Gnosis: The New Player in DeFi DEX Town

Introduction

DeFi is moving fast and everyday there are new ideas, new projects, new protocols coming out, which either expands or strengthen the whole DeFi ecosystem.

In this case, there is a new innovative player in town, which provides a new way to exchange assets.

Gnosis has released the Gnosis Protocol and their first dApp; Mesa, which is a fully permissionless decentralised exchange of a new kind, approximately mid way between swapping DEX à la UniSwap or KyberSwap and fully enabled DEX with order book and so on, such as developed by Loopring.

If you are into DeFi, you might have also heard about liquidity providers. Grossly speaking liquidity providers are anyone willing to supply an equal amount of two tokens in a pool. By doing that, they earn a percentage of the fees resulting from other people exchanging these two tokens (through UniSwap for example).

It is a good way to make some money when you hold two tokens, which you don’t want to sell. It is some passive cash flow coming in. However there is still the impairment loss problem, but it is another topic.

Gnosis enables a new kind of trading or swapping tokens, combined with a different kind of liquidity pools, through ring trades.

What are ring trades?

Gnosis defines ring trades as “order settlements which share liquidity across all orders, rather than a single token pair, and uniquely suited for trading prediction market tokens and the long tail of all tokenized assets”.

So instead of relying on only a single token pair, the protocol uses multiple pairs simultaneously.

Example:

  • Mr X has DAI and wants to buy SNX.

  • Mr Y has WETH and wants to buy DAI.

  • Mr Z has SNX and wants to buy WETH.

Without Gnosis’ DEX, Mr X has to sell DAI for WETH then sell the received WETH for SNX from Mr Z.

With Gnosis’ DEX, Mr X, Y and Z receive what they want in the same auction, through a ring trade (shown below).

Imagine if there are ten parties involved. In classic swapping DEX, either it becomes a mess (high costs, etc.) or the trades do not happen. With the Gnosis Protocol, these trades are executed effortlessly and at an attractive price because everybody competes against each other.

The order book looks like the below infographic, all tokens are connected together and can be swapped.

Liquidity providers

If you are familiar with the topic and have a basket of stablecoins in your wallet, you need to try the platform by adding liquidity.

It is easy to use. Create a new wallet and deposit some of your stablecoins in it. You need to have at least two stablecoins in your wallet. But it can be more: USDT, DAI, USDC, sUSD, etc.

The process is the following. First of all, it is known that while these tokens should be worth exactly $1 in theory, they vary every day.

And if you do believe that each of these tokens should be worth $1, you can add your coins to the liquidity pool and start earning on the spread you specified, 0.5% or 1% for example).

The lower the spread, the less you earn per trade but you will participate in more trades.

Do not forget that you cannot specify the amount of stablecoins you are willing to add in the liquidity pool so it is assumed that all your selected stablecoins present in your wallet, will be added to the liquidity pool.

What we like in the DEX

It permits to execute trades, which would have not occurred in a classic swapping DEX.

The Gnosis exchange permits the use of limit orders. If you want to buy a token which currently trades at $1, you set up a limit order to buy at $0.98. If the token price falls to $0.98, you will be executed.

The ability to trade with limit orders improves the trading experience. You can patiently wait to get the price you want.

It is simple to use both as a user or liquidity provider: you place you order and wait. Then the matching engine takes care of it.

To date, the DEX has already generated $2.5M in volume.

Conclusion

Gnosis releases an interesting new kind of DEX which you definitely need to try out, both as a user and as a liquidity provider.

As with all new experiments in DeFi, you have to be very careful even if the platform has been audited. When using the platform, use a separate wallet and deposit only what you can afford to lose.

For investors willing to know if the GNO token is worth it as an investment, we will provide our research to our premium subscribers soon.

Thanks for reading

Secret Salsa


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