Gnosis and Balancer Labs have announced the implementation of the Balancer-Gnosis Protocol (BGP), a new decentralized exchange running on top of Ethereum. Felix Leupold, Software Engineer Lead at Gnosis, has outlined some important points about the protocol and how it will help users operate more cost-efficiently.
The Balancer-Gnosis Protocol will merge two components as part of the partnership, Balancer’s second iteration Vault System and the Gnosis pricing mechanism. As Leupold explained, the BGP will protect users from Miner Extractable Value (MEV) exploits, but without losing any liquidity in the chain.
MEVs are getting more attention as more solutions are emerging to tackle malicious strategies that mainly affect users. As Leupold said, traders on Ethereum’s network can be “stretched by miners and arbitrators” when these actors pool trades to manipulate prices. For example front and back running and transaction sandwiching. Leupold added:
BGP executes multiple trades per block and settles them all at the same price. Ethereum already batches transactions into separate blocks, so the idea of time priority within a block doesn’t make sense.
Ethereum users will see the greatest benefit
The DEX will be rolled out in stages, the Proof-of-Concept is live for developers on the mainnet, CowSwap Exchange. When fully implemented, users will use the Gnosis Protocol solution to execute transactions after batch processing as shown in the image below. The transaction must be signed, collected by a “solver”, sent in batches, and sent via the Gnosis protocol for final settlement with Ethereum’s DeFi ecosystem.
Leupold classified the BGP as a “breakthrough”. After years of development, the solution can “leverage the liquidity of any on-chain protocol” and leverage the tools of Flashbots to prevent a transaction from being pinched or impacted by manipulation. In a press release, Fernando Martinelli, CEO of Balancer said the following about the partnership:
Through collaboration, we can outperform the competition – traditional finance – and provide merchants with unparalleled decentralization, transparency and value. We are proud to bring together two teams known for great engineering, Balancer Labs and Gnosis, in this partnership.
The “solvers” will compete to offer users the best prices. Also, they will have “the same or better prices” than in other decentralized exchange protocols, without you having to estimate gas prices yourself, “as Leupold said. Martin Köpperlmann, CEO of Gnosis, said:
MEV is a phenomenon that is currently making value up to 1% of all DEX transactions on Ethereum, with the value going from users to miners or other arbitrators. With BGP, and in particular Gnosis Protocol v2, we have built a trading protocol that protects users and ensures that the value stays with them.
Ethereum has broken all resistance for the past day. At the time of writing, ETH is trading at $ 2727 after falling from a new ATH at $ 2.733. In the daily chart, ETH has a gain of 3.6% and a gain of 61.4% in the monthly chart.