The Genius Yield platform contains an order-book-based decentralized exchange combined with a smart liquidity management protocol. By integrating concentrated liquidity, it becomes the first trading platform on Cardano with this feature. Additionally, Genius Yield is the first DeFi protocol to incorporate a yield optimizer - "Smart Liquidity Vault" - at an abstraction level above the exchange. Yield optimizers execute AI-powered algorithmic strategies deployed in each Smart Liquidity Vault.
The Genius Yield platform is specifically designed to utilize Cardano’s unique Extended Unspent Transaction Output (EUTxO) architecture’s benefits such as determinism, parallelism, security, and composability. The EUTxO data structure upgrades the base layer to support smart contracts and multi-assets.
Rather than reusing the Automated Market Maker (AMM) model deployed by DEXes operating in most account-based blockchains like Ethereum, Genius Yield will deliver an order-book DEX which uses unique off-chain bots called Smart Order Routers (SORs) to automate the scanning, matching, and execution of orders. These fine-tuned bots play a vital role in ensuring that traders have a smooth trading experience while also incentivizing innovation in decentralized order matching.
Cardano is structured with high determinism, increasing the probability of a transaction being confirmed. For this reason, transactions are first validated locally before mainnet deployment. This benefits the trader because there is higher transaction cost predictability and better tracking of the ledger state change. Notably, high determinism is achieved without impacting on-chain security and decentralization, where the base settlement layer is tasked with verification only. This splitting of responsibilities makes Cardano more composable and modular while also allowing for the efficient functioning of the Genius Yield’s Smart Order Routers (SORs).
The aforementioned splitting of responsibility also means trading is a two-step process. First, a trader’s order must be submitted to the Cardano ledger. Second, SOR bots swoop in, actively scanning the Cardano ledger for open orders. Whenever there is an open order, the SOR matches them with others based on their trigger conditions before re-submitting them back to the mainnet for swapping. SORs are automated and designed to operate based on the deploying agent’s rules and algorithms on existing liquidity and price. At the same time, these off-chain bots are adaptive, designed to always provide the best rates across various market conditions.
In a highly competitive Cardano DEX landscape, Genius Yield’s SORs are differentiated on the following fronts:
- Decentralization: Genius Yield eventually plans to open-source the SOR code for complete transparency. SORs will, as the Genius Yield platform's liquidity increases, be open to everyone. They will be free to deploy bots based on their set of rules and algorithms. However, in the early stage, Genius Yield's SORs will only be deployed by vetted operators before the code is gradually released to the public. The overarching objective at this stage is stability. It was the same arrangement when Cardano transitioned from a federated system to complete decentralization during the Shelley stage.
- Programmability: SORs will be matching a wide range of configurable orders beyond simple market and limit orders. In the Genius Yield platform, traders can set complex order types like dynamic or algorithmic orders.
- Trading fees: The high determinism in Cardano increases the probability of transaction confirmation while keeping on-chain fees fixed and low. Genius Yield's SORs exclusively make profits from bid-ask spreads, which fluctuate depending on volatility, trading volumes, and other market inefficiencies. In this system, traders also don’t have to pay for their orders to be matched and processed.
- Higher Liquidity: Since SORs only earn fees from bid-ask spreads, they can be incentivized to provide the trading of new pairs whose liquidity is reasonably low. As traders swap, SORs will consistently rake in higher fees. However, the flexibility of SORs to redeploy their service to other fragmented liquidity pools for higher profit margins present more advantages for the SOR operator.
The Genius Yield platform is evolving its features and is aware of possible attack vectors that can be met on SOR operators. Accordingly, the Genius Yield team continuously evaluates potential attacks and manipulation tactics such as DDoS attacks, front-running, and other adversarial behaviors that can undermine the operation of the exchange and would, in the days ahead.
Discover our Youtube Video about SORs: https://www.youtube.com/watch?v=IFKeTkMN-oQ