Building on its experience developing oracle protocols that provide low-latency data to blockchains, Douro Labs has been experimenting with a prototype solution for cost-effective liquidations and value-additive means to discover such liquidations
The intuition behind the solution prototype is to enable DeFi to increase its efficiency by retaining value that might have traditionally leaked to block builders and increase access to parties that are able to compete over opportunities
Douro Labs showcases the current prototype running in testnet and would like to open up a DAO discussion on the viability to further develop the current prototype and deploy a DAO owned instance into production
Two Problems addressed by Express Relay
DeFi protocols and their users leak value to arbitrageurs and block miners in the form of deep discounts in order to reduce the credit risk that results from underwater positions and/or vaults
By virtue of the fragmentation of DeFi, searchers that scan for liquidation opportunities are limited by the number of DeFi applications they can monitor and build integrations for
The Solution
The current prototype solution allows DeFi protocols to each independently auction off the rights to liquidations via its own order flow auction (OFA), re-aligning incentives away from actors that impact and benefit from the (re)ordering of transactions.
In the following diagram, the traditional workflow is illustrated on the left-hand side whereby value is leaked to block miners. by contrast, Express Relay removes the ability of miners to extract value for the benefit of searchers scanning for opportunities and enables DeFi protocols to capture the majority of value from Searchers. Protocols will effectively reduce the discounts that they have to provide to deal with the risk of bad debt, further improving the economic efficiency of their applications and providing users with better experience.
Current prototype is focused on DeFi deployed on EVM chains
Liquidations are resolved in one-transaction within the same block
Express relay is oracle agnostic. Searchers and Protocols can use separate protocols to measure health factors and price the liquidation opportunities
The solution is immune to single transaction sandwich attacks that prevent liquidations from being triggered
Market Validation
The initial response from a number of community members on the idea and the current prototype has been positive:
7 searchers so far have expressed interest in integrating if a DAO-owned and governed production system were to see the light
8 DeFi protocols so far have expressed similar interest in using Express Relay as a primitive to process liquidations and recoup value leaked otherwise
Current Prototype Deployment Details
The current contracts are deployed on optimism sepolia testnet (op-sepolia) using the following addresses:
The prototype features a set of high-quality searchers actively performing liquidations on the Optimism Sepolia testnet. The activity and performance of these searchers on liquidation opportunities can be seen here.
Request for comments
Douro Labs hereby requests the Pyth community to comment on the problem addressed and provide feedback on the solution proposed, prior to a potential PIP (Pyth Improvement Proposal) that the DAO can vote on to adopt the solution on mainnet.
Wow, this is interesting. The implication of this express relay thing overall is that value does not have to be leaked to miners or validators, and can actually be preserved by the defi protocol (and by extension, their own users) for liquidations and other valuable transactions. I imagine searcher parties would also be excited by this…
I would like to know the same,
it sounds like the first steps toward this. Also the ability of Defi platforms adding extra services like the auction of the data seems very game changing to my smoll brain
Lets respectfully hear more Señors
Very interesting! Honestly, I’m far from understanding all that implies and I miss the time to dig too much around it but I’m questioning myself as a community member but also a $PYTH holder the classic question “What’s in this for me?”
Like what will this bring to Pyth as a project but also what this will bring to $PYTH Holder.
Revenue stream for the DAO?
What is the size of the protocols that expressed an interest in the product? Any known names or more exploratory.
Will this implies a dilution of the current onboarding and marketing effort towards the flagship of Pyth which is Data Feed?
Do we feel that Pyth adoption and brand is sufficient to throw another service/offer to the market?
I think it’s important to have these discussions prior vote considering that retail holder of $PYTH might not be “heavy” enough on a voting standpoint when it comes to the DAO votes.
Sandwich attacks have plagued the Solana ecosystem in the past. Profiting off retail users, increasing congestion (making Solana unusable at times), and is a loophole that requires closing.
This is actually a big things for users and protocols alike. Especially inDeFi where the two are not mutually exclusive.
I am so thankful we have such great developers in the Pyth ecosystem: that are cooking constantly.
Ho I love the concept and see so much parallels with Pyth as a data oracle taking information from data provider and broadcasting them to blockchains.
Express relay would become the Liquidation Oracle and book keeper. It’s a smooth adaptation (And yes, I’m dumbing this down to my level :)).
More value for protocols will mean a more resilient crypto economy for sure.
We are contributors to the Swaap protocol (yield and market making protocol). We are supporting this initiative by being a searcher (thanks to our market making infrastructure).
We are extremely excited by Express Relay auction system. Designing efficient lending market is one of the key enablers for DeFi to become the next infrastructure of the financial system. Liquidations are probably the hardest problem there.
We believe that Express Relay auction system redefines liquidation economics for both searcher and protocols which allows for more efficient lending market designs.
Heavily in favour of fully deploying the protocol!
Do you guys think at some point that there will be a clob for buying and selling liqs/debt and such? That’s something that can be built on top of this?
off topic - but why do most platforms in sol deif use keeper instead of clobs?
Founder of Ionic Protocol here. We have been working closely with Pyth on testing this feature and we have successfully completed testnet liquidations through the Express Relay! This is a no brainer for us, as the integration is simple and it makes our lending markets much safer as we can rely on searchers to provide the liquidity up front to seize the collateral. On top of this, including the benefits of reducing value extraction and improving economic efficiency of the markets makes this a P0 feature for us to add!
We are heavily looking forward to this feature being live on mainnet!
KEOM Protocol Founders: Enhancing Liquidation Efficiency and Network Health
At KEOM Protocol, a leading lending and margin trading platform operating across five chains with plans for further expansion, we recognize the need for initiatives like PER. Traditionally, the MEV (Miner Extractable Value) revenue model has heavily favored miners and block builders, often overlooking the contributions of searchers and protocol operators.
PER introduces a balanced approach by exposing liquidation opportunities to PER searchers and allowing our protocol to receive a portion of the liquidation incentive. This creates a win-win situation for protocols, searchers, and overall network health. By reducing gas/bribe wars among searchers, the network becomes more efficient and less contentious, benefiting block builders indirectly.
Moreover, KEOM provides PER searchers with a competitive edge over traditional mempool searchers. We achieve this by maintaining a tight LTV (Loan-to-Value) range where only PER searchers can execute liquidations, thereby skewing the liquidation source distribution towards PER. This strategy not only increases revenue for both our protocol and PER but also strengthens the overall ecosystem.
In summary, KEOM is supportive of this collaboration with PER to enhance protocol revenue, improve network stability, and align incentives among all participants, resulting in a significant advancement in DeFi.
Absolutely, the idea resonates with me as well. It’s akin to how a financial analyst gathers data from various sources and disseminates it to the market, ensuring transparency and efficiency.
Express Relay would be the pivotal role in this ecosystem, serving as the Liquidation Oracle and the custodian of records. It’s a seamless integration that fits right into the existing framework (And yes, I’m simplifying it to make it more digestible for myself :)).
Enhancing the value for these protocols will undoubtedly fortify the crypto economy, making it more robust and resilient against market fluctuations.
