A Primer on Carbon’s Automated On-Chain Trading Protocol

A Primer on Carbon’s Automated On-Chain Trading Protocol

A Primer on Carbon’s Automated On-Chain Trading Protocol

Carbon DeFi

Carbon DeFi

Carbon DeFi

Aug 7, 2023

Aug 7, 2023

Aug 7, 2023

Carbon is a new approach to on-chain trading and liquidity using on-chain limit and range orders. The protocol is currently in Beta, with 100s of automated trading strategies currently live.


In the words of one crypto researcher — “the upside potential here is the biggest I’ve seen from a new DEX.”


From a user’s perspective, what makes Carbon unique is it enables automated trading strategies that are popular in CEXs — but have, until now, been unavailable or prohibitively costly in DeFi — to be accessible and fully customizable in an on-chain, permissionless protocol. Example trading strategies include:

  1. Onchain Limit and Range Orders: Execute one-time, irreversible trades at specific prices (limit order) or within a specific range of prices (range or “scale in/out” order).


  2. Grid Trading (“buy low, sell high”): Buy in one price range and sell in a higher price range. Use a single liquidity position that auto-rotates between selected ranges, so you don’t have to manage multiple orders. For example, an ETH strategy that continuously buys ETH between $1800–1900 and sells ETH between $2100–2200 until the user pauses/deletes/updates their Grid strategy.


  3. Momentum Trading: Buy into a rising asset and gradually sell as the token continues to rise.


  4. Arb Pegged Assets: Set a strategy buys and sells that buys and sells a pair of pegged/correlated assets (e.g., rETH/ETH, wstETH/ETH, ETH2x-FLI/ETH, etc.) whenever the relative price of the assets de-peg and re-peg.


More on Carbon trading strategies.


Features


What makes these types of strategies possible — and what distinguishes Carbon from existing AMMs and DEXs — are the following features:

  • Custom Spread: While existing AMMs force their liquidity providers to adopt the fee of the AMM they’re providing liquidity to, Carbon lets LPs set their own personalized fee (or spread) by selecting the specific buy/sell ranges where they’d like their liquidity to trade.


  • Rotating Liquidity: Your tokens are automatically moved between the strategy’s selected buy and sell ranges as orders are executed. Ranges and budgets assigned to each order are fully customizable by users, via front-end UISDK or smart contracts.


  • Irreversible Orders: While in most AMMs limit orders are reversible when markets retrace and require monitoring and manual removal to avoid reversal, Carbon liquidity trades in one direction — meaning orders are final on execution, eliminating the need to monitor your order and withdraw liquidity at the right time.


  • MEV Resistance: Spot trading is protected from MEV sandwich attacks (more info).


  • Zero Gas/Trading Fees: Strategy creators (makers) pay zero gas and zero slippage on trades executed by their strategy, only a small gas fee to open/close their strategy.


  • On-Chain Adjustability: Once a strategy is in place, it can be adjusted without needing to remove and recreate the position, enabling hyper efficient updates.


For more details on these features, please see the following explainer video, and this article.


From X*Y=K to Asymmetry: A Brief History of On-Chain Liquidity


Carbon marks a new era for on-chain trading and liquidity.


The first generation of on-chain liquidity — supported by constant-product AMMs — required liquidity providers to buy and sell tokens across an infinite number of prices.


The introduction of concentrated liquidity gave liquidity providers the ability to set a specific range of prices where they offer to buy and sell tokens.


Carbon is the first protocol to offer “asymmetric liquidity”, a new form of concentrated liquidity where market makers can distinguish between their buy and sell ranges. Buy/sell ranges can be placed at any price based on where a user expects a given token will trade — and liquidity automatically rotates to fill trades in only the ranges defined by the user.


Under the hood, this novel functionality is powered by Carbon’s unique dual-curve design. Unlike existing concentrated liquidity positions which use a single pricing curve (or “bonding curve”) to manage both buys and sells, each liquidity position in Carbon is composed of two separate buy and sell curves that are paired together via a common source of liquidity.


In the case of a single-use limit order, one of the curves is set to be inactive. Liquidity starts in the active curve, and as the order is executed, liquidity shifts from the active to the inactive curve, removing the swapped tokens from active trading in the process.


In the case of recurring strategies (e.g., Grid Trading, Momentum Trading, Arbitrage), both buy and sell curves are set to be active, so they’re constantly offering to trade in their selected ranges. As market prices move into range and orders are executed, liquidity continuously shifts between the user’s paired curves, until the user pauses, deletes or updates their strategy.


Overall, these capabilities give users unprecedented control and cost savings to execute more precise and expressive trading strategies in a fully on-chain, permissionless protocol.


Step-by Step Tutorial on Creating a Carbon Strategy

Carbon is a new approach to on-chain trading and liquidity using on-chain limit and range orders. The protocol is currently in Beta, with 100s of automated trading strategies currently live.


In the words of one crypto researcher — “the upside potential here is the biggest I’ve seen from a new DEX.”


From a user’s perspective, what makes Carbon unique is it enables automated trading strategies that are popular in CEXs — but have, until now, been unavailable or prohibitively costly in DeFi — to be accessible and fully customizable in an on-chain, permissionless protocol. Example trading strategies include:

  1. Onchain Limit and Range Orders: Execute one-time, irreversible trades at specific prices (limit order) or within a specific range of prices (range or “scale in/out” order).


  2. Grid Trading (“buy low, sell high”): Buy in one price range and sell in a higher price range. Use a single liquidity position that auto-rotates between selected ranges, so you don’t have to manage multiple orders. For example, an ETH strategy that continuously buys ETH between $1800–1900 and sells ETH between $2100–2200 until the user pauses/deletes/updates their Grid strategy.


  3. Momentum Trading: Buy into a rising asset and gradually sell as the token continues to rise.


  4. Arb Pegged Assets: Set a strategy buys and sells that buys and sells a pair of pegged/correlated assets (e.g., rETH/ETH, wstETH/ETH, ETH2x-FLI/ETH, etc.) whenever the relative price of the assets de-peg and re-peg.


More on Carbon trading strategies.


Features


What makes these types of strategies possible — and what distinguishes Carbon from existing AMMs and DEXs — are the following features:

  • Custom Spread: While existing AMMs force their liquidity providers to adopt the fee of the AMM they’re providing liquidity to, Carbon lets LPs set their own personalized fee (or spread) by selecting the specific buy/sell ranges where they’d like their liquidity to trade.


  • Rotating Liquidity: Your tokens are automatically moved between the strategy’s selected buy and sell ranges as orders are executed. Ranges and budgets assigned to each order are fully customizable by users, via front-end UISDK or smart contracts.


  • Irreversible Orders: While in most AMMs limit orders are reversible when markets retrace and require monitoring and manual removal to avoid reversal, Carbon liquidity trades in one direction — meaning orders are final on execution, eliminating the need to monitor your order and withdraw liquidity at the right time.


  • MEV Resistance: Spot trading is protected from MEV sandwich attacks (more info).


  • Zero Gas/Trading Fees: Strategy creators (makers) pay zero gas and zero slippage on trades executed by their strategy, only a small gas fee to open/close their strategy.


  • On-Chain Adjustability: Once a strategy is in place, it can be adjusted without needing to remove and recreate the position, enabling hyper efficient updates.


For more details on these features, please see the following explainer video, and this article.


From X*Y=K to Asymmetry: A Brief History of On-Chain Liquidity


Carbon marks a new era for on-chain trading and liquidity.


The first generation of on-chain liquidity — supported by constant-product AMMs — required liquidity providers to buy and sell tokens across an infinite number of prices.


The introduction of concentrated liquidity gave liquidity providers the ability to set a specific range of prices where they offer to buy and sell tokens.


Carbon is the first protocol to offer “asymmetric liquidity”, a new form of concentrated liquidity where market makers can distinguish between their buy and sell ranges. Buy/sell ranges can be placed at any price based on where a user expects a given token will trade — and liquidity automatically rotates to fill trades in only the ranges defined by the user.


Under the hood, this novel functionality is powered by Carbon’s unique dual-curve design. Unlike existing concentrated liquidity positions which use a single pricing curve (or “bonding curve”) to manage both buys and sells, each liquidity position in Carbon is composed of two separate buy and sell curves that are paired together via a common source of liquidity.


In the case of a single-use limit order, one of the curves is set to be inactive. Liquidity starts in the active curve, and as the order is executed, liquidity shifts from the active to the inactive curve, removing the swapped tokens from active trading in the process.


In the case of recurring strategies (e.g., Grid Trading, Momentum Trading, Arbitrage), both buy and sell curves are set to be active, so they’re constantly offering to trade in their selected ranges. As market prices move into range and orders are executed, liquidity continuously shifts between the user’s paired curves, until the user pauses, deletes or updates their strategy.


Overall, these capabilities give users unprecedented control and cost savings to execute more precise and expressive trading strategies in a fully on-chain, permissionless protocol.


Step-by Step Tutorial on Creating a Carbon Strategy

Carbon is a new approach to on-chain trading and liquidity using on-chain limit and range orders. The protocol is currently in Beta, with 100s of automated trading strategies currently live.


In the words of one crypto researcher — “the upside potential here is the biggest I’ve seen from a new DEX.”


From a user’s perspective, what makes Carbon unique is it enables automated trading strategies that are popular in CEXs — but have, until now, been unavailable or prohibitively costly in DeFi — to be accessible and fully customizable in an on-chain, permissionless protocol. Example trading strategies include:

  1. Onchain Limit and Range Orders: Execute one-time, irreversible trades at specific prices (limit order) or within a specific range of prices (range or “scale in/out” order).


  2. Grid Trading (“buy low, sell high”): Buy in one price range and sell in a higher price range. Use a single liquidity position that auto-rotates between selected ranges, so you don’t have to manage multiple orders. For example, an ETH strategy that continuously buys ETH between $1800–1900 and sells ETH between $2100–2200 until the user pauses/deletes/updates their Grid strategy.


  3. Momentum Trading: Buy into a rising asset and gradually sell as the token continues to rise.


  4. Arb Pegged Assets: Set a strategy buys and sells that buys and sells a pair of pegged/correlated assets (e.g., rETH/ETH, wstETH/ETH, ETH2x-FLI/ETH, etc.) whenever the relative price of the assets de-peg and re-peg.


More on Carbon trading strategies.


Features


What makes these types of strategies possible — and what distinguishes Carbon from existing AMMs and DEXs — are the following features:

  • Custom Spread: While existing AMMs force their liquidity providers to adopt the fee of the AMM they’re providing liquidity to, Carbon lets LPs set their own personalized fee (or spread) by selecting the specific buy/sell ranges where they’d like their liquidity to trade.


  • Rotating Liquidity: Your tokens are automatically moved between the strategy’s selected buy and sell ranges as orders are executed. Ranges and budgets assigned to each order are fully customizable by users, via front-end UISDK or smart contracts.


  • Irreversible Orders: While in most AMMs limit orders are reversible when markets retrace and require monitoring and manual removal to avoid reversal, Carbon liquidity trades in one direction — meaning orders are final on execution, eliminating the need to monitor your order and withdraw liquidity at the right time.


  • MEV Resistance: Spot trading is protected from MEV sandwich attacks (more info).


  • Zero Gas/Trading Fees: Strategy creators (makers) pay zero gas and zero slippage on trades executed by their strategy, only a small gas fee to open/close their strategy.


  • On-Chain Adjustability: Once a strategy is in place, it can be adjusted without needing to remove and recreate the position, enabling hyper efficient updates.


For more details on these features, please see the following explainer video, and this article.


From X*Y=K to Asymmetry: A Brief History of On-Chain Liquidity


Carbon marks a new era for on-chain trading and liquidity.


The first generation of on-chain liquidity — supported by constant-product AMMs — required liquidity providers to buy and sell tokens across an infinite number of prices.


The introduction of concentrated liquidity gave liquidity providers the ability to set a specific range of prices where they offer to buy and sell tokens.


Carbon is the first protocol to offer “asymmetric liquidity”, a new form of concentrated liquidity where market makers can distinguish between their buy and sell ranges. Buy/sell ranges can be placed at any price based on where a user expects a given token will trade — and liquidity automatically rotates to fill trades in only the ranges defined by the user.


Under the hood, this novel functionality is powered by Carbon’s unique dual-curve design. Unlike existing concentrated liquidity positions which use a single pricing curve (or “bonding curve”) to manage both buys and sells, each liquidity position in Carbon is composed of two separate buy and sell curves that are paired together via a common source of liquidity.


In the case of a single-use limit order, one of the curves is set to be inactive. Liquidity starts in the active curve, and as the order is executed, liquidity shifts from the active to the inactive curve, removing the swapped tokens from active trading in the process.


In the case of recurring strategies (e.g., Grid Trading, Momentum Trading, Arbitrage), both buy and sell curves are set to be active, so they’re constantly offering to trade in their selected ranges. As market prices move into range and orders are executed, liquidity continuously shifts between the user’s paired curves, until the user pauses, deletes or updates their strategy.


Overall, these capabilities give users unprecedented control and cost savings to execute more precise and expressive trading strategies in a fully on-chain, permissionless protocol.


Step-by Step Tutorial on Creating a Carbon Strategy

Share on social

Alpha! Alpha!
Read all about it!

Alpha! Alpha!
Read all about it!

Alpha! Alpha!
Read all about it!

Subscribe for the latest updates on Carbon DeFi

Subscribe for the latest updates on Carbon DeFi

Subscribe for the latest updates on Carbon DeFi