In the month since the unrestricted Mainnet went live, the NEAR community is hard at work to bring best-in-class applications to the platform. Mooniswap by 1inch.exchange is the latest addition to a vibrant ecosystem of protocols building on NEAR.
NEAR’s focus on both usability and performance is opening up new opportunities for DeFi by supporting at-scale real world applications with lower gas fees, low latency, and a flexible account model. 1inch’s decentralized exchange (DEX) aggregator is designed to roll liquidity and pricing from all major DEXes into one platform, making it easy to get the best price for the desired trade. Mooniswap building on NEAR will bring next-generation Automated Market Making possibilities to the OpenWeb.
Sergej Kunz, CEO and co-founder of 1inch, spoke about the growth of their platform and why Mooniswap is excited to be building on NEAR.
“We see substantial potential in NEAR as it is already offering what Ethereum just promises to offer. By building on NEAR, we’ll be able to experiment with sharding and be prepared for the arrival of Ethereum 2.0.”
NEAR delivering on the promise of sharding ahead of Ethereum 2.0 has caught the attention of decentralized applications that need scale now in order to grow. Mooniswap is just the first of many applications building on NEAR that will leverage the performance, cost efficiency, and portability of the NEAR<>ETH Rainbow Bridge.
Front Running Exploitation in Decentralized Exchanges
Blockchain applications have long sought to solve the issues of fairness and transparency in financial trading ecosystems. However, due to the public nature of blockchains, one can easily identify the widespread use of nefarious tactics like arbitrage bots which exploit inefficiencies in decentralized exchanges. Similar to high-frequency traders on Wall Street, arbitrage bots are able to anticipate ordinary users’ trades and optimize for network latency in order to maximize profit at the expense of ordinary users. Commonly called “Front Running,” this is the primary problem that inspired the 1inch team to launch Mooniswap.
Because transactions and gas fees are publicly visible before a block is mined, arbitrage bots are able to predict the direction in which a market is headed and submit a transaction with a higher gas price, forcing their transaction to be mined first. By trading on price swings, arbitrage traders use Front Running essentially to steal from liquidity providers.
The Mooniswap Solution
Mooniswap sought to solve this problem by simply using time to combat arbitrage bots. Virtual balances normalize pricing over a short five-minute period, keeping slippage revenue in a pool to be distributed more equitably.
When a swap occurs, the Mooniswap AMM does not immediately improve price in the opposite direction, but gradually opens it over time. These high-slippage trades are the opportunity arbitrageurs seek to profit on, but in the fairer, more transparent ecosystem on Mooniswap, the actual balance of the exchange does not immediately reflect changes from slippage. Any new trades are still executed at the old price.
Over a five-minute period, the price gradually updates to its true value based on the pool balances. This leaves only small windows of arbitrage opportunities, limiting exposure to average users in a fairer ecosystem.
Additionally, during that short window, the exchange takes a much higher percentage of the trader’s profit, forcing arbitrageurs to return a higher proportion of the price slippage to the pool.
On Mooniswap, arbitrageurs can only collect a portion of the slippage, while the rest remains in the pool and is shared among liquidity providers. Since prices are not updated immediately, no profit can be obtained by simply being faster than someone else.
Mooniswap’s Preparation for Sharding
NEAR’s launch introduced a scalable model for sharding to the blockchain industry: a first among leading protocols promising to deliver a real-world usable blockchain. This architecture presents a unique opportunity for existing dapps to start building and testing their infrastructure on a sharded network now to experience the benefits of scale that other blockchains promise to deliver in future versions.
“As a previous bridge developer of NEAR, I’m quite excited to see the game-changing Mooniswap innovation build on the game-changing innovation that is NEAR Protocol,” says Anton Bukov, 1inch co-founder and CTO. “Mooniswap’s move to NEAR highlights the community synergy and virtuous circle that make up the overall blockchain and DeFi space. Moreover, this synergy underscores 1inch’s ultimate mission: to improve DeFi technology as much as possible for as many users as possible.”
To start, Mooniswap will migrate their protocol to NEAR’s virtual machine along with establishing a native liquidity protocol on NEAR. The NEAR Rainbow Bridge and EVM integration create a seamless path to market on NEAR in the short term while they architect long term solutions for even more scalability. Eventually, the team will rebuild their core protocol native to NEAR, based on a sharded architecture, and become the first sharded decentralized exchange.
Key Milestones for Mooniswap
The team has recently launched 1inch version 2. Its major highlights are Pathfinder, an API that contains a new discovery and routing algorithm, and an intuitive, user-friendly UI. Thanks to the improvements, users will get even better rates on swaps, while response time will be cut even further. Many more products and features are in the works to power a more fair and transparent future for scalable decentralized exchanges.