Interview: How Integral Aims to Facilitate the Cheapest Trades in Crypto
The DeFi space is evolving at a rapid pace, in terms of services available, total value locked, and user base. In this realm, decentralized exchanges (DEXs) have become very popular, boasting incerased levels of security and privacy when compared to centralized exchanges (CEXs).
Yet many of these DEXs lack the liquidity required by their growing user base. As a result, users financially suffer from slippage – when an exchange receives an order at one price, yet by the time the order is actually executed, the price has changed.
Integral Protocol is launching an Automated Market Maker (AMM) which aims to wipe-out such a problem—among others—in an impressive manner. We recently sat down with the Integral team to learn exactly what the project is up to.
Tokenist: Thanks so much for taking the time to speak with us! We’re super excited to chat about Integral and take a deep-dive into how everything works. To start, can you give us a brief description of Integral and the problem you’re looking to solve?
Integral: Integral is a new AMM that eats other exchanges’ liquidity. Our debut product mirrors 3x Binance spot market liquidity, gives LP 20x APY with concentrated liquidity positions (one of Uniswap v3’s new features), and eliminates impermanent loss with trade delay. These features make Integral instantly become the world’s cheapest place to trade spots.
Although people love DEX like Uniswap, our starting point is that they have to go back to CEX for big trades. Our favorite quote from the user interview is that “As my stack got larger, it was harder to trade on Uniswap, so I had to go to Binance.”
We think the main reason for this “jump back and forth” is the lack of liquidity in DEX. Although DeFi is growing day by day, it’s still small compared to CEX like Binance.
So we designed Integral to solve this problem. We invented OB-AMM. It’s an AMM algorithm that can convert any order book system to an AMM (similar to Uniswap V3). This AMM gives us the ability to mirror Binance liquidity and make ours 3x bigger than Binance. This instantly makes us the cheapest spot to trade crypto.
Liquidity is the problem we want to solve for the trading side. Regarding liquidity provision, we want to improve their capital efficiency and eliminate impermanent loss for them. To do so, we have a feature called “concentrated liquidity position” (also similar to Uniswap V3). With this feature, we require only 1/20 of the AUM to provide the same liquidity. So given the same trade volume, our LPs earn 20x more Fee APY.
To tackle impermanent loss, we built a trade delay mechanism in our product. This design enables us to prevent frontrunning/cross-exchange arbs (the main cause of impermanent loss): core to our design is the trade delay and our use of Uniswap as a price oracle for periodic sync. Even if no trades are executed in 5 minutes in our AMM, our AMM state will sync to Uniswap’s current time-weighted price (TWAP).
Tokenist: So, what exactly is the holy grail of AMM design?
Integral: We answer the question with this twitter:
Tokenist: Do you anticipate resistance or pushback from different CEXs like Binance?
Integral: Not really. Most CEX data in this industry comes by the way of public websocket (stream OB info, all top programmatic CEX traders tap into these APIs). Should CZ change/throttle/ or block these just to squash us, THAT WOULD BE A GOOD PROBLEM TO HAVE. Such a drastic action by CZ would also interfere severely with all crypto markets and traders everywhere.
Tokenist: What’s the catch for traders? Can you explain the 5 minute delay on trades?
Integral: Our user experience is not that different from other DEX like Uniswap. Select tokens, enter the amount, then click SWAP. The only difference is that when the user clicks SWAP, the order will not be executed immediately. It will go into a queue and will display as a pending transaction on the interface.
Your order is enqueued with other pending orders on a first-come-first-served basis, which will be viewable publicly. Your order will become eligible for execution after a 5-min trade delay and then be settled according to the arrival sequence, whose interface can be called by any trader/smart contracts.
For example, when a user submits an order on T=0 when the price is 600, his order will enter the queue to wait for 5 minutes. It will be executed on T=5 according to the time-weighted-average-price (in this case, 603), calculated by the AMM algorithm based on the Uniswap price oracle. This design will prevent frontrunning/cross-exchange arbs (the main cause of impermanent loss). The only way to “arb” us is if you have a large T+10m alpha, in which case, consider pinging Jim Simons for a $20m job offer.
Tokenist: “Debut product will mirror 3x Binance spot market liquidity and instantly become the world’s cheapest place to trade spots” – Can you explain how Integral plans to do this?
Integral: Liquidity is commonly thought of as different amounts of assets A and B available for the swap at different price levels. This information is normally stored in the exchanges’ order book system. According to our earlier theoretical paper On the Equivalence of AMM and Limit Order Book Systems, any given limit order book will have an equivalent AMM state. Therefore, Integral can take the ideal order book that meets its target liquidity requirements, whose MAX level is 3x Binance liquidity, 1x Uniswap liquidity, and convert it to the equivalent AMM state. This technology gives Integral one of the highest liquidity among DeFi projects.
Tokenist: Uniswap’s V3 announced concentrated liquidity feature which helps LPs compose different return-risk synthetically in their LP positions. How will LPs benefit more from OB-#AMM protocols?
Integral: The answer has two parts. First is that Uniswap’s way of doing this is giving LPs granular control over what price ranges their capital is allocated to, so you need to configure all sorts of things very actively. What we do is a bit different because our feature is more “passive.” All you need to do is provide liquidity, nothing else.
We are pretty happy that we come across Uniswap on the way of building products, and their active way is pretty nice. However, we should bear in mind that not many people out there can follow the market and change their positions. Actually, the only people doing this would be professional market makers on Binance. Giving LPs more freedom to control their liquidity position also creates a gap between professional and individual LP. The people who are making a lot of money on Binance now will make more money on V3.
This is not something we want to achieve with Integral because we build this feature to democratize professional market makers’ tools and algorithms. Therefore, we built-in professional market marketing /quant algorithm, making it available for every LP. So individual LPs do not have to worry about unfair competition with professionals, ‘cause they have the same starting point.
We also have something Uniswap currently doesn’t have: eliminating IL with time delay.
Tokenist: How will Integral stop other DEXs from rolling out similar functionality?
Integral: We think the timing is crucial in DeFi. We are already a top runner (the cheapest place to block trade crypto) in the competition, and we need to keep running. With L2 deployment and OB-AMM evolution, we will “suck up” other exchanges’ liquidity and make us the ultimate DEX.
Tokenist: What’s the end goal of Integral?
Integral: Eat liquidity from any other exchanges. Become the cheapest place to trade crypto on earth.
Tokenist: How can people get involved?
Integral: Our product launch / farming will start on March 29th, 2021 (details on https://resist.integral.link). You can support us by using our product. Meanwhile, you can consider following our twitter @professorjey and discord: discord.gg/sKGABwj2BU . If you like our vision and think the product can actually save money for you, please tell your friends about us.
Have you heard of Integral before? Let us know what you think of the project in the comments below.