Why Initial FairSwap Listing is FAIRER than Initial Uniswap Listing
To fellow DeFi enthusiasts,
Today, we will discuss Initial FairSwap Listing and how it can provide a fairer token listing process than Initial Uniswap Listing.
What is Initial Uniswap Listing?
Initial Uniswap Listing is a process for listing new tokens, most of which are native tokens of various DeFi projects, on Uniswap and allowing people to buy and sell those tokens on Uniswap. Some of the tokens listed on Uniswap through Initial Uniswap Listing include UMA, COMP, and BZRX.[1]
Why Initial Uniswap Listing is NOT Fair
On Uniswap, you have the ability to engage in “front-running” where you can make a profit by buying an asset at a slightly cheaper price without anyone noticing and then selling it at a higher price. One of the Lien ambassadors, Nik, has recently provided a great explanation on how front-running works on Discord:
In uniswap any arbitrager can see what buy orders are waiting to be validated in the mempool. He can choose a high value buy order, make the same buy order and a corresponding sell order. All are now in the mempool. However the arbitrager can set the order in which they are validated by adjusting the gas price of his buy and sell order so that a validator will choose to validate the orders in this order:
1. arbitrager’s buy order
2. user’s buy order
3. arbitrager’s sell order.
As the arbitrager’s buy order is first processed it will influence the users actual buying price to the worse meaning he will only have the chance to buy at p1 and not p0 which he initially intended to do. By having the sell order in place at the higher price, the arbitrager made a profit or took money from the user. This is an undesirable situation and is solved by FairSwap through frequent batch auctioning. It still includes a certain tolerance for slippage but slippage is necessary for a liquid system. Still FairSwap can prevent the unfair acting of the arbitrager
By conducting front-running during an event as important as a token listing where you see many people piling in their money to get a piece of the action, you can expect a huge profit by taking advantage of this technique.
For example, immediately after BZRX was listed on Uniswap, a user managed to purchase 1,966,111 BZRX with 650 ETH on the very same block in which the transaction was included. S/he then started realizing gains through multiple front-running exercises and ended up with 2,855 ETH and 250,000 BZRX.
On Uniswap, people can also exploit transactions contained within the same block by manipulating their positions within the block (i.e. the order in which they are processed)
As you can see, people have strong incentives to engage in front-running on Uniswap, which is not the most desirable situation from the token distribution perspective. This has prompted other projects to implement different distribution methods, such as the Dutch Auction method adopted by Gnosis Protocol.
In addition to the above example, we are constantly seeing the front-running issue happening on Uniswap. For instance, there is an (unofficial) pool of Lien Tokens on Uniswap where you can observe some front-running bots placing orders for potential profits.
What is FairSwap?
The following rules are implemented on FairSwap to ensure fair transaction settlements:
- When it sees the same buy/sell orders within 2 blocks, it settles these orders at the same price. It doesn’t give preference to one transaction over the other in terms of which transaction is processed first.
- When an order with 5%+ slippage is placed, the order might not be filled fully. For example, if a buy-order of $100,000 is placed on the platform but the maximum value of order with 5%+ slippage allowed on the platform turns out to be $25,000 on these two blocks, only 25% of the order will be filled, with the remaining amount refunded to you.[2]
- You can also enable “Strict Mode” and limit the slippage to 0.1%, for example. In this case, only the orders with 0.1% slippage or less can be filled, with the remaining fund returned to you.
FairSwap is designed to make sure that transactions are settled in a fair manner by implementing the Frequent Batch Auction mechanism, which is a countermeasure implemented in traditional financial markets to prevent front-running conducted in high-frequency trading (HFT).
In addition, liquidity is provided through the AMM (Automated Market Maker) mechanism, allowing for Uniswap-like trading experience.
While Flash Loans are not available on FairSwap due to the amount of blocks necessary for transaction settlements[3], the platform is implemented in a way that provides as much efficient user experience as possible.
Summary
By eliminating the unfair practice that is front-running, FairSwap is capable of providing fair trading opportunities to all.
Note:
[1]The Compound team hadn’t made an announcement that it would be conducting Initial Uniswap Listing before COMP would be listed on Uniswap.
[2]The reverse (sell) order, on the other hand, will be executed in full.
[3]2 blocks or more depending on whether additional block(s) are required to force transaction settlement.
Lien White paper: https://lien.finance/whitepaper
Website: http://lien.finance/
Twitter (Follow and get update): https://twitter.com/lienfinance
Telegram Group: https://t.me/lien_finance
Discord: https://discord.gg/asaFbQQ
