[1IP-44] A Limit Order Protocol Extension for Whales | Grant Request

Simple Summary

The Shipyard Software team is building Tanker, a Dynamic Limit Order Protocol dApp with the capability of plugging into the 1inch Limit Order protocol. We are requesting a grant to help fund Tanker’s development. Should the grant be approved, Shipyard will grant 1inch a license to integrate Tanker into its frontend (at 1inch's discretion) once development is complete. This proposal is requesting approval of a grant to build Tanker, integration of Tanker into 1inch will be at the discretion of 1inch Labs and is not part of the approval of this proposal.

Abstract

Tanker will be built as a protocol and a standalone frontend interface, with whale traders as its target users. The Tanker Dynamic Limit Order Protocol (DLOP) stands to benefit the 1inch platform, should they choose to integrate it, by making the platform more useful and attractive for whales. Even if Tanker is not integrated into the 1inch frontend, it will still improve execution for 1inch traders through pathfinder.

Motivation

The Problem: Currently, whales looking to swap $50k-$500k in mid-tier tokens (on 1inch, for example) face prohibitively high slippage costs. For example, a whale trying to swap 1M MANA to ~$350k USDC would experience a whopping ~13% slippage (at the time of writing).

The only way for whales to avoid this high slippage is to break the order into chunks and sell them over time at varying prices. However, this (a) is a pain to manage and (b) creates redundant gas costs.

The Solution: Tanker solves this problem by automating the process, both saving them time and avoiding high slippage costs. For example, the whale looking to sell 1M MANA could create a DLOP order that would break the order up for them and sell it over a chosen timeframe (at the Chainlink oracle price) to other users looking to fill smaller orders. This essentially creates a maker-taker scenario where the whale trader becomes the maker and the takers are the thousands of already existing orders. Another key component of Tanker is that it provides MEV protection for large trades of valuable but thinly-traded assets. MEV skimming is very common on such trades now. Tanker is a MEV-robust mechanism.

Specification

Go To Market

Using the 1inch platform as an example, takers would be regular 1inch traders who may not even know they are using Tanker (there will be no disruption to their trading). It will just be another liquidity source for them available through pathfinder and 1inch API (Tanker is built for Pathfinder’s standard interface).

Whales (the makers) are difficult to acquire, but they already use 1inch today. Thus, Tanker could benefit a platform like 1inch by improving execution for its traders and making it more useful for whales.

Revenue Model

Unlike a typical maker-taker scenario, whales are not making the market to seek yield, but rather to liquidate their positions. Because of this, the makers (whales) don’t demand fees and instead, the protocol can collect the fees. For revenue, Tanker will take a small percentage fee on all trades filled via Tanker.

If this grant proposal is approved, Shipyard will give 1inch a license to integrate Tanker into its front-end (at 1inch's discretion). This license will also entitle 1inch to a 50-50 spit of Tanker's protocol revenues with AdmiralDAO (the DAO that governs Shipyard Software products), should 1inch choose to integrate Tanker into its frontend at any point.

ASK

We propose that 1inch grants the Shipyard team $250k to cover the development costs for Tanker.

If this proposal passes, the $250k will be transferred to the 1inch DAO operating multisig wallet upon passage and the operating multisig will be authorized to pay the grant to Shipyard upon delivery of the code and license described above.

Rationale

Shipyard Software is a team of seasoned DEX/DeFi tool builders. Clipper DEX, built by Shipyard, is integrated with the 1inch Network, and last year was involved in swaps that sent $646k in value to the 1inch DAO.

Considerations

We have spoken with various members of the 1inch Labs team and have the following assessments:

• Backend: Pathfinder integration is required so 1inch’s router can incorporate Tanker’s orders, which are stored and managed by Tanker. Estimate is ~3 days active development time and is the same as integrating any other AMM.
• Smart Contracts: None required.
• Frontend: None required for standalone dapp. TBD if 1inch decided to integrate into its frontend.

Other FAQs:

Q: Will the Chainlink oracle price offer enough spread such that orders will hit it?

A: At least half the time, the Chainlink oracle is less than or equal to the market price, and recall that there is no slippage. So orders should hit it frequently.

Q: What could a 1inch extension marketplace look like?

A: This proposal is not recommending that Tanker be implemented as a 1inch extension or that 1inch implements an extension marketplace at this time. However, it is an interesting idea that Tanker could be a test case for that once it is proven as a dapp. As Uniswap begins deploying hooks, it will become more and more strategic for 1inch to build an extension marketplace to compete. Tanker is a good example of what an extension for such a marketplace could be. In fact, Uniswap just announced it will be building a similar product called TWAMM. Tanker is a direct alternative to Uniswap’s product, except it would be native to 1inch and fill orders using the 1inch limit order protocol and pathfinder rather than Uniswap hook pools.

For fun, we imagine a mockup like the below for Tanker if it were integrated into 1inch and for a 1inch extension marketplace: