Introduction
DeFi protocols and decentralized exchanges (DEXs) continue to see increased activity despite the current bearish macroeconomic environment. While investors and traders have a heightened level of uncertainty in keeping their funds on centralized exchanges (CEXs) following the recent collapse of FTX, DEXs have performed relatively well. DEXs rose to popularity long before drama unfolded across CEXs this year since users can facilitate monetary transactions without a custodian or an intermediary. However, popular DEXs today, such as Uniswap, aren’t perfect due to their use of the automated market maker (AMM) model. This is because the AMM model introduces high slippage costs, gas inefficiencies, failed transactions, risks for liquidity providers (impermanent loss) and exploits of maximal extractable value (MEV). Hashflow plans to solve these issues by using the request-for-quote (RFQ) model where institutional market makers can price assets off-chain while still executing and settling transactions on-chain.
Overview
Hashflow allows you to trade any asset on any chain commission-free with a guaranteed execution price by simply connecting your wallet to the exchange in a permissionless manner. Using the RFQ model, professional market makers manage liquidity pools while traders and liquidity providers gain a capital efficient experience. Traders can trade assets at the best rates with no slippage, and liquidity providers can earn competitive yields without the risk of impermanent loss. Meanwhile, market makers are able to provide liquidity using off-chain pricing that is backed by cryptographic signatures. This allows traders to experience transactions that have better prices, contain zero slippage and are MEV-resistant for cross-chain swaps.
Hashflow also uses a pool-based architecture to give market makers who do not have their own smart contract the ability to use the pools as an inventory of assets to start quoting on Hashflow. This will allow institutional players that are new to crypto an opportunity to participate in the decentralized finance (DeFi) ecosystem and help bring about further adoption.
Here’s a breakdown on how a bridgeless cross-chain swap works on Hashflow:
A trader requests a quote to sell (source chain) and buy (destination chain) an asset on any particular chain. The request gets routed to a server on Hashflow.
The market maker, who manages an inventory of assets in Hashflow’s pools, in return provides a signed quote to the trader.
If the trader decides to take the quote, they submit the transaction on the source chain (chain where the asset is sold) with the signed quote as the payload. The transaction is then broadcast to the blockchain for the trade to be executed against the pool.
The smart contract on the source chain then performs checks and transfers the funds from the trader’s wallet to the liquidity pool and sends the payload.
Before the transactions reach the destination chain, validators would need to validate the transactions and submit the proof along with the payload.
Finally, relayers submit the payload to the destination chain and transfer the asset to the trader's wallet.
Users still need to pay a fee across the different chains as well as to relayers and validators for effective cross-chain communication. However, the overall fee is relatively cheaper (nearly 50%) when compared to other cross-chain solutions available today. The denomination of the fee when conducting a cross-chain swap would also be based on the source chain (chain where the asset is sold) and take about 3-6 minutes for the transaction to complete on most chains.
Tokenomics and Mechanism Design
The native HFT token is an ERC-20 token and serves as a governance token for the protocol and its gamified decentralized autonomous organization (DAO) and governance platform, Hashverse. The total supply at genesis was 1B tokens and will be inflationary after four years, with an annual issuance rate of 4%. Similar to Curve, its governance will have a vote escrow token model where voting rights will be determined by the amount of tokens staked and the duration for which they are locked. The community will run all governance decisions, which may include decisions around protocol fees, marketing, and code development. In addition to voting rights, the token will also be used to incentivize active engagement on Hashverse. By encouraging participants to continuously adjust the amount and duration of their staked tokens, active members of the community will be rewarded and their “health metrics” will be used to gauge the rewards. The goal of Hashverse is to make governance inclusive across web3 communities and for all participants to unlock and compete for quests, collect and trade in-game artifacts and earn rewards while helping to support the future of the protocol.
A majority of the tokens will be distributed to the community and ecosystem (53%), with the rest going to the core team and investors (47%). The team and investors will have 25% vested at a one-year cliff. The remaining will vest linearly over 3-5 years. However, the vesting period for the community and ecosystem will vary across its sub-categories. Here is a detailed breakdown of the allocation and distribution of the native HFT token:
Macro View
DEXs will continue to struggle in providing competitive pricing for large trades due to limitations of the AMM model and in pricing of assets on-chain using a bonding curve. Therefore, Hashflow aims to help fill in the gap between CEXs and DEXs by bringing the sophistication of traditional market making to a decentralized level while addressing some of the inefficiencies of DEXs today.
Since its launch in August 2021, Hashflow has continued to gain traction by giving its users the most value for their capital on every trade. In just over a year, Hashflow has recorded over $11B in total trade volume and over $31M in total value locked. Also, the platform currently hosts a total of 10,283 liquidity providers and 31 crypto pools while housing 2,467 daily users. The protocol’s daily trade volume was also up in November despite FTX’s implosion and did an impressive $800M in monthly volume. However, the utility of its native HFT token is currenlty limited to governance and DAO rewards. It is not clear how additional value will accrue to its native NFT token as it currently collects no fees from traders. That said, the DAO treasury received 1% of the initial HFT supply and it is possible the community may decide to turn on network fees in the future.
Source: Hashflow
As the benefits of decentralization become more evident over time, the use of DEXs will continue to increase. Hashflow is uniquely positioned to push DeFi forward and bring about greater adoption by onboarding traditional market makers and institutional liquidity. It will be interesting to continue monitoring their progress as they continue to unveil additional chain deployments and tackle future deliverables around non-EVM chain deployments, smart order routing, limit orders and structured products.
Further Reading and Sources
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