White Whale V2 — Project Migaloo

An Interchain Liquidity Protocol for the Cosmos ecosystem

Interchain Vision

Speed or the number of transactions per second is an important parameter for the success of a blockchain. However, as more applications are implemented on the blockchain, more transactions occur and slow down the chain. The Interchain Vision is a potential solution to this problem. The Interchain Vision is multiple independent blockchains that are interoperable with each other through Inter Blockchain Communication (IBC). Instead of launching an application on several different disjoint monolithic blockchains, projects will trend towards having their own custom blockchain for their application that is IBC enabled.

A team could even decide to implement multiple blockchains for a single application. A gamefi application might require hundreds of thousands of tx/s. The team could spin up not one but 10 chains, form a cluster, and validate the transactions separately. Teams could also build applications that are interchain that exist on multiple application chains but are all connected.

The IBC allows for enormous advancements in scalability and control for project developers, because the ecosystem is no longer limited to one monolithic chain but to any number of interoperable blockchains. Peng Zhong, CEO of Ignite (formerly Tendermint), envisions a future with a million interoperable blockchains.

Ecosystem Problems:

Market Inefficiencies — Fractured Liquidity, Price Disparities

The interchain future will severely fragment liquidity because the available liquidity will be spread across thousands of chains instead of a few. Fragmentation of the available liquidity results in shallow pools with high spreads when swapping large amounts; in the worst case, failure to execute due to no liquidity. Widespread adoption of the interchain future requires stable, reliable swaps on each constituent chain.

Prices will differ between the different chains, and fractured liquidity will exacerbate price differences between chains. Without the improved infrastructure, there will be too many places to arb efficiently and too shallow of pools. The result likely will be a poor user experience and consequently minimal adoption. Our proposed infrastructure addresses fractured liquidity and price disparities.

Capital Inefficiencies — Unused Arbitrage & Liquidation Capital

Every arbitrageur and liquidator will need their own capital sitting on every app chain locally to efficiently arb a local dex or to liquidate borrowers on one of Larry’s Mars Protocol lending hubs. When there are no arbs or liquidations, the capital is idle and not earning yield. Our flash loan vaults provide a mechanism to arbitrage and liquidate without the need for keeping idle capital.

Centralized Market Making — Capital Barriers, Knowledge Barriers, Trust

The amount of capital arbitrageurs and liquidators will need increases markedly as the number of chains increases. The capital requirements to arbitrage and liquidate across thousands of app chains will be substantial, exclusive to whales and institutions.

There is a large asymmetry of information in crypto which makes profiting from arbitrage and liquidation exclusive to top developers.

In crypto, the goal is a trustless network. For crypto to succeed, we also need a trustless market. Small traders shouldn’t be at the whim of large market makers and where they decide to park their liquidity. Liquidity should move freely and without permission. Our proposed infrastructure will provide many users with the tools to participate in arbitrage and liquidations.

White Whale V2

Problem in Cosmos Ecosystem: liquidity is fragmented across constituent chains (e.g., Cosmos, Osmosis, Secret, etc) and across Dexes on each of the constituent chains (e.g., Astroport, Terraswap, Loop, Phoenix). Fragmented liquidity results in poor swap performance (price discrepancies) and may even seize up in severe crashes when LPs are drained. Conversely, good performance provides the confidence in the system needed to weather massive, rapid withdrawals and decrease the likelihood of a crash occurring. Fragmented liquidity is also capital inefficient: the liquidity may not be where it is needed.

Solution: White Whale V2 will provide interchain infrastructure to the Cosmos ecosystem to connect the individual on-chain LPs, thereby decreasing the fragmented liquidity, fixing price disparities, and decentralizing market-making all in a capital-efficient method. Additionally, White Whale V2 will provide (i) Flash Loan vaults to decrease the capital barrier and (ii) open-source arbitrage bots to decrease the knowledge barrier to arbitrage.

Architecture to improve IBC liquidity.

To improve IBC liquidity, White Whale V2 will implement chain-local LPs that bots will use to arb and maintain pricing on the local chain (see Figure). These WW LPs are called Bot First Liquidity Pools (BFP) because their function is to provide a pool for bots to arb against. BFPs have lower liquidity and do not compete against local chain dexes because they will be accessed primarily by bots. The advantage of the BFPs is that they are active on many constituent chains and controlled by the White Whale Interchain Command Module. The architecture is therefore a pool of LPs on local chains with the overall liquidity equal to the sum of the BFP liquidity on each chain.

We provide an example with only 2 chains (Terra and Juno) to illustrate how we envision this architecture working. The blue cylinder represents USDC and the white cylinder represents ATOM in a 50:50 constant product LP. White Whale establishes a USDC-ATOM BFP on Terra ($10 million) and on Juno ($1 million), resulting in total interchain liquidity of $11 million. The WW Interchain Command module monitors the liquidity and ATOM price in each pool and moves tokens between pools to keep the interchain liquidity and ATOM price in balance.

A whale makes a large purchase of ATOM on one of the multiple Terra Dexes (Astroport, Terraswap, and Phoenix), which causes the price of ATOM to rise to $110 on Terra while the price on Juno and the BFP remains $100. Arb bots detect this arbitrage and use White Whale’s flash loan vault to monetize the arb. More information about White Whale’s flash loans is provided Here. As the arbs occur, the ATOM price on Terra BFP rises, so the Command Module will lower the price on Terra BFP and simultaneously increase the price on Juno BFP, thereby reducing the price disparities. By changing the prices on both chains, arb bots on Juno and Terra will again have more opportunities to use flash loans to monetize the arb. Ultimately, the price will be similar on Juno and Terra with a modest increase in ATOM price (e.g. $102) when compared with the larger initial increase ($110). Liquidity will also have moved between BFPs when demand was higher.

Local Liquidity Hubs

A White Whale local Liquidity Hub has two main components: the Bot First Pool (BFP) and the Flash Loan Vault. The BFP was discussed above and liquidity is moved between BFPs on each chain by the Interchain Command module.

The Flash Loan Vaults allow for arbitrage and liquidations to happen locally in a capital-efficient manner and eliminate capital requirement barriers. Each individual arbitrageur or liquidator will not need their own capital on the local chain sitting idle in order to arb or liquidate someone because they can use a flash loan. When an arbitrage opportunity arises, an arbitrageur takes a flash loan, arbs the local dex price versus the bot first pool, and then pays back the loan plus the flash loan fee. The arbitrageur then keeps the profit without having used any of their own capital.

Liquidity infrastructure-as-a-service

White Whale proposes to provide liquidity infrastructure-as-a-service, profiting with greater use of their BFPs and flash loan vaults. White Whale will provide open-source arbitrage bots so that many developers will contribute to making markets more liquid, capital-efficient, and price stable. With thousands of blockchains, we envision thousands of devs using our open-source bots to profit and keep markets efficient. We do not want to have to trust large entities like Alameda and Jump to secure the market efficiency of our ecosystem. Combining Flash loans with open-source bots breaks down the Capital and knowledge barriers.

Vision

White Whale V2 will be an interchain liquidity protocol that provides infrastructure-as-a-service for interchain liquidity flows and price stability. We want to make it as easy as possible and get as many people as possible profiting on arbs on the thousands of future blockchains, which has the benefit of stable and efficient markets that do not rely on a few entities.

We are the antithesis of normal arbitrageurs, who want to keep the barriers of arbitrage high, so they can reap all the rewards. White Whale V1 returned all the yield our bot made to the investors in our vault. Now we want to provide our expertise to the community and lower the barriers to entry.

White whale is infrastructure-as-a-service and is not a DEX. White Whale V2 is a friend to DEXes because it increases DEX volumes by facilitating arb trades by bots, and helps keep the prices stable. Stable, reliable markets attract more investors.

Coming soon…

• Detailed Whitepaper
• Token airdrop to previous WHALE holders and Pylon pool depositors on Terra Classic
• NFTs?

If you have Rust smart contract dev experience and are interested in joining White Whale DM us on Twitter or reach out on Discord.

Disclaimers

This article is subject to change and is not a binding commitment from the team that this software will be created or deployed exactly as outlined. This is not a recommendation or solicitation to purchase WHALE token. Nothing in this article is financial advice. Please DYOR before investing in anything.