Decentralised Finance (DeFi) has undergone rapid evolutions, from simple token swaps and lending protocols to more sophisticated trading mechanisms. Although DeFi has revolutionised financial access, its user experience can be complex and demanding. Traditional DeFi trading often requires users to manage each step of a transaction, from selecting liquidity pools to calculating gas fees. While it can be empowering, giving users control over transactions and assets, the process can be challenging for many. Intent-based trading, another exciting DeFi evolution, redefines how users interact with markets and currency. But what exactly is intent-based trading, and why is it considered the next evolution of DeFi?
What is intent-based trading?
Traditional DeFi trading relies on users specifying exact trade details, such as the token pair, price, slippage tolerance, and liquidity source, before executing a transaction. However, intent-based trading flips this approach by allowing users to express their intent rather than specifying the exact execution parameters.
For example, instead of manually executing a swap, bridging assets, and depositing into a yield farm, a user might simply state, "I want to deposit 1 ETH into the highest-yielding stablecoin farm." The system then handles the complexities of routing, execution, and optimization.
Previously, investors had to manually juggle various wallets, shift between platforms, and monitor multiple tokens and strategies. However, this evolution streamlines the process by automatically executing investment plans across different blockchains, allowing assets to grow on autopilot.
How does it work?
The core mechanism of intent-based trading involves the following steps:
Intent Registration: The user registers their intent without specifying trade details. For example, an investor might state, 'I want to deposit 1 ETH into the highest-yielding stablecoin farm.' This clearly outlines their goal and simplifies the investment process.
Analysis and Optimization: Solvers, which can be on-chain or off-chain entities, analyze available liquidity sources, trading paths, and execution strategies. The solver that provides the most optimal outcome fulfills the trade, often leveraging smart order routing and batch processing.
On-Chain Execution: The transaction is executed successfully on-chain, and the user's intent is fulfilled without the need for manual intervention.
Intent languages are standardized to express user intents, enabling interoperability across various platforms and solvers. These systems aggregate liquidity from multiple DEXs and protocols, optimizing for factors such as slippage, gas fees, and yield. Solvers typically execute the entire intent in a single transaction, ensuring that all steps are completed or none are, thereby eliminating the risk of partial fills or stuck transactions.
Benefits of intent-based trading
By eliminating the need for users to manually determine trade parameters, intent-based trading optimises execution across fragmented liquidity pools and multiple DEXs. This results in lower slippage as solvers find the best execution routes. Additionally, transactions can be bundled or executed in gas-efficient ways, reducing gas fees.
MEV bots exploit users in traditional DeFi trading by frontrunning transactions for profit. Intent-based trading mitigates this risk by offloading execution decisions to trusted solvers, thereby minimising MEV threats.
For retail users, setting parameters like slippage tolerance, liquidity source selection, and price limits can be complex. Intent-based trading simplifies this by shifting execution responsibilities to automated systems, making DeFi more accessible and user-friendly.
By integrating various DeFi protocols and liquidity pools under a single intent execution framework, the system enhances liquidity access and enables seamless cross-chain trading. Aggregation across multiple protocols allows for better capital utilization and access to deeper liquidity. Users can effortlessly express complex trading strategies without needing to execute each step individually.
Challenges and Considerations
Trust and Security: Users need to have confidence in solvers to execute their intents accurately and securely. Implementing robust reputation systems and thorough security audits is vital to building this trust.
Solver Competition: Encouraging fair competition among solvers is crucial to preventing centralization and ensuring that users reap the maximum benefits from a diverse solver ecosystem.
Intent Language Standardisation: Creating standardised intent languages is key for enabling interoperability and facilitating the widespread adoption of intent-based systems.
Complexity of Intent Resolution: Designing efficient and robust algorithms to solve complex intents poses a significant technical challenge, but it's essential for the system's overall effectiveness.
On-chain vs. off-chain execution: Deciding which parts of the intent resolution should be on-chain or off-chain is a crucial design consideration that affects system performance and security.
The Future of DeFi?
Intent-based trading has the potential to become a foundational layer of DeFi, transforming it from a complex ecosystem designed for advanced users into a seamless and accessible financial platform for everyone. By focusing on user intents rather than technical details, it can unlock the true potential of decentralized finance, driving mass adoption and fostering innovation.
With advancements in zero-knowledge proofs, smart contract automation, and decentralized solvers, intent-based trading could become the dominant model for DeFi trading. This approach is poised to redefine how DeFi markets operate, making trading smarter, more efficient, and user-friendly. As more protocols adopt this model, we may see a future where DeFi users focus on their financial goals rather than execution complexities.
Though still in its early stages, intent-based trading represents a significant leap forward in the evolution of DeFi. As the technology matures and adoption grows, it has the potential to reshape the landscape of decentralized finance, making it more user-friendly, efficient, and accessible.