This article explores the ways in which the combination of intent and on-chain derivative products can drive the DeFi industry towards its 3.0 stage. The article is sourced from @Cryptovoxam, compiled, translated, and written by Block Chain in Plain Language.
Table of Contents:
What is Intent?
Central Limit Order Book (CLOB) Model
Liquidity Provider (LP) Based Model
Automated Market Maker (AMM), Improved Automated Market Maker (vAMM), and Hybrid Models
Aggregator
Conclusion
Intent-driven applications will shape DeFi 3.0, and if you haven’t realized this yet, it may be because you haven’t understood the potential that intent can unleash. This article will explain what decentralized intent is:
Exploring every possible use case that intent can unlock is impossible as it requires countless narrative executions. I aim to keep the explanations as concise as possible. I want to focus on a specific financial sector that moves trillions of dollars annually in the traditional financial system, and even some estimates suggest it reaches into the quadrillions.
Before delving into the future of on-chain derivatives, let’s first look at the current models and their main trade-offs. The following is a common classification:
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This is the model that every centralized exchange platform (such as Binance) uses, with the first DeFi implementation completed by @dYdX.
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The reason every trading platform uses an order book is because it is the best infrastructure model they can use. However, if this is true, why did other dozens of smart teams decide to choose a different path?
This is because order books require complex market makers to actively provide liquidity and quick order matching. While the former is easier to achieve, the latter is sometimes impossible. Imagine building an order book with a 12-second block time on the Ethereum mainnet.
This is why many teams decided to move the matching engine off-chain. dYdX V3, Aevo, RabbitX, and others are good product examples, but their amazing speed comes at the cost of decentralization.
Some projects have successfully built fully on-chain order books using alternative virtual machines (altVMs). The best example is Hyperliquid, which I really like, and the giant dYdX’s V4.
This is a huge category that includes several sub-models with subtle differences between them. A common feature is that price discovery takes place outside the protocol. They use Oracle providers like @PythNetwork and @chainlink or custom price sources.
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This would be the worst-case scenario because you would not only be affected by the drop in asset prices, but you would also have to pay the trader’s profits. Your capital will be destroyed.
However, there are also some advantages. Since they use oracles to price assets, you can achieve slippage-free trading, which can be very interesting for traders, especially for long-tail assets. But that’s not all. As a DeFi Maxi, I love one feature of DeFi, which is its composability.
Tokens like @GMX_IO’s GLP or @JupiterExchange’s JLP are composable. You can use them for loans, as collateral in trades, or in certain leverage strategies. These use cases do not exist in other sustainable decentralized trading models.
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While perpetual contracts like @DriftProtocol and @perpprotocol V1 used AMM and vAMM structures, they are now considered outdated models. Interestingly, they are now used in hybrid models.
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Solver Model (also known as Intent-Driven)
Broadly speaking, we consider solvers (also known as fillers / intermediaries) as off-chain agents driven by economic incentives to fulfill user intent.
In perpetual contracts, solvers take the opposite position as your market maker.
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In the derivatives field, the implementation of solvers is still very immature. However, when it comes to other cryptocurrency areas, these models have seen significant adoption.
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One of the pioneers of this model is @DriftProtocol, whose V2 version went live in late 2022 and introduced the previously mentioned JIT liquidity.
Another participant in this field is @symm_io, which allows bilateral protocols (RFQ) between two parties: traders and solvers.
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The concept here is that on-chain users trade with off-chain liquidity.
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Symmio focuses on building the backend and infrastructure of sustainable decentralized trading platforms, which third-party teams can leverage for development.
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Intent-driven applications are truly fascinating and could become a foundational element of the next generation of decentralized applications. While it has a strong value proposition, the development of this field is still in its early stages. There are three main challenges:
1) Solver competition leads to centralization.
2) Fragile solver infrastructure for complex intent.
3) High barriers to deployment and operation of solvers.
But one of the main reasons that gives me confidence is that some of the smartest people are working hard to solve these problems. For example, projects like: @EverclearOrg; @EnsoFinance; @aori_io; @anoma; @intentessential; @ApertureFinance, and more.
In the realm of decentralized derivatives trading platforms, I believe it is in the midst of an intent revolution:
1) Traders need speed and liquidity the most.
2) As they are trading on-chain, they also care about permissionlessness and self-custody.
3) A mature intent-driven field can meet all these needs.
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Related Reports
Decoding Ethereum Intents: How to Disrupt Web3 User Experience and Order Flow Models
“Intent-Centric” Projects Worth Watching in the Intent-Centric Ecosystem
What Makes TG Bot So Popular? The Prelude to Web3 Interaction with “Intent Trading”
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