TheTrade - Boosting Uniswap v3 Capabilities
Primer
Today, we’re introducing TheTrade, an innovative toolkit for decentralised trading and effective capital usage. TheTrade is developing a set of tools that boosts the capabilities and solves many of the issues related to Uniswap v3. In this article, we will explore how TheTrade enables users to have automated limit orders and how it innovates the DeFi space with a new specialist role of an Executor.
DEXes are good, but….
2022 is ending soon, but what a year it has been with regard to crypto. The very public blow-ups of various centralised entities led to a domino effect, causing each to fall one after another. It’s unfortunate that only when shit hits the fan do we know how important decentralisation is to us. It is only when the tide is low do we know who is really swimming naked all along. In this atmosphere of uncertainty, who can we really trust with our assets? Everyone knows that Decentralized Exchanges (DEXes) are the way to go, but let’s be honest. Most DEXes are not on par with Centralised Exchanges (CEXes) when it comes down to features.
One of the most important aspects of trading is to be able to execute at a price according to a trading plan, and this requires the use of a limit order that guarantees the trading price but not the execution of the trading order. This is in stark contrast to the market order found commonly in older DEXes like Uniswap, which guarantees the execution of the trading order but not the trading price. In a CoinDesk article by Cam Thompson in May 2022, Uniswap Labs CEO Hayden Adams said that Uniswap has attained a 70% market share on Ethereum and is used by more than 83% of DeFi users. But does Uniswap allow users to place limit orders? What about margin trading? Just imagine how much more market share Uniswap can grab from its competitors if these features are present in the most popular DEX in the DeFi space.
It is with this background in mind that we think of how innovative TheTrade really is because they seem to have found a clever way to have automated limit orders available to Uniswap v3 users. They do so in such a highly efficient way that makes it impossible for a trading order to suffer from slippages and sandwich attacks. On top of that, TheTrade gets a 0% fee for a successful trade. Intrigued?
How a buy limit order works
It's best to use an example to illustrate how a buy limit order works using TheTrade protocol with Uniswap v3.
Let’s meet Bob.
Let’s say that the current market price of 1 ETH on Uniswap is $1200 USDC. Bob has only $1000 USDC but wants to buy 1 ETH. Transacting directly using market order will result in him getting less than 1 ETH. Bob is smart and not in a great hurry, so he uses TheTrade to create a spot limit order by selecting the ETH/USDC pair and entering the amount of 1 ETH and the price of $1000 USDC.
TheTrade smart contract then calls the ETH/USDC liquidity pool in Uniswap so that it can place the $1000 USDC from Bob into the pool. This is actually a position in the Uniswap v3 concentrated liquidity in the smallest price range possible. Concentrated liquidity is introduced in Uniswap v3, enabling individual liquidity providers to have greater control over the price ranges that their capital is allocated on the curve.
Now Bob will have to wait for the market price to go down in order for the order to be executed. For limit orders such as this, the price of the trading order is guaranteed but the execution of the order is not. When the price reaches the $1000 - $1000.01 bracket, the assets in the liquidity position are swapped and become available for execution of the order.
Introducing the Executor
Here is the part that gets interesting. In order for the limit order to be automated, a new role called the Executor is introduced in TheTrade. The role of an Executor is simply to execute the orders of users. In Bob’s case, the Executor calls on the execute( ) function so that the smart contract gets the 1 ETH from Uniswap, transfers it over to Bob’s wallet and closes the order. Since anyone with an Ethereum wallet (and enough ETH to pay for gas) can be an Executor, it decentralizes the whole operation elegantly. The designation of the Executor role not only allows automated limit order trading using Uniswap v3 liquidity pools, but also opens up another opportunity to earn money. But how?
Think about this. Why would an Executor carry out its designated role? Is it out of the kindness of its own heart? The answer? Incentives. Once the order is closed, the Executor gets an execution fee from the user for withdrawing liquidity and transferring the swapped assets back to the user. TheTrade does not charge a fee for each successful trade. This execution fee encourages the timely and automatic execution of limit orders. With the use of proper incentives to encourage the behaviour of actions that are needed by the protocol, everybody wins. The protocol moves up a notch towards decentralisation, the user frees up his time so that he doesn't have to stare at the screen while waiting for the price to hit his target, and the Executor gets paid for the role it plays.
A breath of fresh air
We quite like the idea and found this to be quite innovative. It's like a breath of fresh air to see something new in the space because innovation has been sorely lacking since the golden age of DeFi summer. Everything is like just a copy of a copy of a copy these days - bland and unoriginal.
If you want to find out more about TheTrade, check out their litepaper on the official website. Join their Discord and Telegram, follow them on Twitter and watch out for them. TheTrade will be launching its beta version of the app very very soon, so stay tuned!
All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.