Gnosis Launches A Decentralized Exchange, Enabling Ring Trades for Maximum Liquidity
Gnosis launched their decentralized exchange Gnosis Protocol with a promise to offer better liquidity and price execution. Gnosis is a Consensys spin-off which is focusing on the best execution of all trading pairs. The beta version of the decentralized exchange had a successful run where the exchange handled over two million in funds.
This is how they are similar and how they are different:👇
— Stefan George (@StefanDGeorge) April 15, 2020
Gnosis started out as a Decentralized Finance (DeFi) platform and managed to raise $12.5 million in the token sale. As of today, users can trade any crypto token on the platform with minimum slippage which is its selling point as the exchange promises to offer the least slippage among the available platforms even for tokens which have very low trading volume.
How Does the Gnosis Protocol Work
A trader places an order for a particular trading pair on the decentralized exchange along with the price limit until which the trade can be executed. The platform then compiles these trades in different groups, and then “solvers” find the most ideal way to accomplish these batches of trades. Those solvers who come up with the most efficient way of executing these trades get rewarded with 50% of the trading fee that the traders pay.
Each batch of trades are first auctioned to decide which Solver would execute that particular batch and it lasts for five minutes per batch. If a trade order is not settled with its batch then it is moved to the next batch.
This trade execution method makes it clear that the traders have to wait a minimum of five minutes for a trade to executed, after that there is still no guarantee of when the actual trade would be settled in case it misses execution in its batch. This also sheds light on the Gnosis trading model that they are not trying to compete on the basis of time or become the fastest trade execution platform, rather their niche is more towards better pricing and liquidity. CEO Martin Köppelmann, Co-founder of Gnosis stated,
“It's probably only interesting if you trade larger amounts because the thing we want to compete on is the price. If you trade a small amount then. even if we could be slightly better in price, the kind of extra effort of the five-minute delay is probably not worth it.”
Batching of Trades Can Help in Executing Ring trades
The batching of trades by Gnosis can also pave the way for ring trading where more than two traders with two or more different assets can simultaneously execute the trade. The ring trading also helps in solving a liquidity crisis, since two or more than two traders can simultaneously execute the trade, it’s easier to match at least one buyer and the seller even for the assets with low liquidity,
The CEO of the exchange believes that their batching model is quite revolutionary and can be combined with other DeFi protocols that deal in liquidity. He explained,
“Ideally we would want to be integrated into some protocols that need liquidations…We have these kinds of offerings so that every token can be traded against any other token. And that is something that sometimes could be very useful for a protocol like Compound. Because you have different tokens that you can use as collateral and then different tokens you're lending. So you might trade some tokens against another where usually maybe a direct market would not exist.“