The offer-is-code approach to Decentralised Exchanges
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2023-10-27
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The “offer-is-code” approach to Decentralised
Exchanges
The Mangrove team 🌴🌴🌴
v5 revised Nov 2021
This paper introduces a novel and quite general approach to trading which we term
“offer-is-code”. We demonstrate the idea by building around it the Mangrove pro-
tocol, a decentralised spot market. Mangrove offers are sorted in an order book.
Each offer contains a callback address which the matching engine calls when the
offer is effectively matched. Incentives are set to make sure that offers are not empty
promises.
The offer-is-code approach opens up new strategies for liquidity providers (LPs).
1. (last looks) LPs can incorporate defensive code to cancel offers if market con-
ditions are unfavourable, and avoid price exposure leading to costly arbitrage.
2. (reactive liquidity) LPs can post offers that are not fully provisioned. It is enough
that their code brings the promised liquidity at match-time. In the meantime,
it can be put to work.
3. (persistence) LPs can redisplay atomically their liquidity after a match, without
latency, in the fashion of automated market makers.
1 Goodbye TVL
Marketplaces foster the liquidity of financial assets by bringing together a large num-
ber of sellers and buyers. Their orders are collected and then matched so as to
maximise the gains from trade. This matching process would be of little value if
traders were able to renege on their commitments to trade at a given price. The
traditional finance (TradFi) solution is to rely on third parties that take temporary
custody of the assets and ensure that promises are fulfilled [6]. Decentralised fi-
nance (DeFi) dispenses with intermediates by settling trades on a blockchain. DeFi
applications leverage the commitment power of smart contracts to enable financial
transactions that do not require traders to relinquish control over their assets. Assets
1
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