Gnosis Protocol is a fully permissionless DEX, which has been in research and development over the course of the last two years. Gnosis Protocol enables ring trades to maximize liquidity. Ring trades are order settlements which share liquidity across all orders, rather than a single token pair.
On Gnosis Protocol, the settlement of trades happens in discrete intervals (batches) of 5 minutes. A settlement consists of:
- A Price Vector: A vector with a single clearing price for each token that was exchanged in the batch. Given the vector representation, exchange rates are arbitrage-free within a settlement (e.g.
p(t_1, t_2) * p(t_2, t_3) == p(t_1, t_3))
- Trade Execution Information: Provided as the executed buy amounts of the orders in the batch.
This suffices to compute the resulting allocation after all trades. A smart contract verifies that a solution is valid and adapts the resulting allocation. Anyone can submit settlements to the smart contract, as long as they are “better” than the previous solution with regards to a metric that captures “cumulative trader’s utility” of a given solution. The best solution submitted within four minutes will be the final settlement.
We believe that Gnosis Protocol will be able to provide better prices than traditional exchanges, especially in highly fragmented markets. Today, those markets provide liquidity via rent-seeking agents (e.g. arbitrageurs and market makers).
Our first use case, the stablecoin market, is a great example: The US-Dollar is tokenized in many different forms (e.g. DAI, USDC, TUSD, Gemini, etc.) leading to a fragmentation of liquidity on decentralized exchanges. Existing order books between each of these tokens (e.g. Gemini <=> TUSD) tend to be thin and have a high slippage. Gnosis Protocol re-aggregates order books into a global multi-token liquidity pool where any token can be traded against any other.