Redefining Liquidations in DeFi: Introducing the Automatic Auctioneer Powered by Carbon DeFi
Redefining Liquidations in DeFi: Introducing the Automatic Auctioneer Powered by Carbon DeFi
Redefining Liquidations in DeFi: Introducing the Automatic Auctioneer Powered by Carbon DeFi
Jen Albert
Jen Albert
Jen Albert
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Jan 26, 2024
Jan 26, 2024
Jan 26, 2024
Bancor, a leading figure in the Decentralized Finance (DeFi) sector, has marked another milestone with its latest endeavor: the introduction of a novel Automatic Auctioneer mechanic, which imbues the traditional Dutch auction format with new DeFi motifs, suitable for a variety of use cases. This new mechanism, epitomizes both decentralization and efficiency, is crafted to adeptly manage large inventory swaps, free from troublesome dependencies such as oracle prices or privileged actors. This new auction format draws upon the unique features and capabilities of Bancor's latest protocols, Carbon DeFi and the Arb Fast Lane, further reinforcing Bancor's commitment to pioneering advancements in the DeFi space.
The Need for Innovation
The BancorDAO recently faced its own version of a familiar problem in DeFi: to implement a decentralized, secure, and reliable method to exchange protocol inventory denominated in a variety of different tokens. For an individual, the process may be relatively straight-forward; exchange procedures with appropriate transaction protections can support moderate trade sizes, and larger trades can be executed in batches over time to give market liquidity sources an opportunity to re-equilibrate between transactions. However, there is no compelling procedure whereby an entire community can achieve the same result via a publicly exposed function. The caller - who could be anyone - may engineer a situation where the inventory exchange is executed at a ridiculous valuation via any number of potential attack vectors. The novel mechanic described here was developed to achieve an efficient and fair inventory swap in an antagonistic environment, without compromising on the exposure of common exploit targets, including and especially oracle price manipulations, or discrete liquidity sources.
The Dutch Auction Mechanism
The Automatic Auctioneer is instantiated with a price point for one token versus another at a point far out-of-the-money, for example 100x above current market value, which can be determined by standard DAO operations. The asking price is then deterministically reduced according to a set schedule, using exponential decay to touch down on a fair price. The parameterization allows for the rate of price decay to be fine-tuned, supporting any level of relative urgency with respect to the timeframes available to achieve the swap. This encapsulates the essence of a vanilla Dutch auction; however these traits alone are not sufficient to address the challenges of managing a large inventory liquidation, where the unrelenting sell pressure of the auction can stress the available market and result in poor exchange rates overall. Therefore, an auxiliary method is required to prevent overwhelming the available market and maintain fair valuations.
An Auxiliary TWAP Method
There is no special requirement that an inventory liquidation be performed all-at-once. Faced with a relatively large token value, prudency considerations should dictate that the exchange be performed in batches, with a non-zero time interval between market interactions. To achieve this, the automated auction mechanism includes parameters for maximum and minimum token quantities actively being auctioned, separate from the total token quantity to be auctioned over time. This allows for real-time price discovery to be performed incrementally by systematically testing the market with portions of the token inventory, resetting the asking price and repeating the auction process until all tokens are sold. The frequency and aggression of these cycles can be predetermined, allowing for communities to agree to a predictable TWAP schedule with a high level of confidence. This design guarantees a continuous and efficient operation without the need for manual intervention, without a centralized actor, and without conceding conscientious management.
Conclusion
Since 2017, Bancor has been actively innovating the DeFi sector, introducing notable concepts such as bonding curves, pool tokens, and the Automated Market Maker (AMM). These innovations have played a role in shaping current practices and tools in the DeFi industry. Continuing in this vein, Bancor has now introduced the Automatic Auctioneer.
The Automatic Auctioneer is a new development in DeFi, offering a decentralized and self-regulating method for conducting cryptocurrency auctions. This tool represents another step in the evolution of cryptocurrency trading and liquidity management. The Automatic Auctioneer is more than a new feature in the DeFi landscape. It reflects Bancor's ongoing commitment to deliver products that service the ever changing needs of an industry that is constantly evolving and innovating.
Bancor, a leading figure in the Decentralized Finance (DeFi) sector, has marked another milestone with its latest endeavor: the introduction of a novel Automatic Auctioneer mechanic, which imbues the traditional Dutch auction format with new DeFi motifs, suitable for a variety of use cases. This new mechanism, epitomizes both decentralization and efficiency, is crafted to adeptly manage large inventory swaps, free from troublesome dependencies such as oracle prices or privileged actors. This new auction format draws upon the unique features and capabilities of Bancor's latest protocols, Carbon DeFi and the Arb Fast Lane, further reinforcing Bancor's commitment to pioneering advancements in the DeFi space.
The Need for Innovation
The BancorDAO recently faced its own version of a familiar problem in DeFi: to implement a decentralized, secure, and reliable method to exchange protocol inventory denominated in a variety of different tokens. For an individual, the process may be relatively straight-forward; exchange procedures with appropriate transaction protections can support moderate trade sizes, and larger trades can be executed in batches over time to give market liquidity sources an opportunity to re-equilibrate between transactions. However, there is no compelling procedure whereby an entire community can achieve the same result via a publicly exposed function. The caller - who could be anyone - may engineer a situation where the inventory exchange is executed at a ridiculous valuation via any number of potential attack vectors. The novel mechanic described here was developed to achieve an efficient and fair inventory swap in an antagonistic environment, without compromising on the exposure of common exploit targets, including and especially oracle price manipulations, or discrete liquidity sources.
The Dutch Auction Mechanism
The Automatic Auctioneer is instantiated with a price point for one token versus another at a point far out-of-the-money, for example 100x above current market value, which can be determined by standard DAO operations. The asking price is then deterministically reduced according to a set schedule, using exponential decay to touch down on a fair price. The parameterization allows for the rate of price decay to be fine-tuned, supporting any level of relative urgency with respect to the timeframes available to achieve the swap. This encapsulates the essence of a vanilla Dutch auction; however these traits alone are not sufficient to address the challenges of managing a large inventory liquidation, where the unrelenting sell pressure of the auction can stress the available market and result in poor exchange rates overall. Therefore, an auxiliary method is required to prevent overwhelming the available market and maintain fair valuations.
An Auxiliary TWAP Method
There is no special requirement that an inventory liquidation be performed all-at-once. Faced with a relatively large token value, prudency considerations should dictate that the exchange be performed in batches, with a non-zero time interval between market interactions. To achieve this, the automated auction mechanism includes parameters for maximum and minimum token quantities actively being auctioned, separate from the total token quantity to be auctioned over time. This allows for real-time price discovery to be performed incrementally by systematically testing the market with portions of the token inventory, resetting the asking price and repeating the auction process until all tokens are sold. The frequency and aggression of these cycles can be predetermined, allowing for communities to agree to a predictable TWAP schedule with a high level of confidence. This design guarantees a continuous and efficient operation without the need for manual intervention, without a centralized actor, and without conceding conscientious management.
Conclusion
Since 2017, Bancor has been actively innovating the DeFi sector, introducing notable concepts such as bonding curves, pool tokens, and the Automated Market Maker (AMM). These innovations have played a role in shaping current practices and tools in the DeFi industry. Continuing in this vein, Bancor has now introduced the Automatic Auctioneer.
The Automatic Auctioneer is a new development in DeFi, offering a decentralized and self-regulating method for conducting cryptocurrency auctions. This tool represents another step in the evolution of cryptocurrency trading and liquidity management. The Automatic Auctioneer is more than a new feature in the DeFi landscape. It reflects Bancor's ongoing commitment to deliver products that service the ever changing needs of an industry that is constantly evolving and innovating.
Bancor, a leading figure in the Decentralized Finance (DeFi) sector, has marked another milestone with its latest endeavor: the introduction of a novel Automatic Auctioneer mechanic, which imbues the traditional Dutch auction format with new DeFi motifs, suitable for a variety of use cases. This new mechanism, epitomizes both decentralization and efficiency, is crafted to adeptly manage large inventory swaps, free from troublesome dependencies such as oracle prices or privileged actors. This new auction format draws upon the unique features and capabilities of Bancor's latest protocols, Carbon DeFi and the Arb Fast Lane, further reinforcing Bancor's commitment to pioneering advancements in the DeFi space.
The Need for Innovation
The BancorDAO recently faced its own version of a familiar problem in DeFi: to implement a decentralized, secure, and reliable method to exchange protocol inventory denominated in a variety of different tokens. For an individual, the process may be relatively straight-forward; exchange procedures with appropriate transaction protections can support moderate trade sizes, and larger trades can be executed in batches over time to give market liquidity sources an opportunity to re-equilibrate between transactions. However, there is no compelling procedure whereby an entire community can achieve the same result via a publicly exposed function. The caller - who could be anyone - may engineer a situation where the inventory exchange is executed at a ridiculous valuation via any number of potential attack vectors. The novel mechanic described here was developed to achieve an efficient and fair inventory swap in an antagonistic environment, without compromising on the exposure of common exploit targets, including and especially oracle price manipulations, or discrete liquidity sources.
The Dutch Auction Mechanism
The Automatic Auctioneer is instantiated with a price point for one token versus another at a point far out-of-the-money, for example 100x above current market value, which can be determined by standard DAO operations. The asking price is then deterministically reduced according to a set schedule, using exponential decay to touch down on a fair price. The parameterization allows for the rate of price decay to be fine-tuned, supporting any level of relative urgency with respect to the timeframes available to achieve the swap. This encapsulates the essence of a vanilla Dutch auction; however these traits alone are not sufficient to address the challenges of managing a large inventory liquidation, where the unrelenting sell pressure of the auction can stress the available market and result in poor exchange rates overall. Therefore, an auxiliary method is required to prevent overwhelming the available market and maintain fair valuations.
An Auxiliary TWAP Method
There is no special requirement that an inventory liquidation be performed all-at-once. Faced with a relatively large token value, prudency considerations should dictate that the exchange be performed in batches, with a non-zero time interval between market interactions. To achieve this, the automated auction mechanism includes parameters for maximum and minimum token quantities actively being auctioned, separate from the total token quantity to be auctioned over time. This allows for real-time price discovery to be performed incrementally by systematically testing the market with portions of the token inventory, resetting the asking price and repeating the auction process until all tokens are sold. The frequency and aggression of these cycles can be predetermined, allowing for communities to agree to a predictable TWAP schedule with a high level of confidence. This design guarantees a continuous and efficient operation without the need for manual intervention, without a centralized actor, and without conceding conscientious management.
Conclusion
Since 2017, Bancor has been actively innovating the DeFi sector, introducing notable concepts such as bonding curves, pool tokens, and the Automated Market Maker (AMM). These innovations have played a role in shaping current practices and tools in the DeFi industry. Continuing in this vein, Bancor has now introduced the Automatic Auctioneer.
The Automatic Auctioneer is a new development in DeFi, offering a decentralized and self-regulating method for conducting cryptocurrency auctions. This tool represents another step in the evolution of cryptocurrency trading and liquidity management. The Automatic Auctioneer is more than a new feature in the DeFi landscape. It reflects Bancor's ongoing commitment to deliver products that service the ever changing needs of an industry that is constantly evolving and innovating.
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