Liquidity Provision and Market Making with Mesa
Liquidity has been one of the focal issues in DeFi. As DEXes gain the popularity and traffic from cryptocurrency traders, they are accruing substantial momentum against their centralized counterparts. In order to cross the liquidity chasm, projects such as Gnosis have incorporated innovative contracts to maximize liquidity.
The Gnosis Protocol enables trading platforms to execute “ring trades”, which can match three or more people trading multiple assets. Detailed in the image above, this allows their orders to be fulfilled simultaneously when they would not have been able to otherwise. To summarize the process, open orders are all laid out at the beginning of a five-minute batch auction. Then an open competition for the most optimal settlement solutions is run by solvers, to maximize trader welfare and provide single clearing prices. After five minutes, orders are filled and settled on-chain by the time the next five-minute batch auction begins.
Mesa is the latest frontend built on top of the Gnosis Protocol and hosted by the DXdao. While still in beta, it offers a market trading interface (very reminiscent to that of Uniswap), with an additional feature: Liquidity Orders. Liquidity Orders allow users to set a spread that they are willing to sell their stablecoins for other stablecoins (i.e., 0.3% spread to always sell 100 DAI for 100.3 USDt, or buy 100 USDt for 99.7 DAI). This is predicated on the assumption that your stablecoin is always worth at least $1.00. When submitting this liquidity order for a one-time gas fee, you can simply sit back and observe your order’s progress.
Keep in mind: Liquidity Orders on Mesa are typically ideal for large liquidity providers due to the initial gas fee. However, once this Liquidity Order is submitted, all transactions are gasless indefinitely until you decide to change or terminate your Liquidity Order.
To see what this looks like in action, visit mesa.eth.link. (note: the link directs you to Mesa via the IPFS gateway, as the main site is down.)
At the front page, you will see a place to trade your crypto on the left, as per usual for DEXes. After connecting your Metamask wallet, click “Balance” to see how funds are deposited into the platform.
To load wallet funds into the exchange platform, click Enable, corresponding with the stablecoins you wish to deposit for your Liquidity Order. After signing through Metamask, the Enable button will be replaced with a + and — symbol. “+’’ allows users to deposit, while “ — ” allows users to withdraw back to their wallets. You do not need to Enable a coin to withdraw it. Depositing with Metamask will prompt another signature request, and then you are able to move on to the Liquidity tab.
You will see the “New Liquidity Order” page, where you can select which stablecoins you wish to include. The more you include, the more opportunities your Liquidity Order will have. It is worth mentioning, the more tokens to be included in the liquidity order, the higher the gas fee upon submission. Users must be certain what they wish to involve before continuing.
In the next section, you will be prompted to define the spread. This means inputting the profit you intend to make under the assumption that your stablecoin is worth $1.00. The higher the spread, the less likely the orders will fill. The lower the spread, the more likely orders will fill, but with less profit. Some things to be aware of:
- When you hit “Submit Transaction,” you may wish to lower gas fees to save on ETH. However, this may jeopardize order fulfillment, as there is only a 15-minute window for these transactions to be mined. It is recommended to either not lower, or raise the one-time gas fee for your Liquidity Order, so that miners can fulfill the transactions in time.
- Once your Liquidity Order is submitted, there is no more work to be done. Transactions from here on are gas-free.
From here on, your trading work is done. As of now, the only way to know if profits are gained is to check the Balances tab, and see if your balances have changed. As mentioned, this is in beta, and the Gnosis team is eagerly developing several exciting UI/UX improvements.
Head back to the Trade tab to view the orders. These are all combinations of the stablecoins you selected in the Liquidity tab. There is nothing you need to do here, as it is just for display. However, you can cancel any number of these orders if you so choose. The Closed tab is for spot orders on the left, or closed Liquidity Order pairs.
So here is a sign of what’s in the future for Mesa: a way for liquidity providers to incrementally earn through passive trading strategies and increase trade utility. Mesa is currently live for anyone who wants to test the ring trade capabilities of this DEX. Also worth mentioning, there will be an incentive program for liquidity providers to earn some GNO tokens as they trade on Mesa.
For further updates on the Gnosis Protocol or DXdao:
This article is for informational purposes only. Review local applicable laws or consult a financial advisor before making investment decisions.
