Balancer Labs, a leading automated market maker (AMM) within the Ethereum ecosystem, has teamed up with Gnosis to develop a new decentralized exchange (DEX).
Balancer’s AMM already forms a de facto DEX, although is utilized differently from the likes of Uniswap and SushiSwap. Increasingly, Balancer’s liquidity pools have been used to support token sales based on bonding curve mechanisms, and to reward LPs who provide long-term liquidity, particularly when paired against stablecoins such as USDC.
The new Balancer-Gnosis-Protocol (BGP), as it’s dubbed, promises to shake up the defi landscape and to provide a genuine competitor to Uniswap that captures the best of both worlds, DEX and Balancer-style AMM.
A Wild Uniswap Competitor Appears
The idea behind the Balancer-Gnosis Protocol (BGP) being developed by the two teams is to combine the improved vault system inherent to Balancer v2 with the price-finding mechanism devised by Gnosis.
It’s also been promised that BGP will set new standards for UX, pricing, and transparency. At the heart of the new DEX is a system that’s become a hot topic in the Ethereum community in recent weeks: Miner Extractable Value (MEV), which utilizes an auction system to obtain better pricing.
“MEV is a phenomenon currently extracting the value of up to 1% of all DEX trades on Ethereum, with value going from users to miners or other arbitrageurs,” explains Gnosis CEO Martin Köppelmann.
He added, “With BGP, and in particular Gnosis Protocol v2, we built a trading protocol that protects users and makes sure the value stays with them.”
The DEX is scheduled to launch in mid-June but a PoC is already up and running, CowSwap (an acronym for “Coincidence of Wants). Its primary USP is the ability to support gasless transactions, with trades settled off-chain and zero network fees attached.
As per CowSwap, more than $390 million in value has been extracted from users by bots frontrunning transactions, exploiting the slippage users allow in a trade. However, CowSwap avoids this problem by enabling tight slippage and can avoiding settlements on AMMs altogether.
Driving Down Network Fees
Ethereum’s infamous network fees, which have been rising steadily for months, have dropped sharply over the past week, aided by increased block space and traffic moving to scalable networks such as Binance Smart Chain (BSC) and Polygon.
The arrival of BGP, if it can secure adoption, will help to further lower trading fees, and could see gwei return to levels not witnessed in over a year. On April 25, Yearn Finance’s Andre Cronje teased “If gwei hits single digits again, I might just release one of the four new protocols,” suggesting that his love affair with Ethereum could be rekindled.
While it will take more than a gasless DEX to achieve that, regardless how talented its developer team may be, the alliance of Balancer and Gnosis in a surprise partnership will serve to shake up the DEX landscape, and could pave the way for a second defi summer that eclipses the heady heights of 2020, when yield farming and degen trading were all the rage.
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