Written by Yan Cai (llamacorn), Managing Director, NGC Ventures
When DeFi went into explosive growth last summer, we witnessed many DEX aggregators such as 1inch, Matcha, ParaSwap, etc. They play an important role in our daily trading lives, allowing us to get better prices and pay lower fee costs in crypto trading.
By the way, I have always had a view that instrumental crypto assets have a lower value cap than infrastructure crypto assets because the value of instrumental crypto assets relies on the ability to evolve to prove their irreplaceability – and that is hard to do. Moreover, they are largely built on top of infrastructure crypto assets, such as trading aggregators to DEX, interest rate protocols to money markets.
Finding products that can grow into infrastructure is really hard and more likely to fail, and that’s really why it’s a lot of fun to study innovation in instrumental crypto assets.
A year on, the DEX aggregator has evolved to a more robust and comprehensive stage that is looking at solving the problems of MEV (Miner Extractable Value), Gas fees and slippage mentioned in the article “Ether is the Dark Forest”.
In this post today, I want to discuss 3 innovative DEX aggregators that are at the forefront of exploration in this space, namely ArcherSwap, CowSwap and MistX – what I call “MEV-resistant DEX”.
My own tested trading examples
As mentioned in this blog, “Archer Swap offers traders the absolute best price for large exchanges on Uniswap and SushiSwap without the fear of being cut off by preemptive trading bots. The implementation of these features relies on Archer Relayer.
Archer Relayer works with miners to find the most valuable trades for them and allows them to submit them to the ethereum mainnet. In addition it can benefit traders, who only need to pay a small fee to the miners and Archer Relayer will help traders bypass the public memory pool to settle their trades.
Take this transaction as an example.
Example: a transaction on ArcherSwap
I spent 0.2 WETH to swap to 1.418 AAVE. the process was to first transfer 0.2 WETH to the Archer Router address, then 0.0639 ETH from this address to the ArcherSwap TipJar contract, paying the miner (UU pool) as a tip. The Archer Router address is then routed to Uniswap.
Thus, I can bypass the public pool to complete this transaction with a Gas fee of 0, but pay the miner a very high tip (set automatically).
In the ArcherSwap interactive interface, we can also choose to turn on/off the manual tip setting and enter the tip amount ourselves. However, if the tip is not enough, miners will not be willing to package your transactions.
Also, the design of the ArcherSwap contract, to which ETH must be sent first, may lead to some centralization issues. The success of the transaction depends a lot on the quality of the contract. My friend Blanker has described in his Twitter feed some mistakes in their contract that resulted in leaving some non-transferable ETH in their contract.
CowSwap is supported by Gnosis Protocol V2 (GPv2), a technology developed by the Gnosis team that provides protection against MEV. GPv2 is optimized for “coincidences of demand (CoWs),” which can be explained as “an economic phenomenon where two parties each hold items that the other wants, so they can directly exchange these items.
That is, CowSwap first matches orders for traders off-chain, and if no other demanded trades are found, submits the trades to other DEXs on the chain.
CowSwap introduces the concept of “Slover” to achieve this functionality. Solvers are encouraged to compete with each other to provide traders with the best possible order settlement in exchange for a reward per batch. Users submit trade orders with a degree of flexibility, as Solver needs to find the best way to settle them.
Because trades can be settled off-chain, CowSwap does not require external liquidity on the chain, which reduces transaction costs. CowSwap will settle all orders from the same batch using a uniform price, called the bulk auction mechanism.
Before confirming a swap, you will need to sign a message containing information such as sell / buy type, quantity, expiration date, etc. to allow CowSwap to move your order off-chain. Slover then starts looking to see if there are any CoWs that fit your needs.
Take this transaction as an example
You’ll find the transaction recorded in the Gnosis Protocol Browser. And by clicking on Transaction Hash, you can actually see the transaction details.
Example: CoWs found in this transaction
This transaction found CoWs and was processed off-chain without routing to Uniswap, so the transaction is not found in your address, but was actually settled by their contract.
For another example, take a look at the transaction details.
Example: CoWs not found in this transaction
CoWs were not found in this transaction, Gnosis deducted the contract fee and transaction fee of 0.005 WETH from 0.2 WETH and routed the transaction to the Uniswap V2 protocol.
MistX is a project developed by the Alchemist team and it works very similar to ArcherSwap. In addition, a project called BackRunMe developed by the bloXroute team also works in a similar way.
While ArcherSwap is compatible with FlashBots, MistX uses FlashBots directly, and BackRunMe is powered by bloXroute. flashBots, bloXroute and other similar tools are used as searchers to submit transactions to the ETH mainnet.
To be honest, MistX’s UI looks like an exact copy of ArcherSwap. But the logic of MistX exchange routing is a big improvement over ArcherSwap. This is because it skips the first step of having to send ETH to an ArcherSwap contract, which can lead to some centralization issues.
While both MistX and ArcherSwap can automatically adjust the amount of tips given to miners, MistX performs better and tips more intelligently.
Take the following transaction as an example.
Example: a transaction on MistX
I spent 0.2 WETH to swap to 1.43 AAVE. the process was that 0.00516 WETH was paid in tips to the miner address (Ethermine) and 0.000271 WETH was paid in tips to the MistX address. The MistX router address is then routed to Uniswap V2. Thus, MistX bypasses Ethermine’s public memory pool and publishes transactions exclusively in Flashbot’s private memory pool in the form of bundled packages.
Just for reference: Hasu provides a very detailed analysis of transactions on MistX in this article.
Comparison of the functionality of the three projects
I drew a table to document the core features of the MEV-resistant DEX so that the reader can better understand their similarities and differences.
Fee / Revenue Structure: No Cost Gas?
The fee structure of these products is quite vague. Maybe these items don’t want to be presented clearly because traders are only interested in total transaction efficiency.
But when I tried each product, I came to two general conclusions and some detailed explanations.
The revenue of these programs comes mainly from trading funds or miners’ tips.
There is no such thing as a free lunch. No Gas fees are needed because Gas is paid in other ways.
ArcherSwap does not charge a Gas fee because it is included in the miner’s tip. Miner’s tips can be adjusted, but are usually not friendly for small transactions. archerSwap is able to take some fees from miner’s tips as revenue, but it looks like they don’t. Traders are also required to pay Uniswap/SushiSwap transaction fees.
CowSwap claimed not to charge a protocol fee during testing and now seems to charge 1-1.5% of the transaction amount.
Again, these two transactions are used as examples for comparison.
If GPv2 finds CoWs, it only needs to pay the protocol fee, which is 0.0159 AAVE. But if GPv2 does not find CoWs, I guess the user needs to pay both the Uniswap transaction fee and the protocol fee, which totals 0.005 WETH. That’s why the two transactions are accounted for differently. (0.0159 AAVE/1.4636 AAVE=1.08%; 0.005 WETH/0.2 WETH=2.5%).
It is also interesting to note that in the first transaction CowSwap paid me 0.00498 ETH as Gas fee, so its net income is 0.0159 AAVE – 0.00498 ETH ≈ -0.0028 ETH. And in the second transaction CowSwap paid me 0.02 ETH as Gas fee, so the net income is 0.005 WETH-0.02 ETH≈ -0.015 ETH.
CowSwap lost money on both transactions! The small trades on CowSwap seem to hurt both CowSwap and traders.
MistX actually shares the tip with the miners, as you can see in the transaction details. It charges about 5% of the total tip regardless of the size of the transaction. (0.0002717 ETH/0.005435 ETH = 5% in the example above). Traders also pay a Uniswap/SushiSwap transaction fee.
We have to respect the innovation of these projects that allow us to see more possibilities to deal with the anti-mev problem, and some large transactions do have a demand for such projects.
But all these projects are in early stages and need a lot of upgrades. Sometimes we regular traders need to be aware of “hidden spending” when trading in these aggregators. Honestly, large DEX and low slippage settings can be more efficient when Gas prices are low.
Also, the tools behind these products, such as Flashbots, bloXroute, etc., are excellent infrastructure to help us safely traverse the dark forest of Ether and have a wide range of application scenarios in many DeFi products.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/ngcs-yan-cai-interpreting-innovative-experiments-in-the-field-of-anti-mev-dex/
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