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Private Trading, Deep Liquidity.
ShadeSwap is a privacy-preserving AMM built on Secret Network that is front-running resistant by default. ShadeSwap features the following:
  • Private Trading
  • Protocol Owned Arbitrage
  • Stablecoin Pairings
  • Front-Running Resistant
  • Bond Integration
  • Unified Router Liquidity
  • Staking Liquidity Bootstrap
ShadeSwap pools and integrations are unified by Silk, a privacy-preserving collateralized reflexive currency pegged to a basket of global currencies and commodities.
ShadeSwap: Private Trading, Deep Liquidity.

Automated Market Maker (AMM)

Automated market makers are smart contracts that empower users to trade token pairs without needing to interact with other traders and market makers as (often centralized) counter parties. In essence, an AMM changes the form of trading from peer-to-peer to instead by peer-to-contract, creating a decentralized and censorship resistant trading system for anyone in the world to interact with. Each token pair (such as SILK/SHD) are their own smart contract for users to interact with.
AMMs are free of order books and order types. Instead, formulas determine asset prices.
Using AMMs, users do not need another party or trader to make a trade. Instead, users interact directly with that contract, which make the market for the user, hence the name automated market makers. AMM liquidity is provided by liquidity providers ("LP").

DEX Problems

Decentralized exchanges to date suffer from a range of issues with respect to sustainability and usability. Some of these key problems are as follows:
  • Miner Extractable Value (MEV)
  • Trading Privacy
  • Arbitrage Value Outflow
  • Pricing Accuracy
  • Fractured Routing Liquidity
  • Liquidity Bootstrapping
  • Integration Incentives

Miner Extractable Value (MEV)

​Ethereum MEV​
Miner Extractable Value is the process by which arbitrage entities insert their transactions and trades in front of a user in anticipation of their trade - resulting in micro profits that the user suffers from in the form of greater slippage incurred. This front-running process is made possible because to date, the majority of blockchain mempools are public by default.
ShadeSwap solves this problem by being built on Secret Network - a private-by-default blockchain which has an encrypted mempool as well as privacy-preserving smart contracts (known as "secret contracts").
Entities are unable to front-run trades on ShadeSwap because trades are kept encrypted, preventing front-runners from extracting profits in a risk free manner at the cost of the user.

Trading Privacy

Tokens that are listed on ShadeSwap use the Secret Network SNIP-20 to SNIP-23 token standard. This token standard empowers private by default transactions where the only visible data is that user A interacted with contract address B. The amount of funds moved as well as where the destination address is are kept encrypted within the publicly visible JSON file storing the data.
By using ShadeSwap, users who interact with ShadeSwap are trading tokens that protect their transaction privacy by default while simultaneously protecting their trades.

Arbitrage Value Outflow

Buy pressure on exchange #1 and sell pressure on exchange #2 brings pricing parity.
Arbitrage is defined as capitalization on inefficient markets. Inefficient markets are simply when two markets list the same asset at different prices. Arbitrage happens all the time, and everywhere that there are markets, there is arbitrage. Arbitrage is essential for markets to be fair, and it ensures users are receiving the same price for the asset regardless of where you are from or where you are trading. Arbitrageurs are rewarded for providing this service to consumers in the form of risk free profits (assuming transactions execute and gas is not expended in the process).
Using protocol owned arbitrage and permissioning, Shade Protocol directly arbs price disparities every time a user executes a trade on ShadeSwap. Users earn a portion from the arb profit incurred from the user's impact on the market, and the protocol keeps the rest. In essence, the service and revenue is created and captured by both users and protocol instead of external entities performing this valuable task.

Pricing Accuracy

With protocol owned arbitrage executing on every trade users make on ShadeSwap, the protocol is guaranteed to have arbitrage for every conceivable trade, which means ShadeSwap will have extremely accurate pricing as the protocol is no longer dependent on external actors to maintain accurate pricing. This will empower ShadeSwap to become a source of truth for pricing for any asset traded on the DEX that is included in the protocol arb routes.

Fractured Routing Liquidity

Silk unifies liquidity & routing
DEXs struggle with having deep liquidity that their router can leverage - often times using their native governance token as the primary pairing. Unfortunately, the volatility of these governance pairs increase the risk of impermanence loss - increasing the required yield in order to attract liquidity. Additionally, in order to offset the risk introduced from volatile governance token pairings liquidity providers are likely to sell off the governance token which decreases the collective value of the liquidity across the entirety of the DEX.
Shade Protocol solves this by using SILK as the primary pairing on all pairs on ShadeSwap. Because Silk is a stable asset, this significantly decreases the amount of risk a liquidity provider has to take which decreases the amount of emissions that must be used to attract liquidity on the DEX. Finally, because SILK is the primary pairing the router is able to easily elicit high value trades through the router. Shade Protocol earns revenue from SILK adoption. By having a stablecoin be at the center of the DEX as opposed to a volatile governance token, ShadeSwap has a massive distinct sustainability advantage compared to other DEXs.

Liquidity Bootstrapping

One of the core problems with any DEX is tied to building deep liquidity for pools out of the gates in a sustainable fashion. Some protocols have mitigated this risk by having LP lock-up periods as well as veTokenomics. Shade Protocol has plans to implement veTokenomics in a potential V2 of ShadeSwap. Initially, Shade Protocol bootstraps liquidity pools by having Shade Staking be directly integrated into the LP experience.
In essence, users that want to partake in governance as well as receive rewards for being a protocol participant must help bootstrap liquidity on the SILK/SHD pair on ShadeSwap. Because of Bounded Conversion Minting, the protocol is able to seamlessly split SHD into SILK to then create LP tokens. Staking has vesting periods to ensure that this locked liquidity is not removed from the LP pool at a moments notice.

Integration Incentives

Tokens are a key part in determining the incentives of integrations. Here are a list of diverging integration incentives that emerge from primitives having different tokens:
  • Brand dilution
  • Lack of revenue share
  • User capture dilution
  • UI/UX integration friction
Because Shade Protocol is an array of connected privacy-preserving DeFi applications, multiple Shade Apps can all work together so as to make brand stronger, share revenue, retain users, all while creating a seamless UI/UX experience. While Shade Protocol is happy to interact with 50/50 incentive splits (often considered an industry standard on DEXs), the protocol will be biased towards the net positive that is directly integrating products with itself.

Conclusion

ShadeSwap is a futuristic DEX focused on privacy, sustainability, and deep liquidity. Leveraging the full product suite of Shade Protocol, ShadeSwap will provide key DeFi services to users around the globe - unlocking access to millions of users around the globe, all while driving SILK adoption and utility.
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Last modified 6mo ago