Explaining Ether Gnosis Protocol V2 and Balancer-Gnosis-Protocol Gnosis

A year ago, Gnosis Protocol v1 went live, introducing a new decentralized exchange mechanism on Ether.

A year ago, Gnosis Protocol v1 went live, introducing a new decentralized exchange mechanism on Ether.

Today, we have good news to announce: Gnosis Protocol v2 (GPv2) is coming to you!

Gnosis Protocol v2 will use bulk auctions to defend against MEV (Maximum Extractable Value) attacks and integrate each decentralized exchange as a source of liquidity to provide traders with the best price.

Before we go live, we have some big news to share: CowSwap, a proof-of-concept decentralized exchange, is now live and offering up to 90% subsidized gas fees. new features of GPv2 will be rolled out on CowSwap gradually.

In addition, we are working with Balancer to build an integrated protocol, Balancer-Gnosis-Protocol, which is expected to go live in mid-June and build a stable version of GPv2 on top of Balancer v2 Vault. While Balancer-Gnosis-Protocol can interoperate with any decentralized exchange, gas is most efficient when trading with the Balancer pool. Just like the movie universe, Balancer-Gnosis-Protocol (BGP) is the united universe of the cryptocurrency industry.

We have taken the lessons learned from Gnosis Protocol v1 and applied them to the upcoming v2, with an increased focus on improving the user experience and tapping into sources of on-chain liquidity, while continuing to protect traders from MEV attacks. Since January 2020, MEV has reached 0.1% of the order value of all decentralized exchanges.1

GPv2 might solve the problem?

Owls in the Dark Forest
In 2020, a blockchain-related horror story stirred fears within the ethereal community. Through this story, the Dark Forest emerged. We learned that in the Dark Forest, any public and valuable transaction can be hunted. By Dark Forest, we mean the trading pool of Ether: a dark pool of trades wandering around waiting to be packaged.

While the problem was first pointed out in 2019, it was only recently that it was officially named “Maximum Extractable Value (once known as Miner Extractable Value)” and gained widespread attention. “the cryptocurrency profits that miners can extract directly from the operation of smart contracts. “2 Since January 1, 2020, a total of $402.6 million in value has been extracted from Ether users.3 This represents 13.7% of Ether’s total transaction fees over the same period.4

To date, the most common MEV attack suffered by users is front-running. Front-running is the use of information about transactions that have already been broadcast in the network but not yet on the chain (which is publicly available) to preempt and profit from the execution of transactions. Preemption has the potential to be lucrative, as a preemptive trader will execute a trade before the asset price changes and earn a huge spread. While the impact on ethereum appears to be only to cause a rise in gas prices, MEV in the form of a runaway hurts decentralized exchanges the most, as traders can suffer the double whammy of failed trades and high slippage. The main force behind the rush to run is arbitrage bots on Ether. However, the current trend is for malicious miners to directly steal and run trade orders. We expect that in the future, more value will be extracted from Ether users 5.

However, robocalling is only one form of MEV. Backrunning and “sandwiching” are new forms that have become popular in recent months. This is due in large part to the new MEV-geth client software developed by the Flashbot team. The team is attempting to address concerns raised by the dark forest of MEV.6 Whereas in the past only a few entities with access to the pool’s resources had access to MEV, with the MEV-geth client, anyone can easily monitor transactions where MEV exists, tell miners about these arbitrage opportunities, and then share the proceeds with them. Since January 2021, the MEV extracted is expected to have grown by 136%5.

However, in the dark forest, owls can also see things.

Explaining Ether Gnosis Protocol V2 and Balancer-Gnosis-Protocol Gnosis
  • Trade on CowSwap, GPv2’s proof-of-concept decentralized exchange, and enjoy a 90% gas fee subsidy – Gnosis Protocol V2 solves the MEV problem by using a bulk auction mechanism combined with off-chain orders and on-chain liquidity.

Gnosis Protocol V2 solves the MEV problem by using a bulk auction mechanism combined with off-chain orders and on-chain liquidity from Ether.

GPv2, which is an improvement on Gnosis Protocol v1, is optimized for “consistency of demand (CoW)”. By consistency of demand, it is “an economic phenomenon in which two parties to a transaction each have what the other wants and trade directly”. Similarly, on GPv2, two traders can trade directly without relying on an external market maker or liquidity provider if each holds the assets the other wants. This means that there is no middle party to make the difference and both traders can get a better price. Only the remainder that cannot be settled directly with the GPv2 trader is sent to the underlying automated market maker. Finally, the batch auction mechanism continuously batches orders for settlement on the protocol, with the size of each batch limited only by the block gas cap. A uniform clearing price is enforced for each batch, meaning that the assets received for orders executed in the same batch are settled at the same price. From the user’s perspective, the global on-chain liquidity pool means that GPv2 ensures that traders receive quotes comparable to or better than other decentralized exchanges.

GPv2’s unique design features provide traders with MEV protection in two situations.

If GPv2 discovers CoW, there is no need to use other sources of on-chain liquidity to settle trades, as the liquidity exists within that pool of trades. The MEV attack surface is completely eliminated because attackers cannot use mechanisms such as transaction sequencing to replicate transactions. Since GPv2 uses a uniform settlement price, the outcome of each batch of transactions is independent of internal sequencing.

If GPv2 does not discover a CoW, it uses the on-chain liquidity pool to provide the best price for auction settlement. Since the Gnosis Protocol V2 resolver (solver) keeps slippage at a very low level, it is difficult for MEV attackers to replicate transactions because it is unprofitable for them to do so, and only certified resolvers can submit batch settlement solutions.

User-submitted trade orders need to be flexible, as resolvers need to find the best settlement method. GPv2 does not use centralized operators or constant function market makers to settle trades, but instead decides on the best solution from the batch settlement solutions submitted by resolvers. The protocol rewards the winning resolver with 1 GNO. in other words, for every batch of trades the protocol executes, it rewards the resolver with 1 GNO. Anyone can become a solver, but the following conditions need to be met.

The Ether address that wants to become a solver needs to pledge 100 GNO tokens in GnosisDAO.

Once the 100 GNO tokens have been pledged (locked), GnosisDAO must vote to approve or reject the Ether address as a resolver.

In addition, the resolver must have the technical knowledge on how to create a proper batch solution and take the risk of being forfeited by GnosisDAO for improper operation.

Resolvers who are financially motivated will compete to provide traders with the best order settlement solution and thus earn rewards. Since optimal trade settlement can be achieved through different combinations, we believe that achieving order settlement through decentralized and permissionless competition means that GPv2 can offer the fairest prices in the entire DeFi space. By combining a bulk auction mechanism with off-chain order placement and Ether’s on-chain liquidity provision, Gnosis Protocol V2 offers traders a new way to weather MEV and leave the Dark Forest unscathed. However, owl-like night vision alone is not enough to save every user ……

The United Universe of the Cryptocurrency Industry: Balancer-Gnosis-Protocol

Explaining Ether Gnosis Protocol V2 and Balancer-Gnosis-Protocol Gnosis
  • Click here to view the announcement of Gnosis’ partnership with Balancer Labs – Gnosis and Balancer have joined forces to create an unparalleled decentralized exchange experience. Balancer-Gnosis-Protocol (BGP) will go through the following rollout phases.

Phase 1
CowSwap alpha (GPv2): Gnosis Protocol V2 alpha has been applied to the proof-of-concept decentralized exchange CowSwap. 90% of the gas fee is currently subsidized for trading on CowSwap. new features of GPv2 will be gradually introduced on CowSwap. Users are reminded that while CowSwap has been peer audited, it is currently undergoing a more formal audit. Therefore, users trade on CowSwap at their own risk.

Phase 2
Balancer V2: Balancer V2 is now live and available for developers only for now. Over the next few weeks, traders will be able to migrate liquidity to Balancer V2. During this phase, the migration of liquidity from Balancer V1 to Balancer V2 is rewarded with BAL tokens.

CowSwap beta (GPv2): CowSwap will be migrated to the final version of the GPv2 contract integrated with Balancer V2.

Phase 3
Balancer-Gnosis-Protocol: Balancer V2 will be fully integrated with Gnosis Protocol V2 in mid-June, forming the Balancer-Gnosis-Protocol and launching a joint incentive program.

By collaborating, we can provide tools with decentralization, transparency and extremely high value to win against the traditional financial industry. We will soon publish an article on how Gnosis Protocol V2 addresses MEV through step-by-step block analysis, and an announcement that BGP will go live in mid-June, so stay tuned. If you have any questions? Please join our Gnosis Discord channel. For updates on the progress of Gnosis Protocol V2, CowSwap, and Balancer-Gnosis-Protocol, follow the @GnosisPM Twitter account, and check out the collection of content on Gnosis Protocol on our forums.

Footnotes
[1] https://explore.flashbots.net/ & https://duneanalytics.com/queries/4494/8769[2] https://arxiv.org/abs/1904.05234%5B3%5D https://explore.flashbots.net/%5B4%5D https://explore.flashbots.net/ & https://duneanalytics.com/ queries/39135[5] https://www.coindesk.com/ethermine-adds-front-running-software-to-help-miners-offset-eip-1559-revenue-losses%5B6%5D https://arxiv.org/abs/1904.05234%5B7%5D https://explore.flashbots.net/%5B8%5D Proof of concept CowSwap dApp currently only integrates with Uniswap V2, but will gradually integrate new sources of mobility (e.g. Balancer v2 and SushiSwap). The final version of GPv2 (i.e. Balancer-Gnosis-Protocol, BGP) will integrate all large decentralized exchanges as on-chain liquidity sources.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/explaining-ether-gnosis-protocol-v2-and-balancer-gnosis-protocol-gnosis/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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