A Glimpse of OpenSwap’s True Power: Liquidity Queue & Hybrid Smart Router
The Evolution of Decentralized Exchanges
The majority of decentralized exchanges (DEXs) today are hugely different from the initial versions of DEXs that were introduced to the crypto space back in 2015–2017. Those earlier models were designed to mimic the order book format, something similar to that of centralized exchanges (CEXs), basically lining up buy and sell orders from users, matching traders, and settling the trades. This obviously created a liquidity problem — without enough people and assets to fill up the order books, DEXs were unable to match the depths of liquidity on CEXs, which will ultimately lead to low and slow adoption.
In this day and age, DEXs run on automated market maker (AMM) protocols, doing away with order books and providing liquidity via pools of trading pairs. Any users can contribute their assets to these liquidity pools, and they are incentivized to do so because they get a portion of the fees generated by each swap made in the pool.
The AMM model had obviously been super successful. According to DeFi Llama, in October 2021, the TVL (total value locked) of DeFi surpassed the $200 billion mark for the first time.
While the evolution from the order book to the AMM pool model was a proven success and in many ways, the correct way to go. However, modern DEXs are missing a very important feature that they had to drop along with the order book, and that is the ability to use Limit Orders.
In a regular market or on traditional exchanges, there are two typical ways to execute orders.
On most CEXs and early versions of DEXs, it was possible to use a type of order called the Limit Order. This feature enables traders to set the maximum or minimum price at which they are willing to buy or sell their digital assets.
The second type of order is the market order, which simply means that a buy or sell transaction will be instantaneously executed at the market price available at that specific moment in time. This is the type of order that most AMMs adopted (e.g. Uniswap, PancakeSwap).
What are the Challenges with Market Orders on AMM?
Firstly, this type of order is more of an assurance of execution rather than an assurance of price. When volatility happens during the time of a swap execution, then the swap would be executed at a price different from what the user was originally anticipated when he placed the order. This problem is — Slippage!
As DEX users would know, slippage is a huge problem when making on-chain swaps, the volatility in asset price can create such a situation where the executed price is different from the quoted and expected price. Slippage is the expected percentage difference between the quoted and executed price. And in most cases, the user will be getting a lesser amount of tokens than anticipated when the order was placed.
Secondly, it would mean that DeFi traders won’t be able to automate their trades. Traders would have to be constantly monitoring markets to identify their desired price for entry or exit, and they would also need to make the swap manually. In the DeFi world, windows of opportunity may not come around very frequently and often in bite-sizes, meaning traders would need to be in front of their screen all the time to catch these desired swaps.
Using (Spot Price) Liquidity Queue to Beat Slippage
Traditionally crypto traders would try to eliminate or reduce slippage by using limit orders instead of market orders. A limit order will only fill at the price you want, or better. Unlike a market order, it won’t fill at a worse price. Most traditional crypto traders on CEXs would be using a limit order as a way to avoid slippage.
In late October 2021, OpenSwap released the first liquidity queue type — Spot Price Queue. This is a revolutionary offering allowing DeFi users to make on-chain swaps at spot market prices, essentially enabling trades to happen at zero slippage and be protected against MEV attacks.
Spot Price Queues are able to enable zero slippage on-chain swaps for users because it works differently from the traditional AMM method. Spot Price Queues takes the price feed from existing oracles, instead of how traditional AMMs would take their price from the pool ratio, or constant product market maker formula (x*y=k) to be more exact. Spot Price Queues are designed for token pairs that have a well-established off-chain spot market price, and by using oracles (such as Chainlink) as guard rails, OpenSwap will ensure our users will always get the best price possible.
And instead of using the oracles directly, OpenSwap has created a secure adaptor protocol to leverage oracle pricing in a controlled manner. By doing so, OpenSwap will provide traders with the additional security of layered circuit breakers that will help guard against issues like sudden price fluctuations, front-running, and compromised smart contracts. If any circuit breaker in the secure adaptor protocol is triggered, the trade will immediately be halted, ultimately giving the swapper maximized protection. Furthermore, aside from shielding the users from slippage and impermanent loss, it can also be deemed as MEV protection. Basically, a user’s swap will be MEV protected because frontrunning a trade would not cause the price of the next trade to change since it is using a price feed.
During the release, 2 sub-types of Spot Price Queues were introduced.
- Spot Priority Queue
Spot Priority Queue (Priority Queue) is a sub-type of Spot Price Queue that helps traders exit out of a position fast, at spot market price, and with zero slippage.
Currently, there are 2 active pairs available through Priority Queue, and they are BNB/BUSD and BNB/USDT.
Through swapping against our priority queue, DeFi traders can get better value for their swaps on OpenSwap than they would for the same trade on PancakeSwap, BakerySwap, and IF Swap due to the zero slippage nature of Spot Price Queue.
2. Spot Range Queue
Spot Range Queue (Range Queue) is another sub-type of Spot Price Queue. They are not so much designed for directly killing slippage, but instead are designed for giving OpenSwap users the full control that they need.
They will enable liquidity providers to set price brackets, on which to make their liquidity available for sale. When liquidity providers decide to stake OSWAP tokens to join an existing or create a new Range Queue, they can set the price brackets by setting a minimum price and maximum price for the order. If their Range Queue gets traded against, they will also get to earn OSWAP rewards for their contribution to providing liquidity.
The way Range Queue works can be thought of as similar to a limit order on CEXs, and trading DApps tapping into the liquidity queues can initiate trades using Range Queue’s liquidity as long as the market price is within the range set.
While OpenSwap’s Spot Price Queue can give swappers the enablement to beat slippage, which is pretty awesome, but it is not enough of an edge especially as the markets are so much more volatile than it was during the early years of the crypto space.
The inception of Binance Smart Chain (BSC) was in late-August 2020, and since then, in a little over a year, tens of thousands of new tokens had emerged on the BSC ecosystem already. While some projects became widely adopted and gained huge popularity by DeFi users such as ALPACA, BAKE, BELT, CAKE, and etc, there are also a lot of projects on BSC that still have quite a long way to go — and more often than not, these lesser developed projects on BSC, while they already got their farming and staking campaigns going, they may only have BNB pools, their stable coin pool is too shallow, or have yet to develop a stable coin pool.
A Hybrid Smart Remedy for Long-Tail Coins
For DeFi users who like to farm long-tail tokens on BSC, realizing your farming rewards can be messy and cumbersome, or at certain times, the farmer may just be unsure whether to realize their farming gains in BNB is such a good idea at that specific moment in time.
At the time this article is written, it is 18 November 2021. BNB had just gone from $660 to now $560ish in the last 48 hours and with the weekend dip just around the corner. Not a huge drop, but a sizable one nevertheless, and we are unsure whether the market is going further down, or can we expect a rebounce in the coming days.
While as DeFi users, we can speculate and draw charts all day long — ultimately, no one knows the future. And it is at times like this, where it would make the most sense for us to realize our farming rewards in stables instead of BNB.
As mentioned earlier, a lot of long-tail BSC tokens may only have a BNB pool, or it could be a case where their stable coin pool doesn’t have the depth, leaving the user in a situation where they may either cash out through a dropping BNB, suffer huge slippage from a shallow stable coin pool, or worst yet, manually do multiple swaps which exposes the users to multiple opportunities of slippage. In all scenarios, not ideal.
OpenSwap can be the perfect remedy for a situation like this. Through utilizing OpenSwap’s Hybrid Smart Router, it will enable users to smartly route their trades through the pool with the best price for their specific needs — Two-Hop Swaps, ensuring the user gets the best bang for their buck while cashing out to stable coins to avoid volatility.
Upcoming Features to be Introduced
As we go deeper into Q4 of 2021, OpenSwap supporters can expect we’d be looking to close off this year by introducing some cool new toys and lucrative community-focused campaigns.
As the next stage of core tech rollout, we are aiming to release our Restricted Group Queue (Group Queue) very soon. Group Queue will enable liquidity providers to offer tokens at a specific price that can only be accessed by a defined group of user addresses.
This will be a powerful feature that will open the door to some unique-to-DeFi use cases such as Guarantee Buy-Back for IDO token launches for launchpad such as Impossible Finance, as well Group Queue flash sale available only to targeted groups of users (e.g. hodlers of Bridge Troll NFTs). Furthermore, $OSWAP farming will soon be introduced.
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OpenSwap is the world’s first DEX providing on-chain swaps at zero slippage and multi-chain arbitrage opportunities. As the DeFi universe continues to expand, liquidity becomes increasingly scattered across multiple chains and the situation is poised to get worse as new chains emerge with individual DEXs on each chain. The OpenSwap team has been working for the past several months on building up a vision of a comprehensive one-stop DeFi hub that offers the best on-chain pricing, multi-chain arbitrage, and zero slippage, allowing users to experience revolutionary benefits through optimizing their trades through unique features such as Liquidity Queues, Hybrid Smart Router, and Open Interchain Protocol.