Gnosis, a project building novel market mechanisms atop Ethereum, just unveiled a new decentralized exchange system, Gnosis Protocol, that has the potential to be a major force in the DeFi arena going forward.
The Gnosis team formally announced and launched the DEX protocol on Wednesday, April 15th, thus adding the permissionless and totally decentralized exchange infrastructure to the project’s notable suite of Ethereum products, which already includes the Sight predictions marketplace, the Gnosis Safe multi-sig vault solution, and more.
Beyond its unique optimizations, the arrival of the Gnosis Protocol is significant as the project now joins the Uniswap DEX infra in comprising the Ethereum ecosystem’s two most decentralized trading protocols as things currently stand.
Yet as for its optimizations, Gnosis Protocol is unique from any DEX system currently operating in the Ethereum space. Why? The new exchange protocol makes use of a novel solution known as “ring trades” to bring improved liquidity to otherwise illiquid crypto trading pairs.
“Ring trades especially improve liquidity for illiquid or ‘long tail’ tokens such as prediction market outcome tokens, by facilitating trades not normally possible on traditional trading protocols,” Gnosis strategy director Kei Kreutler noted in an announcement post.
In this sense, the Gnosis Protocol optimizes for liquidity and prices rather than speed. This utility is certainly useful in a cryptoeconomy where new projects and assets constantly bloom.
Moreover, to show what the new system is made of, the Gnosis team developed and has released a front-end beta dApp dubbed Mesa where traders can readily interact with the Gnosis Protocol, as Kreutler explained:
“Mesa is launched and maintained by the dxDAO, a community-owned and operated organization that develops, governs, and promotes DeFi protocols. Available through IPFS and ENS, the Mesa dapp is a general trading interface that supports simple market making strategies for stablecoins on Gnosis Protocol. By using the simple liquidity provision on Mesa, regular users can act as market makers with minimal effort, improve liquidity, and earn a competitive yield.”
Powered by One Global Liquidity Pool
In an April 15th Twitter thread on Gnosis Protocol’s launch, Gnosis co-founder and chief technical officer Stefan George notably compared where the new system was similar to Uniswap and where it was different.
To start, George explained that the two DEX protocol’s were alike in that, among other things, they “allow anyone to add and trade any tokens” and “have no centralized components and will be available as long as Etheruem runs.”
On the flip side, the Gnosis CTO said a major distinction between the two systems was that Uniswap requires a liquidity pool for every token trading pair, whereas Gnosis Protocol makes use of only a single global pool in which the “provided liquidity can be exposed to every token in the pool.”
Ultimately both trading protocol’s provide unique benefits, then, George concluded:
“Both protocol designs have advantages. Uniswap is extremely easy-to-use and has atomic transactions. Gnosis Protocol is designed for larger trades and low liquidity assets. It could become the liquidation engine for DeFi protocols.”
Why Optimize for Liquidity?
Some of the Gnosis project’s flagship work centers around prediction marketplaces. From the Sight dApp to conditional tokens, Gnosis has already done much to pave the way for a robust sector of decentralized prediction services in the future.
Yet at the heart of these efforts is the problem of novel, illiquid assets, which is precisely what the Gnosis team has built their new DEX protocol to address:
“In order to ensure marketplaces exist for the ‘long tail’ of prediction market assets, it is necessary to have market mechanisms built precisely for handling large numbers of unique, and often illiquid, tokens. To this end, we built the Gnosis Protocol to become the standard for trading prediction market conditional tokens and providing access to their global liquidity pool.”