Announcing Voodoo V2: HIVE

Voodootrade
8 min readJan 27, 2024

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Introducing HIVE

The Voodoo team prides itself on continually improving our product based on the most cutting-edge ideas the DeFi space has to offer. When intents came into the spotlight last year, we dove right in to explore how we could capitalise on the improvements it could provide to Voodoo. As a result of that process, we built a revolutionary new trading engine that marries the best of two worlds.

We are thrilled to unveil HIVE, the future of Voodoo.

HIVE stands for Hybrid Intent and Vault Engine. HIVE is a next generation permissionless perpetual trading engine that combines the speed and UX improvements of intents with the advantages of decentralised composable LP Vaults.

Maximising decentralisation while taking advantage of the improvements intents have to offer lays at the center of why are building HIVE. In this introductory article, we lay out the context in which HIVE was conceived, then explore some of the pros and cons of pure intents based trading protocols, before finally digging deeper into the revolutionary nature of HIVE itself.

How do existing intent solutions work?

A number of DEXs that utilize intents exist on the market today. UniswapX, Cowswap, 1inch Fusion and Symmio are RFQ (request for quote) systems where users trade tokens using intents. Instead of directly calling a smart contract to trade, users define an end goal; for example “swap 1 ETH for 2500 USDC” or “long 1 ETH at 5x leverage”. This end goal is executed by “solvers” who are incentivized with a fee to achieve this end state. Solvers can be bots, professional market makers or protocol run servers.

While the former are spot platforms, Symmio has pioneered an RFQ system for perpetual derivatives. IntentX, Alpha Thena, etc. are 3rd party projects which provide a UI on top of Symmio. The relation is akin to Synthetix and Kwenta, where Synthetix is the smart contract system and Kwenta is the UI.

RFQ systems maintain an off-chain, centralized orderbook akin to Ethereum’s mempool where orders are queued for execution. Traders submit orders, which are then executed by professional market makers if they find it profitable.

Intent Pros

Intent offers some advantages for perpetuals trading platforms. For one, executions are gasless. Tradere simply sign a message and the trade is performed. That means you don’t have to pay a network fee in ETH. However, the solvers who execute these trades still collect their fee by charging a percentage on your tokens.

Another advantage is higher trading speeds. Intent-based exchanges can give CEX-grade speeds to users since the orderbook is off-chain. Though in practice, UniswapX and 1inch take a couple of minutes on average for tokens to settle when executing order with intents.

Paired with account abstraction (ERC 4337), Intent-based projects can also provide CEX grade UX with social login functionality, removing the need of managing keys on Metamask. This is of course a much sought after feature for easing user friction.

Intent Cons

While the current crop of intent-based exchanges took one step forward in terms of trading speed and UX, they took two steps backward when it comes to decentralization and the interests of retail traders.

Perhaps the most obvious aspect to note is that intent-based exchanges give a lot of power to professional market makers, to the detriment of retail users. Traders on GMX benefit from a peer-to-peer liquidity pool model, where the pool acts as a counterparty to user positions. If a trader longs 1 ETH, the pool has an opposing position of 1 ETH short. Retail LPs simply need to put passive liquidity into the GLP pool, without having to worry about market making bots and algo trading strategies. In the current form, Symmio / IntentX remove LPing and vaults from the equation altogether. The transparency between who is LPing, and who CAN LP, is done away with. The only way to profit for retail users is to trade against professional market makers, where the odds are stacked against them. You cannot deposit liquidity in a pool in the hope of yield. This relationship between traders and LPs, which provides all sorts of incentive schemes for attracting liquidity, is done away with in this instance.

If the role of MMs is to simply fill retail positions, what advantage do they have? Unlike the blockchain, “intent-based mempools” are opaque. Their adoption requires leaps in the assumption of trust traders hold toward their counterparties. There is a real possibility of MMs colluding to salami slice profits from slippage levels defined in intents. Slippage loss and frontrunning happens in DEXes, but the data is visible on-chain. Traders are then subjected to the same opacity of CEX order books, masked in the guise of DeFi. While the tradeoff may appear attractive in the short term, we all know what can happen when the transparency of onchain transactions is sacrificed in favor of other features.

On the other side of the spectrum, LPs on GMX-style perp DEXs earn via a number of avenues that are not limited to perps trading. A significant portion of earnings comes from spot trading and liquidations. These earnings are not part of the equation with intent-based projects. Nor is the opportunity there for retail users to play the role of liquidity provider, leaving vast swathes of potential assets idle.

Intents in the current form kill composability. The USP of GMX was access to real yield, made possible only by passive LPing in GLP vaults. Thanks to vaults, GMX was able to offer escrowed GMX tokenomics to attract and reward long-term LPs. 3rd party yield optimizers like GMD and Beefy would also not be possible without this composability element. Retail users are losing these yield opportunities with current intent-based exchanges.

Where does Voodoo v1 fit into all this?

Diagram of Voodoo v1

Interestingly, Voodoo has its own implementation of intents, before the term became popular. To open or close margin positions, traders send a request transaction. If slippage and price constraints are met, the voodoo keeper server opens the positions.

The keeper server is the heartbeat of Voodoo, responsible for opening positions, liquidations and updating the oracle price. In the current intent lingo, this is the “searcher”.

The keeper maintains an off-chain orderbook for limit orders. These are executed when their limit price is met. However, unlike RFQ protocols with opaque orderbooks, the Voodoo orderbook is completely on-chain. Matching happens off-chain but state storage and settlement is on-chain. The smart contract has a flag [`Vault.inPrivateLiquidationMode`] to enable 3rd party searchers to compete for liquidations in return of a fee.

Voodoo v2: Hybrid Intent and Vault Engine (HIVE)

In the pursuit of a best-of-both-worlds approach, the Voodoo team introduces HIVE. HIVE is a next-gen perp AMM combining intents with composable LP vaults. HIVE marries the advances made in UX through intents with the security and fairness of permissionless peer-to-peer LP pools. We outline the features at the core of HIVE which offer a superior perpetual trading environment for all players.

Hybrid pool + RFQ model: Our implementation of intents opens the door to any LP, who simply can provide liquidity into the VLP pool. HIVE then provisions the liquidity where the demand is. Part of the funds make markets on a protocol manged, builder-maintained orderbook. The HIVE orderbook offers CEX level speeds. Traders who want to speed trade on the RFQ market simply can choose to do so, while those opting for the security of the blockchain use the smart contracts. Using a common pool increases capital efficiency as liquidity is not fragmented. LPs earn yield from both avenues.

Gasless transactions: HIVE utilizes ERC-2612 based gasless approvals, bringing the experience in line with intent-based systems like Cowswap and perp DEX infra providers like Symmio.

Frictionless upgrade: Existing VLP pool assets will be moved to Voodoo v2 , with no action needed on the user’s end. This ensures a seemless migration experience for Voodoo LPs.

Retention of the non-synthetic model for security while listing more pairs: unlike synthetic assets, the token borrowing model on GMX-style perp DEXs is guaranteed to be solvent in all cases; it needs no insurance pool. Insurance-reliant protocols like Mango have been bankrupted due to the vulnerabilities posed by synthetic assets. At the same time, Voodoo will list top performing tokens to offer traders a greater variety of tradeable assets. Comparing GMX v1 (borrowing) to v2 (synths), version 1 is still the dominant protocol by TVL, volume and users.

Tailor made intent-pool based on MPC secured by Eigenlayer: HIVE has its own intent propagation infra based on multi-party computation (MPC) for security and decentralization. The MPC runs as an Actively Validated Service (AVS) on Eigenlayer, benefiting from the security of restaked ETH and LSDs. Voodoo will introduce our own Liquid Restaking Derivative Token (LRD) called Voodoo Restaked ETH (vrETH) that will earn real yield from the protocol and Eigenlayer points from restaking. This allows Voodoo to retain value with the protocol’s actual users instead of leaking revenue to rent-extracting third-party infra providers.

The Eigenlayer Equation

The integration of Eigenlayer on Voodoo v2 lets any user holding ETH or LSDs stake their assets to help secure and decentralise the platform. Voodoo’s use of Eigenlayer has two main components:

1. The Voodoo keeper server as an Actively Validated Service (AVS) on Eigenlayer for decentralization.

2. Voodoo restaked ETH (vrETH): Liquid Restaked Token (LRT) incentivized by escrowed tokenomics. Users can stake ETH or LSDs to obtain a liquid derivative token called vrETH. vrETH stakers earn from three sources: esVMX emissions, ETH real yield, and Eigenlayer Restaking Points. This token is fully liquid and tradable.

Conclusion

With Voodoo v2, we are ready to take DeFi on Base network to the next level. There will be no sacrificing decentralisation for UX, no outsourcing of value to 3rd party players. And with our Eigenlayer integration, there is now no need to even stake assets outside of the platform. As we move Voodoo into this next crucial phase in its lifecycle, we will do so ensuring that maximisation of value retention and proper incentivisation of all players through true value accrual remain at the core architecture of the project. We welcome you to join us on the journey.

Join Us

Website: http://voodoo.trade/

Discord: https://discord.com/invite/uWrDdekrPb

Telegram: https://t.me/voodootradeofficial

Twitter: https://twitter.com/TradeVoodoo

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