imToken ETHKL Presentation Intent-based Swap and Its Impact on the DEX Market

ImToken ETHKL Presentation The Power of Intent-Based Swaps and How It is Transforming the DEX Market

Speaker: Charles, imToken Labs Researcher

The theme of this sharing session is Intent-Based Swap and how it will impact the DEX market. The following sharing content will first introduce the current mainstream trading models of DEX, then explain the concept of intent and the principles and advantages/disadvantages of intent-based trading. Finally, the main intent-based trading products and their extensions will be discussed.

Current Mainstream Trading Models

Currently, there are two main types of trading models. The first type is the popular AMM model, which uses the simple x*y=k design. DEXs using this model allow users to trade at any time, but to achieve this, AMMs adopt relatively conservative liquidity strategies. This strategy results in low capital utilization and price fluctuations can cause liquidity providers to lose funds. In addition, on-chain orders may face issues such as front-running or transaction failures due to price changes. Well-known DeFi products based on the AMM model include Uniswap, Curve, and Balancer.

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The second type is the off-chain matching and on-chain settlement RFQ (Request for Quote) model, where users first request quotes, and professional market makers provide quotes that are confirmed by the users before completing the transaction. This model is relatively user-friendly as it avoids slippage issues and the risk of MEV attacks. However, it presents challenges for market makers, who need to consider price volatility, order expiry, and manage user quote requests. In short, it is user-friendly but not market maker-friendly. Therefore, AMM and RFQ are complementary to each other.

What is Intent

Currently, for users and DApps to interact on-chain, they need to submit complete transaction information, including all the information required for the transaction execution in Calldata. Intent focuses on the intention or purpose of the transaction and leaves the intermediate steps of how to achieve the intention to professional solver roles.

As shown in the diagram, in the traditional model, users need to explicitly provide information regarding the transaction path, purpose, and other signature details when initiating a transaction. In the Intent model, users only need to specify the transaction purpose without worrying about the rest. The transaction content, other than the transaction purpose, will be supplemented by the solver to ensure that the executed transaction results fulfill the user’s transaction purpose.

New Transaction (Swap) Model based on Intent

Based on Intent, Swap only requires users to specify partial conditions when initiating a transaction order. These conditions can be price, time limit, counterparty, or transaction volume, among others. The rest will be filled in by the aforementioned solver and the transaction order will be placed on the chain. Therefore, in Intent-Based Swap, users define “what” and the solver accomplishes “how to execute”.

So what are the specific advantages? First, in Intent-based Swaps, users only need to sign the information without having to put the transaction on-chain, so users don’t have to pay miner fees, meaning 0 gas for users. Second, the order needs to be eventually put on-chain, but this step is transferred to a more professional Solver, which can improve the efficiency of putting orders on-chain and help users avoid potential troubles like setting Gas Price, Gas Limit, and whether there is ETH or not. Third, it has good composability. After users specify certain order conditions, the Solver has a large space for discretion in terms of how to execute, allowing for the combination of various liquidity sources and price sources, thus making it easier to meet users’ transaction goals.

Intent-based Swaps also have areas that need improvement. First, if users change their minds after signing, they will need to cancel the transaction on-chain. Second, due to the Pull Payment mechanism used in this type of Swap, it does not support the direct sale of native ETH assets on the Ethereum blockchain. Third, orders are difficult to track, mainly because the actual on-chain time of the transaction depends on the Solver and is different from the traditional mode, where transactions can be easily tracked through From and To Address fields. Fourth, because Swap users in this model only define “what they want,” it is difficult for DEX to simulate the execution details of the transaction in advance. It is challenging to predict the final results for partially defined conditions, such as sell price >= target price.

Applications and Extensions of Intent-based Swaps

In fact, RFQ and Limit Orders are both simple applications of Intent-based Swaps. In RFQ, users only need to specify the price, quantity, time limit, and receiving address, while other information required for the order will be completed by a third party. The Limit Order mode is similar.

Currently, the more well-known products of this type on the market include 1inch’s fusion mode, CoW Swap, OpenSea’s NFT listings, and UniswapX.

Intent-based Swaps are not only limited to iterating traditional trading models, but they also open up new trading models and potential applications. This architecture is quite flexible. In addition to the one-time swap applications mentioned above, Intent can also serve as a means of implementing proxy authorization, allowing professional market makers to perform specific operations on certain assets within a certain time range and price range. This enables advanced trading applications such as grid trading, large-scale batch purchases, and TWAP (Time-Weighted Average Price) trading.

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