Revolutionizing Onchain Liquidity & Trading beyond Ethereum

It is exciting to announce that Carbon DeFi’s smart contracts have made their way onto Base with the official launch of “Graphene” by Velocimeter!

Graphene, the first third-party DeFi protocol to harness Carbon DeFi’s technology, unveils a comprehensive suite of trading tools to the Base community including Limit, Range, and Recurring Orders, along with the next-gen concentrated liquidity, Overlapping Liquidity.

These capabilities offer advanced functionalities without compromising on simplicity, allowing users to customize their trading and liquidity strategies with unparalleled precision and flexibility. This powerful combination not only revolutionizes the user experience in managing liquidity positions but also marks a significant leap in enhancing the adaptability and efficiency of trading on Base.

Limit Orders: This traditional tool allows traders to specify precise buy or sell prices, mirroring the functionality of a centralized exchange. Additionally, there are no trading or gas fees incurred on orders that have been executed.

Range Orders: This unique scaling in/scaling out feature, distinctive to Carbon DeFi, enables trading within designated price brackets, making it perfect for gradually entering or exiting a position. For instance, one could set an order to buy ETH if its price dips into the $2300-$2000 range, eliminating the need to time the market or call the exact top or bottom.

Recurring Orders: This exclusive feature streamlines trading by linking buy and sell orders, automatically rotating your tokens between them, similar to the way a trading bot or grid trading would, simplifying complex scenarios and maximizing on market volatility. Recurring orders enable continuous buying low and selling high, automatically accumulating tokens and compounding profits with zero reliance on 3rd parties such as Keepers. Not only that, but strategy makers incur zero trading and gas costs when their strategies are traded against and their orders are filled.

Overlapping Liquidity: The newest feature, a sophisticated advancement of concentrated liquidity, allows users to create positions within any price range in a gas efficient manner. In contrast to prototypical concentrated liquidity models, which have preset fee tiers, overlapping liquidity allows its creators to choose their own spread (AKA Fee).

An Innovative, Hybrid Approach to Onchain Market Making and Efficient Order Execution

Bancor’s Arb Fast Lane Protocol, an integral component of Carbon DeFi on Ethereum, has also expanded to its first Layer 2, making its way to Base alongside Graphene. This innovative, open-source arbitrage bot, is already integrated with multiple liquidity sources on Base, including Graphene. The Arb Fast Lane not only democratizes arbitrage trading by merging advanced technology with user-friendly functionality, but with its strategic design, ensures efficient order execution on Graphene, Carbon DeFi, and future third party deployments powered by Carbon DeFi’s smart contracts.

The Arb Fast Lane aligns Graphene’s liquidity with prevailing market rates, and by requiring less technical expertise than traditional methods, invites the Base community to execute sophisticated arbitrage, earning nearly 50% of the trade, across various Base DEXes, including:

Velocimeter

Uniswap v3

Balancer

PancakeSwap v2 and v3

SushiSwap v2 and v3

Aerodrome

Alien Base v2 and v3

Base Swap v2 and v3

SwapBased v2

Scale Exchange

Dr. Mark Richardson, Bancor Project Lead

“Velocimeter’s launch of Graphene on Base transforms the liquidity landscape. I understand users who refuse to relinquish their agency to the prescriptive trading strategy represented by the AMM paradigm. Velocimeter’s Graphene gives back your individuality and the most basic of financial freedoms — the ability to value your own property however you like.”

Only a month in, and this year in crypto is already an eventful one, with Bitcoin’s ETF approval and block reward halving event signaling an oncoming bull market for many. However, Bitcoin isn’t the only one making big moves this year. The deployment of Carbon DeFi’s smart contracts onto Base marks the beginning of an important shift for Bancor, paving the way for a multi-chain presence and introduction of automated trading functionalities to different DeFi ecosystems through strategic licensing of its products to talented teams like Velocimeter.

Stay safe, stay strategic, and trade well with Graphene on Base.

For the Ethereum Enthusiasts: Carbon DeFi

Create a Strategy

Website

FAQ

Twitter/X

Community Telegram

For the L2 Lovers: Graphene on Base

Create a Strategy

Twitter/X

Discord

For the Arbitragoors:

Website

Fast Lane Github

Bancor Developers Telegram

For additional information on Bancor technologies, or obtaining a license of your own, please reach out at contact@Bancor.network.

Disclaimer: Users are advised to exercise caution and conduct their own due diligence before engaging with any DeFi projects. Bancor does not control the deployments or operations of 3rd parties who license Bancor technology, and although Carbon DeFi has undergone three comprehensive audits, there is no guarantee that the code itself or the protocols using the technology will function as intended. Bancor does not guarantee the safety or security of, and this announcement is not an endorsement of, any protocol.

Now Live on Base! was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.

Trade while you sleep with Automated DEX Trading

Unlike the cryptocurrency markets, humans must [occasionally] cease trading. This is because nature has burdened our species with an inexplicable need to be unconscious for roughly 8 of every 24 hours, or one third of its life. Tragically, it seems biology has not yet caught up to the demonstrable fitness advantages of remaining alert, 24/7, to the price movements of Crypto, which presents the trader with an impossible ultimatum:

Should I choose to die from sleep deprivation, or missed trade opportunities?

Make no mistake — the causal connection between missing a scalp trade and premature death is equally well established as the link between missing sleep and a plethora of physiological and psychological dysfunctions.

Carbon DeFi is clinically proven to extend the life expectancy of a trader.[citation needed] This effect is attributed to its ability to continue to execute trades on behalf of the trader at precise, pre-defined price targets while the trader sleeps.

Carbon DeFi: Marrying Sleep and Successful Trading with Advanced Orderbook-like Functionality

Carbon DeFi has redefined the realm of automated trading. With its novel orderbook-like features, Carbon DeFi empowers users to craft intricate (and adjustable!) trading strategies by merging the functionalities of a sophisticated trading protocol and a trading bot, including and especially through its integration with the Arb Fast Lane (another Bancor product).

Limit Orders: Set your target buy or sell price based on your market predictions, and then comfortably head to bed. These orders operate on automated precision trading, executing trades based on your pre-defined criteria. The trader can rest easy knowing that there are no additional costs — on Carbon DeFi there is no slippage and no trading fees or gas fees when your orders are filled.

Range Orders: No one wants to time the market and it is damn near impossible to call the exact top or bottom. Range orders eliminate these obstacles by filling orders within specific price ranges for individual buy and sell orders. For instance, you could set an order like “Only sell ETH when it’s between $2500-$2700” — regardless of whether or not you are awake at the time.

Recurring Orders: By linking buy and sell orders, Carbon DeFi constantly rotates your liquidity once your orders are filled. This fully automated feature is native to the protocol and eliminates the need for Keepers, performing like an efficient trading bot. Recurring orders are perfect for continuous buying low and selling high, similar to grid trading, automatically accumulating tokens and compounding profits.

Overlapping Liquidity: The latest feature in Carbon DeFi allows you to create concentrated liquidity positions efficiently, unlike the one-size-fits-all approach of typical concentrated liquidity models. You have the freedom to select your own spread (aka the “fee tier”) ameliorating the usual fixed tier limitations.

Money never sleeps. It doesn’t mean you shouldn’t. — Carbon DeFi

Shift the focus from constant market monitoring to strategic, decision-making and automated order fulfillment. Carbon DeFi’s suite of tools is like a magical trading wand, allowing you to juggle market activities and life’s other commitments (including that elusive, almost mythical creature known as ‘a good night’s sleep’) knowing your trading strategy is customized, optimized, and continuously at work.

Create your custom trading strategy and sleep like a boss; let Carbon DeFi handle the night shift.

Website

FAQ

Twitter/X

Community Telegram

The Exhausted Trader’s Guide to Restful Nights was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.

Trading cryptocurrency presents unique opportunities and challenges, particularly in the context of the market’s inherent volatility. One effective strategy for navigating this environment is “scaling,” which includes both “scaling in” (gradually accumulating tokens as the market value decreases) and “scaling out” (gradually distributing tokens as the market value increases).

Considering a Uniform Selling Strategy

A uniform trading strategy involves placing all your bids and/or asks at a single price point. This approach simplifies the decision-making process but hinges on the token reaching that specific price. For example, if you anticipate ETH dropping to $1,350 before a rally, you might place a buy order at this price. Conversely, if you expect it to rise to $2,750, you might set a sell order at that price. While this strategy is straightforward, it carries the risk of missing market movements if the price never hits the target. Carbon DeFi supports this streamlined approach, offering valuable tools particularly useful for easily setting and quickly managing uniform price points.

Developing a Diversified Trading Plan

Establishing specific price ranges for buying (scaling in) or selling (scaling out) and determining the trade quantity is crucial, especially considering market volatility. A diversified trading plan, involving a tiered trading approach with staggered price points, can help to mitigate the risk of abrupt market turnarounds. For instance, for scaling in, you might buy 0.5 ETH at $1,500, 0.5 ETH at $1,350, and 0.5 ETH at $1,215. Conversely, for scaling out, you might consider selling 0.5 ETH at $2,500, 0.5 ETH at $2,750, and 0.5 ETH at $3,025. This strategy aims to achieve a balanced “geometric average” buying and selling price, which means the average price of your trades will not be simply arithmetic but adjusted based on the rate of change in each transaction. Carbon DeFi facilitates this approach by allowing a straightforward setup of trades at predetermined price ranges, making it much simpler to execute a complex, tiered strategy.

Leveraging Carbon DeFi: Fine-Tuning Your Strategy with Infinite Fractional Token Orders

Carbon DeFi recognizes that ERC20 tokens, like ETH, are divisible, allowing for detailed control over your trading strategy. You can distribute your holdings across multiple orders at varying prices, enhancing your chances of capitalizing on different market levels. The protool’s “range orders” feature stands out by enabling the setting of a continuous range of prices, akin to placing a vast number of discrete limit orders populated with the smallest indivisible unit of a token. This method offers unmatched efficiency and flexibility, allowing for a sophisticated and nuanced execution of your trading strategy.

Adapting to Market Changes

A significant advantage of Carbon DeFi is its ability to modify your trading strategy in real-time. This adaptability is crucial in the fast-paced world of cryptocurrency trading, enabling you to respond promptly to market changes and new information. For example, if market trends shift unexpectedly, you can quickly adjust your orders on Carbon DeFi to align with the new market conditions.

Conclusion: Carbon DeFi as Your Strategic Partner

In conclusion, effectively managing entry (scaling in) and exit (scaling out) strategies requires careful planning and a deep understanding of market dynamics. Carbon DeFi offers advanced tools that provide precision in managing your onchain trades. While no trading strategy is without risk, Carbon DeFi’s range of tools and real-time adaptability provide the flexibility and control needed to navigate the complex world of cryptocurrency trading with confidence and clarity. Whether you’re a seasoned trader or new to the crypto market, Carbon DeFi’s tiered selling approach and range orders can help you strategically place your holdings at different price levels, creating a staggered selling plan that not only averages out your selling price but also adapts to market dynamics, potentially maximizing your returns.

For further insights, see related discussions in our companion articles: ‘Bitcoin’, the Original Indie Rage Game Phenomenon and Maximize Market Gains: Scaling In and Out. These pieces complement the themes explored here, offering extended analysis on cryptocurrency trading and risk management strategies.

Crypto Trading 101: Scaling In and Out was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.

Exploring Carbon DeFi

Exploring this transformative shift towards automation in trading, let’s delve into the intriguing case of Carbon DeFi: a DEX at the crossroads of being a sophisticated trading protocol and a trading bot, particularly with the power of its integration with the Arb Fast Lane Protocol.

Automating Trading Strategies with Carbon DeFi

Carbon DeFi presents a unique blend of novel orderbook-like features, enabling users to customize trading strategies with the use of limit, range, and recurring orders. The recurring orders, reminiscent of grid trading bots, automatically rotate funds between a linked buy and sell order, thus sustaining an ongoing trading process without the need for constant user input. These advanced features, particularly the recurring orders, not only empower users with exceptional control, but due to its automatic and cyclical nature, also provokes thought regarding Carbon DeFi’s bot-like characteristics, perhaps bringing new ambiguity to the distinction between the two.

Order Execution in Carbon DeFi

A “strategy” on Carbon DeFi is a set of instructions that represent the specific prices at which its owner has elected to trade with the rest of the market. Since the owner is actively pricing their tokens, they are “making” the market; those who accept those prices and perform a trade are “taking” the market. Market takers may consist of individuals interacting directly through the UI or the smart contracts, or via a market aggregator such as 1inch and OpenOcean. Specialists who interact with markets for the exclusive purpose of purchasing an asset and selling it atomically for a profit are called “arbitrageurs”, which are typically represented by automated infrastructure under their control, as opposed to an individual manually signing transactions. However, the motivations of a taker is unimportant from the maker’s perspective — if traders or their infrastructure is demonstrating an appetite to take the market at a given price, makers generally only care that those who are suitably motivated have access to the market they have created for them. The Arb Fast Lane represents this conduit between the markets being made on Carbon DeFi, and market hot spots, wherever they may arise. The protocol is open-sourced, permissionless, and enables anyone to participate as a taker in a plethora of active on-chain marketplaces, and close arbitrage opportunities, without the technical expertise required of building one’s own infrastructure.

Arb Fast Lane: A Built-In Bot Feature?

The amalgam of Carbon DeFi and the Arb Fast Lane Protocol underscores an innovative, hybrid approach to on-chain market making systems, from which emerges something that truly resembles a traditional “trading bot”, save for the implementation details.

The strategic design of the Arb Fast Lane not only ensures efficient order execution but merges advanced technology with user-friendly functionality. This makes Carbon DeFi a unique and powerful tool in the DeFi space, combining custom trading strategy support with novel order types, efficient execution, and automated market arbitrage. It will forever remain the subject of debate as to whether Carbon DeFi is itself a bot, or has a “built-in bot”, or is “one-half of a trading bot”, or if the difference is semantic or significant.

It also doesn’t matter; however you decide to categorize it, Carbon DeFi and the Arb Fast Lane are useful to players on both sides of the market, and stand as a testament to the innovative spirit of Bancor and decentralized finance.

Experience firsthand the impact of Carbon DeFi and discover how its automated orders and bot-like functionalities can transform your approach to decentralized trading. Create a custom strategy that leverages these advanced features, and unleash your true trading potential.

Expanding Beyond Ethereum

As the debate continues over Carbon DeFi’s identity — whether it’s a sophisticated trading protocol or akin to a trading bot — Bancor’s latest strategy brings another noteworthy development to the forefront. While Carbon DeFi currently operates on Ethereum, it’s set for expansion through third-party deployments enabled by Bancor licensing its smart contract technology. This move will facilitate Carbon DeFi’s support on various Layer 2 solutions like Base, Arbitrum, Canto, Fantom, Mantle, and Scroll. Additionally, alongside these third-party deployments, Bancor plans to launch the Arb Fast Lane Protocol, further extending Carbon DeFi’s unique capabilities and influence in the DeFi space.

For more on Carbon DeFi

Website

FAQ

Twitter/X

Community Telegram

Licensing

For more on the Arb Fast Lane

Website

Github Repo

Developer Telegram

Trading Bots Transformed: The New Era of Automated Trading on the Horizon was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.

Per the recent Bancor DAO approved proposal, an incredibly low 0.001% fee for all stable-to-stable trades has been successfully implemented on Carbon DeFi!

Prior to launch, the Bancor DAO voted to implement a protocol-wide taker fee of 20 basis points (0.2%) per trade. While this fee structure is competitive to, and in most cases less than, alternative Ethereum based decentralized exchanges, it was not in line with the industry standard 1–5 basis points (0.01% — 0.05%) stable-to-stable trading fee.

The Custom Taker Fee on Stable to Stable Trades Proposal set out to surpass industry competition by introducing a mere 0.001% fee for stable-to-stable trades — equivalent to 1/10th of a single basis point. The proposal passed with not a single Bancor DAO vote in opposition.

The recently implemented fee structure for stable-to-stable trading offers several advantages beyond substantial savings to Carbon DeFi takers. One such advantage is the enhanced frequency at which a strategy is traded against, resulting in increased order fulfillment for strategy makers and an increase in trading volume, a widely regarded metric within the industry. Another advantage is the potential to draw in new users who may have previously been unfamiliar with Carbon DeFi.

The Bancor DAO will be adding additional stable-to-stable pairs beyond the initial pairs mentioned in the proposal, reflecting its commitment to offering a one of a kind trading experience to both makers and takers of Carbon DeFi. Your input and collaboration are valuable in this ongoing effort. If there are stable pairs that should be added to the list or if you have any suggestions, please share them in the Carbon DeFi Telegram or on the Bancor Governance Forum.

We look forward to seeing how these changes empower our community of both strategy makers and takers on Carbon DeFi. Thank you for your continued support, and stay tuned for more updates!

Key Features of the Implementation:

Identifying Stable Pairs: A new function within Carbon DeFi smart contracts now empowers the Bancor DAO to identify stable pairs that should have a fee different from the default 20 BP fee. The initial list includes popular pairs like USDC/USDT, USDC/DAI, USDC/FRAX, USDC/LUSD, and USDT/DAI.

Fee Query Function: Another critical feature introduced is the fee query function, which allows anyone to easily check the fee applied to any specific pair. This transparent approach ensures that users are well-informed about the fees associated with their trades.

For more on Carbon DeFi check out the links below.

Website

Twitter/X

Medium

Telegram / Discord

Development Dashboard

YouTube

Automated Recurring Limit Orders Explained — The benefits of becoming a strategy maker on Carbon DeFi.

<a href="https://medium.com/media/ba73857253ac9b7dc09ab1fe206f6cb5/href">https://medium.com/media/ba73857253ac9b7dc09ab1fe206f6cb5/href</a>

Attention Stablecoin Traders! was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.

Explorer, the much-anticipated feature on Carbon DeFi, allows users to search by wallet address or specific token pair and easily duplicate strategies with the highest ROI!

<a href="https://medium.com/media/f27476ae82daa5c1e2e92818e1cdf52c/href">https://medium.com/media/f27476ae82daa5c1e2e92818e1cdf52c/href</a>

On the Explorer page, users have the option to browse information in two different options:

Overview

Overview cards are displayed for each strategy associated with the specific wallet address or token pair. Each overview card shows the token pair, ID number, strategy status, ROI, and prices and budgets for each order. Each overview card also offers two management options, Duplicate Strategy and Manage Notifications. Duplicating a strategy allows a maker to copy the strategy’s trading pair and current prices set for each order, with the ability to fund and manage their own orders as they choose.

Interested in seeing how often a specific strategy is being traded against? Manage Notifications allows users to receive notification updates each time a taker interacts with the strategy.

Portfolio

Portfolio displays a breakdown of tokens and value distribution across strategies. The breakdown includes individual tokens, what percentage of the portfolio each token represents, the token quantity, and the token value in USD. In addition, a pie chart is produced as a visual representation of the data.

My Strategy

The second new feature just added is found on the My Strategies page. Makers may now also sort their own strategies by ROI!

Carbon DeFi Dune Dashboard

The best way to find wallet addresses for strategies with the highest ROI is by visiting the Carbon DeFi Dune Dashboard. Simply copy the wallet addresses or token pairs displayed on the dashboard, search with the new Explorer feature, and hopefully start seeing results like theirs become your own!

And remember, there are currently no fees for strategy makers on Carbon DeFi, tokens only trade at the prices determined by the strategy maker, and maker’s receive zero slippage and pay zero gas fees when trades are executed!

For more on Carbon DeFi check out the links below.

Website

Twitter/X

Medium

Telegram / Discord

Development Dashboard

Automated Recurring Limit Orders Explained

YouTube

<a href="https://medium.com/media/ba73857253ac9b7dc09ab1fe206f6cb5/href">https://medium.com/media/ba73857253ac9b7dc09ab1fe206f6cb5/href</a>

Interested in collaborating with Carbon DeFi? We’d love to hear from you. Please reach out at bizdev@Bancor.network

New Carbon DeFi Explorer and More are Live! was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.

Carbon DeFi introduces a new way to trade onchain with Automated Recurring Limit Orders.

Strategy makers on Carbon have the ability to create two separate limit orders, one to buy a token and the other to sell a token, at whatever price points they choose.

These two orders are then linked together. Linked orders result in acquired funds automatically rotating between them, creating an endless trading cycle without need for manual intervention.

Whether partially or fully filled, trades are irreversible, and makers no longer need to worry about an order being undone should the market retrace. Tokens will only be available to take at the price specified by the maker. Because the price quoted by the maker is exactly what they receive when the trade is executed, makers suffer no slippage on filled orders. In addition, makers on Carbon DeFi pay no gas when the trade is executed, and there are currently no maker fees on Carbon. And thanks to the irreversible nature of orders on Carbon DeFi, MEV sandwich attacks are impossible to execute.

Order Prices:

For each order, makers have the ability to choose a single specified price or a range of prices to buy and sell their tokens.

The option to create a range limit order has multiple benefits. For example, makers on Carbon DeFi now have the means to scale in or out of a position without the need to create multiple orders within two desired price points.

Single limit order example: Buy $ETH at $1600.

Range limit order example: Buy $ETH between $1625 and $1575.

If a range order is filled, partially or completely, the cost basis for the specified range is equal to the geometric mean of the highest and lowest price boundaries where a trade took place.

Single limit order example: Buy $ETH at $1600. Cost basis equals $1600 per $ETH .

Range limit order example: Buy $ETH between $1625 and $1575. Cost basis equals $1599.80 per $ETH .

Funding:

Makers have the option to fund one or both orders.

With zero obligation to fund both orders, users have the ability to create a limit order with funds they don’t yet have.

For example, a maker may create an $ETH /$wBTC automated recurring limit order as follows:

Set a specific price for an $ETH buy order funded with 1 $wBTC. Set a specified price for a $wBTC sell order funded with zero $ETH . These orders are now linked.

As the $wBTC is traded for $ETH , the newly acquired $ETH automatically rotates to fund the sell order. This $ETH is now available for takers to trade against at the desired price originally set by the maker at the time of creation.

Management:

After a strategy is created, it will appear on the “My Strategies” page.

Carbon DeFi provides makers with multiple ways of easily managing automated recurring limit orders in a gas efficient manner.

Modify Pricing: Modify pricing allows makers to quickly adjust the prices they choose to buy and sell their tokens, all without having to cancel orders, withdraw funds, redeposit funds, and create new orders.

Add Funds: Funds may be added to existing buy and/or sell orders at any point.

Withdraw Funds: Withdraw partial or full funds. Makers may wish to downsize their position and withdrawing partial funds allows for this without the need to withdraw full funds, cancel orders, redeposit funds, and recreate orders.

Withdrawing full funds is an option for makers who may wish to trade this token pair in the future. Withdrawing, rather than deleting, gives makers the ability to create a similar strategy in the future without the need to re-mint an NFT.

Pause: Pausing trading means tokens within automated recurring limit orders are no longer available for takers to trade against.

Unpause: Reactivate trading at the maker’s desired price points.

Delete: Makers may delete orders they no longer wish to use and will not be returning to in the future.

Security

Automated recurring limit orders are native to Carbon DeFi and require no oracles or hooks, eliminating the risk of oracle extractable value (OEV) and other major security concerns in DeFi. In addition, Carbon DeFi had undergone three extensive audits prior to release.

Create your first Automated Recurring Limit Orders now at Carbon DeFi!

Additional Resources on Carbon DeFi and Automated Recurring Limit Orders

Twitter/X

Medium

Community Telegram

YouTube

<a href="https://medium.com/media/cd0dc4b4365dd7bce2f523c2df3d9e77/href">https://medium.com/media/cd0dc4b4365dd7bce2f523c2df3d9e77/href</a>

Interested in collaborating with Carbon DeFi? We’d love to hear from you. Please reach out at bizdev@Bancor.network

Automated Recurring Limit Orders Explained was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.

No sandwiches allowed — how to prevent MEV attacks on AMMs

This is a follow on post of my initial post on how Carbon (and the big virtual fees inherent in a Carbon’y position) make sandwich style MEV attacks impossible, and Mark’s subsequent posts that quantified this, and looked at what those formulas imply. This post is more of a lab notes style post that works with some of the formulas in Mark’s latest article and discusses them further.

Background

The key formulas that we are working with here are

Sandwich profit Q as a function of the other parameters

from article 1, and

Relationship between parameters when sandwich profit is zero

from article 2.

Before we go further into those equations, I want to take a moment to define the symbols used as this will greatly aid the understanding of the formulas

Q is the profit an attacker makes with a sandwich attack that is based on the other parameters below, and

Δxₐ is the size of the front-running trade that leads to this particular value of Q. The trade parameters are

Δxᵤ which represents the size of the user trade in token terms,

x which represents the size of the pool in the same units as the Δx (virtual size in case of levered pools, but this analysis ignores the stuck-at-the-boundary implications of levered liquidity), and most importantly

δ represents the percentage fee of the pool (in decimal terms, eg 10bp = 0.001)

The key equation we will be looking at here is the second equation above. It is obtained from the first one by first deriving with respect to Δxₐ, and then requiring that the derivative of Q with respect to Δxₐ vanishes at Δxₐ=0. This condition ensures that Δxₐ=0 is optimal for the potential sandwich attacker, in other words, there is no arbitrage profit.

Simplifying the formula

We see that the formula above, as written, consist of three terms, the first two of which are trivial because they yield solutions that are not financially interesting. One of those terms shows that an empty pool (x=0) does not allow for sandwich attacks, and the other solution is at an unreasonably big value of Δxᵤ and can therefore be discarded. We are therefore left with the operation part of the equation which is as follows

Operational part of the second equation above

To paraphrase what Mark discusses in his article, the above condition should not be an equality but an inequality because of course attackers will never engage in loss making transactions. Therefore

δ is really inf δ as any fee >δ will also prevent sandwiching

Δxᵤ is really sup Δxᵤ as any trade <Δxᵤ will also prevent sandwiching, and

x is really inf x as any pool liquidity >x will also prevent sandwiching

Mark has in his article solved the above equation for δ, Δxᵤ and x, yielding the following formulas

Formulas from article 2

For us the first of the three formulas above is the most interesting one — it indicates how big the fee has to be for a given trade so that sandwich attacks no longer make sense. I slightly rewrote it into the new notation, indicating that the no-sandwich-possible conditions holds for this fee level δ and above

Fee levels that do not allow for a sandwich attack

This formula looks disappointingly complex — but fortunately it has a nice asymptotics for big values of r=x/Δxᵤ (aka small trades):

Asymptotic behaviour of the minimum resistant fee level for small trades (r=x/Δ x)

In the chart below the red line is the actual curve, the blue line is the power law asymptotics 1/r, and the green line is the (massively) improved asymptotics 2/2r+3

Minimum no-sandwich fee as a function of r=x/Δ x

(see here for the underlying desmos calculator)

Whilst r=x/Δxᵤ works better for the formulas, financially the more intuitive quantity is the liquidity-normalised trade size 1/r = Δxᵤ/x. It is important to keep in mind that this is also the percentage slippage, ie the amount by which a trade of size Δx adversely pushes the price of a pool of size x.

Therefore we find the following, important result:

Minimum fee levels so trades cannot be attacked

Small trades (1% of pool size or less) can not be attacked by sandwich attacks if the fee level is bigger than the slippage (which is also the liquidity-normalised trade size), ie δ>Δxᵤ/x. For slightly bigger trades — up to about 10% slippage — the approximation δ>2/(2r+3) works well, and beyond that the full formula [2] above should be used.

Maximum trade size that can’t be attacked

Similarly we can look at the maximum viable trade size as a function of the fee level that cannot be sandwich attacked. We start with equation [3] from article 2 above but we divide both sides by x and by δ. We recall that Δxᵤ/x is the (liquidity-normalised) trade size, and therefore the new LHS of the equation Δxᵤ/xδ is the normalised trade size (also: slippage) divided by fees.

We have charted the RHS of the above equation below

Maximum normalised trades size relative to fees as a function of fees

(see this chart on desmos)

The way to interpret the above chart is as follows: for a given level of fees (here 0.2 = 20% fees), what is the maximum normalised trade size as a percentage of fees? For small for small values this number is unity, ie for small fees the maximum non-sandwichable normalised trade size equals the fees level. If fees are bigger then the possible trade size increases disproportionally. Eg at 20% fees the trade size can be 20%*1.4=28% of pool size before it is sandwichable.

We should note however that this increase in trade sizes only happens for rather large fee levels. Below a slightly more reasonably view on this graph with fee levels up to 5% where the improvement is linear at about 5% for every 3% of fees and therefore below 10% at a 5% fee level, ie not particularly meaningful when compared to a base value of 100% (and definitely not at fees < 1%).

Same graph but with fee levels only up to 5%

—

Title Image

No sandwiches allowed — how to prevent MEV attacks was originally published in CarbonDeFi on Medium, where people are continuing the conversation by highlighting and responding to this story.