Roughly 100 days ago we launched our V1: TWAMM --a non-atomic trade execution protocol on Ethereum Mainnet. Since then, we have been developing critical off-chain services for simulating, monitoring, and arbitraging large swaps. In this post, we’ll discuss the market, competition, product updates, & vision for our protocol.
https://twitter.com/cronfinance/status/1645802789006876672
Large swaps have historically happened on centralized venues like CEX or OTC desks. However, over the past year, we have seen these services have service outages, embroiled in fraud allegations, kneecapped by regulations, or unable to compete due to market inefficiencies.
All the while, DEX protocols have been battle-tested in the worst market conditions and have thrived. To onboard the next wave of large institutional capital on-chain, we need advanced, transparent, and programmable trade execution. Enter TWAMM, a capital-efficient, MEV-resistant, and gas-optimized DEX for large swaps.
https://twitter.com/WClementeIII/status/1667945762926239747?s=20
Uniswap realized how powerful TWAMMs are and planned to integrate them into the core of V4. However, they released it as a proof of concept standalone hook because TWAMMs leverage virtual orders. This adds compute and gas costs for every AMM interaction thus making it mutually exclusive with other “hook” features & pools.
Nevertheless, the launch of Uniswap V4, Crocswap, and other singleton AMMs has reiterated our approach and expanded the market for TWAMMs. We have already successfully deployed TWAMM on Balancer as a custom pool (hook) and can potentially launch on other AMMs as well.
https://twitter.com/0xdoug/status/1668617209718140929?s=20
The TWAMM aggregator model is an idea we’ve explored early in our development. Depending on a token pair’s liquidity, volatility, lindy, volume, correlation, and even use cases, LPs can choose which AMM to deploy the TWAMM pools. And likewise, a long-term trader’s swaps will be automatically routed to the best pools based on their trade size, duration, and price expectations.
However, there are potential drawbacks to this approach. On Ethereum L1, gas is king because lower gas cost means more arbitrages, which gives traders a smoother fill and LPs more fees. Furthermore, having multiple AMMs for TWAMM pools means liquidity is fragmented across different venues.
https://mirror.xyz/0x70626a.eth/-PmNRMEXIQK4qO7jQo5EbofwfcvbEPERLhmOKOlVoc0
An alternative to the aggregator model is the hyper gas-optimized AMM tailormade for virtual trades. This model would out-compete any other implementation built on the aforementioned infrastructure as-a-service AMMs and help us expand to other execution algorithms like volume weighted average market makers & limit orders.
Furthermore, having all the tokens in a single TWAMM vault would solve the liquidity fragmentation issue and open up the possibility of just in time for trade liquidity. Not to mention the boost in capital efficiency and reduced friction of not having to bring two tokens to the table when you want to LP!
And without further ado, let’s talk about the million-dollar trade to swap 500 wstETH for rETH in 1 week. Nouns DAO wanted to leverage a completely on-chain and trustless protocol to execute their LST diversification trade. TWAMMs are a perfect solution for this because not only does it protect the DAO from slippage, MEV, and gas costs, but also avoids having to time the trade.
This was a trial trade to test out the efficacy of the protocol and a larger $15M swap is scheduled to happen in the upcoming weeks. See below post on execution details:
To support the trade, we had to rush to build the supporting infrastructure such as trade simulations, monitoring, arbitrage bots, data fetching, reporting/alarms, barebones UX, and much more. In the image below, you can see the various services that were required beyond the on-chain smart contracts for a successful trade.
This is a great time to be building an advanced trade execution protocol given the glut of capital moving on-chain. We’ve built our protocol to be extremely flexible & programmable to address different multi-million dollar trade use cases like transparent fundraising (see XRP vs SEC), damping token unlocks (see veCRV), bridging assets in bulk, and RWA oracles to name a few.
https://twitter.com/tbr90/status/1679553423132205080?s=20
As with any complex on-chain protocol, interacting directly with the contract is an arduous task, and most times dangerous because it can cause users to lose funds. Unlike atomic AMM swaps, trades happen over multiple blocks, involve virtual data calculations, and need consistent arbitraging to correct asset price deviations -- details that are hard to parse by simply looking at transactions on Etherscan.
We are planning to build a dedicated trading UX that abstracts the mind-bending complexity of the protocol so traders can quickly parse their swap execution and liquidity providers can understand the ROI. We have previously written about some footguns hidden in the protocol like inactivity, rounding, lack of arbitrage, etc.
https://mirror.xyz/0slippage.eth/5zKJW4Zx9zYHpB4jNln16HuU8d8EtawmA17usNfIje4
V1 of the protocol has been extremely gas-optimized for blue chip token pairs (ETH/USDC, WBTC/USDT, WSTETH/RETH, etc) since this is where the bulk of the trade volume occurs consistently. Because of these optimizations, users aren’t able to leverage TWAMMs to trade tokens that have massive spikes in trading activity, and eventually die down -- see PEPE.
https://www.theblock.co/post/230218/jaredfromsubway-mev-bot
Instead, they are relegated to using inefficient platforms like Uniswap V2 and fall prey to vulturous MEV bots. Fortunately, there are incremental upgrades we are making to the protocol like pausing virtual orders, modifying long-term trades, and increasing OBI timelinesthat will help support these volatile tokens and expand the user base beyond whales.
The longer-term vision of the protocol is still unchanged, improve on-chain trade execution, decrease MEV extracted, and increase capital efficiency. Some ideas we’re excited to explore in future versions of the protocol arelimit order TWAMM, volume weighted average market maker, tokenized vaults, and LP fee maximization.