How to Get the Best Price in DeFi?Meet WOWmax — DEX Aggregator & Arbitrage Protocol.
On June 1st, WOW team announced WOWmax. It is not just another aggregator, but it uses slippage as an additional source of optimization. Better price for traders and more revenue for the DAO.
In this article we want to explain how WOWmax actually works.
At WOW, we want to give a more profitable exchange by:
1) Finding the optimal exchange path across multiple DEXs.
2) Creating and using arbitrage capabilities during the exchange.
Currently, there is a lot of competition for arbitrage in EVM blockchains. Yet there are several common arbitrage issues:
1) MEV — the profit a miner makes by reordering and adding their own transactions in the blockchain being created.
2) Arbitrage bots (front running, back running, sandwitch attacks and others) that manipulate the order of transactions in a block.
Miners and arbitrage bots try to take advantage of arbitrage opportunities in the market. As miners create new blocks they have an advantage over bots because they can directly influence the order of transactions in a block bypassing the gas auction.
The trader wants to exchange a large amount of ETH/USDT for Uniswap, which will increase the price of ETH on Uniswap. At this point, an arbitrage opportunity arises.
Because of the large size of the exchange, the price on Uniswap goes up. At the time of the transaction, the price on the other DEX, CEX has not changed.
The bot/miner can buy ETH at a lower price and sell at a higher price due to the price shift in Uniswap. This usually happens within one block, along with the transaction being attacked.
There are many types of arbitrage and many of them have similar mechanics.
More about MEV https://research.paradigm.xyz/MEV
WOWMAX is excited about this problem and we took these issues into account when developing the exchange mechanism.
The main difference between WOWMAX arbitrage and other DEX is that we have implemented a new mechanism “Contract Extractable Value.”
CEV — a mechanism for extracting profit immediately when it occurs within the transaction of exchange through the WOWMAX contract.
We calculate the exchange path and send it to the WOWMAX contract.
A single transaction contains multiple exchanges.
When we perform a swap, we calculate the impact on the price and arbitrage opportunities.
During the first part of the exchange, the price shifts to a DEX.
Then the protocol makes the rest of the swap to balance the price in DEXes and makes the calculations.
The entire sequence of exchanges is done in a single atomic transaction.
Therefore, miners/arbitrage bots cannot affect the order of exchanges within our transaction.
A transaction in the blockchain can consist of several actions.
In our case, all actions are performed within a single transaction. Atomicity guarantees the execution of all actions in the original sequence and the successful completion of the transaction. If an error occurs while performing at least one action, the entire transaction is canceled.
Before and after the exchange with WOWMAX, the prices in the final DEX remain almost the same, since the entire arbitrage opportunity is implemented at the moment of the swap transaction, rather than remaining free as in Uniswap.
One of the versions of arbitrage strategy WOWMAX: