The Liquidity Aggregation Protocol was the first cross-chain solution developed by Kinetex Network, now transformed into Swaps.io, to address persistent liquidity challenges in the DeFi ecosystem and a lack of user-friendly interfaces.
The struggle with liquidity is one of the most significant challenges in the DeFi space. The decentralized nature of DeFi platforms and focus on independence often result in liquidity being fragmented across multiple pools, which cannot be accessed simultaneously. These two aspects make it challenging to find sufficient liquidity, even for moderately sized transactions. Users must navigate multiple projects on different networks, manually select DEXes and bridges, analyze liquidity and rates, and complete exchanges across unfamiliar interfaces. As you may imagine, this process is time-consuming and overly complex for most users.
This fragmentation also leads to such issues as highly varying pool prices across the crypto space, regular price volatility, and increased slippages, especially during high-volume trades. Bridges, too, often lack adequate network support and liquidity, especially in the case of newer protocols. These factors result in high transaction costs, unfavorable rates, and long wait times, ultimately discouraging many users from utilizing crypto and highlighting the absence of a universal, user-friendly solution for cross-chain asset swaps in DeFi.
The Liquidity Aggregation Protocol operated as a decentralized meta-aggregator, connecting over 400 liquidity sources, including DEXes, DEX aggregators, cross-chain bridges, and professional market makers. By building such a vast ecosystem, the protocol was able to find the most optimal routes for executing trades with minimal time, cost, and price slippage.
Kinetex's Liquidity Aggregation Protocol had several advantages, including unified liquidity, route optimization, swap automation, gasless flow, etc.
The protocol aggregated liquidity from diverse sources, enabling seamless trading without creating new liquidity or introducing wrapped tokens. This approach allowed the protocol to avoid contributing to worsening fragmented and frozen liquidity issues often associated with wrapping tokens and bridges.
Advanced algorithms assess liquidity, gas fees, rates, and time to construct the most efficient swap routes. They also made it possible to utilize multiple sources within a single transaction, distributing orders to maximize liquidity depth and thus minimize price impact.
Relay nodes were used to automate the entire swap process in the Liquidity Aggregation Protocol. These nodes estimated gas fees, executed users' transactions, including intermediate steps in multi-step routes, and paid gas fees using users' swapped assets or escrow deposits. Users only needed to approve tokens and sign route data, allowing them to leave the platform while the swap was completed.
In Liquidity Aggregation, users had two options to pay gas fees using Universal Gasless. They could choose routes that use permit tokens or opt for an escrow service that allowed them to borrow native coins to make payments across any network after making a gasless deposit. This feature made gas payments more straightforward for users.
The Kinetex team has implemented several measures to minimize MEV attacks. Transactions were hidden from MEV searches by relaying them through nodes and publishing via Flashbots, preventing mempool analysis. Additionally, an updated SwapStealth structure delayed the full disclosure of transaction details by publishing only hashed data initially, revealing each step progressively.
Users could set price deviations at a comfortable level, managing slippage according to their risk tolerance. This feature was useful for both novice and experienced swappers. The first often felt confused by the results of their swaps, not understanding why they did get the amount they expected, and the second kept making significant losses daily, always looking for a better solution.
Users of the Liquidity Aggregation Protocol could choose from two token allowance options: a one-time approval for the precise amount a user would like to swap, which should be re-issued for each new swap, or an infinite approval that provides access to the entire user's balance. This way, users could feel safer regarding their funds.
By integrating these advantages, the Liquidity Aggregation Protocol elevated the cross-chain experience, offering users improved efficiency, increased profitability, and enhanced security.
The Liquidity Aggregation Protocol represented the team's aspiration to transform the DeFi space for crypto users by uniting fragmented liquidity and automating some complicated processes. As more contributors joined the network, they brought valuable ideas and expertise. As a result, during the finalization of this protocol, the team realized that while they had successfully addressed several common cross-chain challenges, some remained unresolved. Consequently, they initiated work on the second protocol, Flash Trade, which you can learn more about in this post.
