @pear_protocol are diving headfirst into the world of derivatives
Flashbot's SUAVE is busy taming the ever-elusive Maximal Extractable Value (MEV), while @anoma, @symm_io, and @portals_fi are busy bolstering intent-based infrastructure
The enthusiasm for this new DeFi primitive is nothing short of exhilarating
Now, let's face it
The DeFi aficionados among us might find joy in juggling multiple wallets, hopping across bridges, and seamlessly navigating through a maze of DEXs and lending platforms
But they are the exception, not the rule
For the majority, especially those outside the crypto inner circle, the tech that simplifies their user experience isn't just a nice bonus; it's an absolute necessity
If we genuinely aspire to see mainstream adoption of these powerful tools, user-friendly technology is the name of the game
So, what's the deal with Intents?
Can they single-handedly solve the liquidity fragmentation issues plaguing digital assets?
Well, that's a question only time can answer
But one thing's for sure: we're absolutely pumped about their potential
These innovations have the promise to not only simplify the DeFi landscape but also bring it within reach of those who've been standing at the threshold, waiting for an invitation
Article by @563defi
XXXXXXX engagements
Related Topics money decentralized