Research Summary
The report discusses Mangrove, a Decentralized Exchange (DEX) that aims to improve the DeFi trading experience by addressing issues such as fragmented liquidity, high slippage, and under-utilized capital. It introduces innovative features like “smart offers,” on-chain market-making strategies, and liquidity sourcing from the entire blockchain ecosystem. The report also details the Kandel strategy, a unique market-making strategy available on Mangrove.
Key Takeaways
Smart Offers and Liquidity Sourcing
- Smart Offers: Mangrove introduces “smart offers,” which differ from traditional locked liquidity pools. The liquidity is not confined to a single pool and can generate yield elsewhere on the chain while waiting to be matched.
- Liquidity Sourcing: Mangrove’s order book with Hooks introduces the concept of attaching custom logic to offers, enabling dynamic liquidity sourcing from the entire blockchain ecosystem. This means there is no Total Value Locked (TVL) on the platform, as liquidity can be sourced from lending protocols, other DEXs, flash loans, and yield/vault protocols when needed.
Kandel Strategy
- On-chain Market Making: A key feature of Mangrove is the ability to run on-chain market-making strategies like Kandel, an AMM strategy that reposts offers instantly based on on-chain order flow, without latency, and operates entirely on the blockchain.
- Strategy Setup: Users can set up a Kandel strategy by specifying the price range, base amount (e.g., WETH), quote amount (e.g., USDB), and the number of offers within the price range.
Role of Makers, Takers, and Keepers
- Makers: Makers, or Market Makers, provide liquidity to the market. Their liquidity can be sourced from various activities on the chain, potentially generating yield elsewhere when not engaged in trades.
- Takers: Takers assess and respond to offers, providing demand and liquidity. Their agreement to the terms leads to the execution of trades.
- Keepers: Keepers are responsible for maintaining the order book’s efficiency by ensuring that only relevant and credible offers are listed. They also update the gas price, which is critical for compensating Takers who help maintain the order book’s efficiency by removing failing offers.
Security and Risk Management
- Security Measures: Despite potential risks, the Kandel strategy has undergone a thorough audit by ChainSecurity to ensure its robustness and security. Offers within the Mangrove ecosystem can include defensive mechanisms to cancel a promise if market conditions change, mitigating issues like slippage and arbitrage.
- Risk Management: Market-making with Kandel involves generating profit from the spread, but users are warned of impermanent loss, particularly if the market price moves outside the strategy’s price range, leaving uncompetitive bids or asks.
Actionable Insights
- Exploring the Potential of Smart Offers: Traders and liquidity providers may want to explore the potential of smart offers on Mangrove, which allow liquidity to generate yield elsewhere on the chain while waiting to be matched. This could potentially lead to increased returns compared to traditional locked liquidity pools.
- Understanding the Kandel Strategy: Users interested in market-making strategies may want to understand the workings of the Kandel strategy on Mangrove. It allows users to post offers at different prices on both sides of the book, with parameters set by the user, potentially leading to significant gains over time.
- Considering the Role of Makers, Takers, and Keepers: Understanding the roles of Makers, Takers, and Keepers in the Mangrove ecosystem could provide insights into how to best utilize the platform. Each role has unique responsibilities and benefits, and understanding these could help users make informed decisions.
- Assessing Security and Risk Management: Users should assess the security measures and risk management strategies in place on Mangrove. While the platform has undergone security audits and offers defensive mechanisms, users should be aware of potential risks such as impermanent loss and extreme market volatility.
